EXHIBIT 10.1
EMPLOYMENT AGREEMENT
Employment Agreement dated as of November 4, 1997 between XXXXX X.
XXXXX (the "Executive") and PARAGON HEALTH NETWORK, INC., a Delaware corporation
(the "Company").
WHEREAS, the Company desires to employ the Executive as its Chairman
of the Board and Chief Executive Officer, and the Executive desires to accept
such employment, for the term and upon the other conditions hereinafter set
forth; and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
the Company.
NOW, THEREFORE, the parties agree as follows:
1. Employment. The Company hereby employs the Executive, and the
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Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth herein .
2. Term. This Agreement shall become effective on the date of the
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consummation of the transactions contemplated by the Amended and Restated
Agreement and Plan of Merger dated as of September 17, 1997 among Apollo
Management, L.P., on behalf of one or more managed investment funds, Apollo LCA
Acquisition Corp. and Living Centers of America, Inc. and the Amended and
Restated Agreement and Plan of Merger dated as of September 17, 1997 among
Living Centers of America, Inc., GranCare, Inc. and Apollo Management, L.P., on
behalf of one or more funds under management (the "Effective Date"). This
Agreement is for the four-year period (the "Term") commencing on the Effective
Date and terminating on the fourth anniversary of the Effective Date, or upon
the Executive's earlier death, disability or other termination of employment
pursuant to Section 11; provided, however, that commencing on the fourth
anniversary of the Effective Date and on each anniversary thereafter, the Term
shall automatically be extended for one additional year unless, not later than
90 days prior to any such anniversary, either party hereto shall have notified
the other party hereto in writing that such extension shall not take effect.
3. Position. During the Term, the Executive shall serve as Chairman
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of the Board and Chief Executive Officer of the Company or in such other senior
executive position in the Company as the Executive shall approve.
4. Duties and Reporting Relationship. During the Term, the
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Executive shall, on a full time basis, use his skills and render services to the
best of his abilities in supervising and conducting the operations of the
Company and shall not engage in any other business activities except with the
prior written approval of the Board of Directors of the Company (the "Board") or
its duly authorized designee. Notwithstanding the preceding sentence, nothing
contained herein shall prevent the Executive from (a) serving as a director of
any company, provided, that, the Executive is not required to devote a material
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amount of his time to such service or (b) except as provided in Section 15(c),
acquiring an investment in any entity, provided, that, the Executive
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does not participate in the management or operation of such entity. The
Executive shall report to the Board and, subject to the powers, authorities and
responsibilities vested in the Company's Board under the General Corporation Law
of the State of Delaware and in duly constituted committees of the Board, the
Executive shall have responsibility and authority for the overall strategic
policies, management and leadership of the Company. The Executive shall also
perform such other executive and administrative duties (not inconsistent with
the position of Chairman of the Board and Chief Executive Officer) as the
Executive may reasonably be expected to be capable of performing on behalf of
the Company, as may from time to time be authorized or directed by the Board.
The Executive agrees to be employed by the Company in all such capacities for
the Term, subject to all the covenants and conditions hereinafter set forth.
5. Place of Performance. The Executive shall perform his duties and
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conduct his business at the principal executive offices of the Company, except
for required travel on the Company's business.
6. Salary and Annual Bonus.
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(a) Execution Bonus. On the Effective Date, the Company
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shall pay to the Executive $200,000 (subject to any applicable payroll or other
taxes required to be withheld).
(b) Base Salary. The Executive's base salary hereunder
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shall be $700,000 a year, payable monthly. The Board shall review such base
salary at least annually and make such adjustment from time to time as it may
deem advisable, but the base salary shall not at any time be less than $700,000
a year.
(c) Annual Bonus. The Company shall provide the Executive
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with an annual bonus plan providing the Executive with an opportunity to earn an
annual bonus equal to between fifty percent (50%) and one hundred fifty percent
(150%) of his base salary if the Company achieves for the relevant year certain
financial targets established pursuant to such plan.
7. Vacation, Holidays and Sick Leave. During the Term, the
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Executive shall be entitled to paid vacation, paid holidays and sick leave in
accordance with the Company's standard policies for its senior executive
officers.
8. Business Expenses. The Executive shall be reimbursed for all
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ordinary and necessary business expenses incurred by him in connection with his
employment upon timely submission by the Executive of receipts and other
documentation as required by the Internal Revenue Code and in conformance with
the Company's normal procedures.
9. Pension and Welfare Benefits. During the Term, the Executive
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shall be eligible to participate fully in all health benefits, insurance
programs, pension and retirement plans and other employee benefit and
compensation arrangements available to senior officers of the Company generally.
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10. Stock Options. The Company, pursuant to the terms of its stock
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option plan (and as approved by the Compensation Committee of the Board of
Director), shall grant to the Executive as of the Effective Date, stock options
to purchase 488,500 shares of common stock of the Company, which represents
approximately three and three tenths percent (3.3%) of the fully diluted common
shares of the Company. Such stock options shall, in accordance with the
Company's stock option plan (i) expire ten (10) years from the Effective Date or
ninety (90) days after the Executive's Date of Termination, if earlier, (ii)
vest and become exercisable on each of the four anniversaries of the Effective
Date in the amount equal to one-fourth (1/4) of the stock options granted, (iii)
be exercisable, in the event of the Executive's termination of employment, for a
period of ninety (90) days following his Date of Termination; (iv) in the event
that the Executive's employment is terminated for any reason other than by the
Company following a Change in Control or by the Executive for Good Reason, be
forfeited to the extent not vested on the Date of Termination; and (v) have an
exercise price per share equal to the fair market value of a share of common
stock of the Company as of the Effective Date, which shall equal the closing
price of a share of GranCare, Inc. on the Effective Date, divided by .23457. The
Executive shall be eligible for additional stock option awards under the stock
option plan of the Company and, in this regard, the compensation committee of
the Board may consider whether, but not be obligated, to award the Executive
additional stock options under such plan.
11. Termination of Employment.
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(a) General. The Executive's employment hereunder may be
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terminated without any breach of this Agreement only under the following
circumstances.
(b) Death or Disability.
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(i) The Executive's employment hereunder shall
automatically terminate upon the death of the Executive.
(ii) If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive is unable to perform the
essential functions of his job for any one hundred eighty (180) days
(whether or not consecutive) during any twelve (12) month period, and no
reasonable accommodation can be made that will allow Executive to perform
his essential functions, the Company may terminate the Executive's
employment hereunder for any such incapacity (a "Disability").
(c) Termination by the Company. The Company may terminate
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the Executive's employment hereunder at any time, whether or not for Cause. For
purposes of this Agreement, "Cause" shall mean (i) the failure or refusal by the
Executive to perform his duties hereunder (other than any such failure resulting
from the Executive's incapacity due to physical or mental illness), which has
not ceased within ten (10) days after a written demand for substantial
performance is delivered to the Executive by the Company, which demand
identifies the manner in which the Company believes that the Executive has not
performed such duties, (ii) the engaging by the Executive in willful misconduct
or an act of moral turpitude which is materially injurious to the Company,
monetarily or otherwise (including, but not limited to, conduct described in
Section 15) or (iii) the conviction of the Executive of, or the entering of a
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plea of nolo contendere by, the Executive with respect to, a felony.
Notwithstanding the foregoing, the Executive's employment hereunder shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board, other than the Executive, at a meeting of the Board at which the
Executive recuses himself (after written notice to the Executive and a
reasonable opportunity for the Executive, together with the Executive's counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board the Executive should be terminated for Cause.
(d) Termination by the Executive. The Executive shall be
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entitled to terminate his employment hereunder (A) for Good Reason, (B) if his
health should become impaired to an extent that makes his continued performance
of his duties hereunder hazardous to his physical or mental health, provided
that the Executive shall have furnished the Company with a written statement
from a qualified doctor to such effect and provided, further, that, at the
Company's request, the Executive shall submit to an examination by a doctor
selected by the Company and such doctor shall have concurred in the conclusion
of the Executive's doctor or (C) without the Executive's express written
consent, any failure by the Company to comply with any material provision of
this Agreement, which failure has not been cured within ten (10) days after
notice of such noncompliance has been given by the Executive to the Company. For
purposes of this Agreement, "Good Reason" shall mean the occurrence (without the
Executive's express written consent), following a Change in Control during the
term of this Agreement, of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described below, such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof:
(i) any change in the Executive's title,
authorities, responsibilities (including reporting responsibilities) which,
in the Executive's reasonable judgment, represents an adverse change from
his status, title, position or responsibilities (including reporting
responsibilities) which were in effect immediately prior to the Change in
Control or from his status, title, position or responsibilities (including
reporting responsibilities) which were in effect following a Change in
Control pursuant to the Executive's consent to accept any such change; the
assignment to him of any duties or work responsibilities which are
inconsistent with such status, title, position or work responsibilities; or
any removal of the Executive from, or failure to reappoint or reelect him
to any of such positions, except if any such changes are because of
Disability, retirement, death or Cause;
(ii) a reduction by the Company in the
Executive's annual base salary as in effect on the date hereof or as the
same may be increased from time to time except for across-the-board salary
reductions similarly affecting all senior executives of the Company and all
senior executives of any Person (as defined in Section 11(h)(i) below) in
control of the Company provided in no event shall any such reduction reduce
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the Executive's base salary below $700,000;
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(iii) the relocation of the Executive's office at
which he is to perform his duties, to a location more than fifty (50) miles
from the location at which the Executive performed his duties prior to the
Change in Control, except for required travel on the Company's business to
an extent substantially consistent with his business travel obligations
prior to the Change in Control;
(iv) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such compensation
is due;
(v) the failure by the Company to continue to
provide the Executive with benefits substantially similar in value to the
Executive in the aggregate to those enjoyed by the Executive under any of
the Company's pension, life insurance, medical, health and accident, or
disability plans in which the Executive was participating immediately prior
to the Change in Control, unless the Executive participates after the
Change in Control in other comparable benefit plans generally available to
senior executives of the Company and senior executives of any Person in
control of the Company;
(vi) the adverse and substantial alteration of
the nature and quality of the office space within which the Executive
performed his duties prior to a Change in Control, as well as in the
secretarial and administrative support provided to the Executive, provided,
however, that a reasonable alteration of the nature and quality of the
office space or the secretarial or administrative support provided to the
Executive as a result of reasonable measures implemented by the Company to
effectuate a cost-reduction or consolidation program shall not constitute
Good Reason hereunder; or
(vii) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 11(f) below; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's continued employment for 6 months shall constitute consent to,
and a waiver of rights with respect to, any act or failure to act constituting
Good Reason hereunder.
(e) Voluntary Resignation. Should the Executive wish to
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resign from his position with the Company or terminate his employment for other
than Good Reason during the Term, the Executive shall give sixty (60) days
written notice to the Company ("Notice Period"), setting forth the reasons and
specifying the date as of which his resignation is to become effective. During
the Notice Period, the Executive shall cooperate fully with the Company in
achieving a smooth transition of the Executive's duties and responsibilities to
such person(s) as
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may be designated by the Company. The Company reserves the right to accelerate
the Date of Termination by giving the Executive notice and payment of amounts
due to the Executive under Section 6(b) and, to the extent applicable, Section
6(c) for the balance of the Notice Period. The Company's obligation to continue
to employ the Executive or to continue payment of the amounts described in the
preceding sentence shall cease immediately if: (1) the Executive has not
satisfied his obligations to cooperate fully with a smooth transition or (2) the
Company has grounds to terminate the Executive's employment immediately for
Cause. If the Executive terminates his employment for other than Good Reason
within twelve (12) months from the Effective Date, the Executive shall be
obligated to refund the $250,000 that he received prior to the Effective Date
for relocation and related expenses.
(f) Notice of Termination. Any purported termination of the
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Executive's employment by the Company or by the Executive shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Section 19. "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(g) Date of Termination. "Date of Termination" shall mean
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(i) if the Executive's employment is terminated because of death, the date of
the Executive's death, (ii) if the Executive's employment is terminated for
Disability, the date Notice of Termination is given, (iii) if the Executive's
employment is terminated pursuant to Subsection (c), (d) or (e) hereof or for
any other reason (other than death or Disability), the date specified in the
Notice of Termination (which, in the case of a termination for Good Reason shall
not be less than fifteen (15) nor more than sixty (60) days from the date such
Notice of Termination is given, and in the case of a termination for any other
reason shall not be less than thirty (30) days (sixty (60) days in the case of a
termination under Subsection (e) hereof) from the date such Notice of
Termination is given).
(h) Change in Control. For purposes of this Agreement, a
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Change in Control of the Company shall have occurred if:
(i) any "Person" (as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934 (the "Exchange Act") as modified and
used in Sections 13(d) and 14(d) of the Exchange Act (other than (1) the
Company or any of its subsidiaries, (2) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of
its subsidiaries, (3) an underwriter temporarily holding securities
pursuant to an offering of such securities, (4) any corporation owned,
directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of the Company's common stock or
(5) Apollo Management, L.P., any of its affiliates and any investments
funds managed by it (collectively, "Apollo"))), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing more than
50% of the combined voting power of the Company's then outstanding voting
securities;
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(ii) during any period of not more than two
consecutive years, not including any period prior to the date of this
Agreement, individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a person
(other than Apollo) who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this
Section 1l(h)) whose election by the Board or nomination for election by
the Company's stockholders was (A) made pursuant to the Stockholders
Agreement dated as of November 4, 1997 or (B) approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other
than both (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving or parent entity) 50% or more of the
combined voting power of the voting securities of the Company or such
surviving or parent entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation in which no person acquires
50% or more of the combined voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (or any transaction having a similar effect) other than such a sale
or disposition to Apollo.
(i) Resignation as Member of Board. If the Executive's
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employment by the Company is terminated for any reason, the Executive hereby
agrees that he shall simultaneously submit his resignation as a member of the
Board in writing on or before the Date of Termination. If the Executive fails to
submit such required resignation in writing, the provisions of this Section 1
l(i) may be deemed by the Company to constitute the Executive's written
resignation as a member of the Board effective as of the Date of Termination.
(j) Return of Property. When the Executive shall cease to
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be employed by the Company, the Executive shall promptly surrender to the
Company all Company property, including without limitation, all records and
other documents obtained by him or entrusted to him during the course of his
employment with the Company provided, however, that the Executive may retain
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copies of such documents as necessary for the Executive's personal records for
federal income tax purposes.
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12. Compensation During Disability. Death or Upon Termination.
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(a) During any period that the Executive fails to perform
his duties hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Executive shall continue to receive his full salary
at the rate then in effect for such period until his employment is terminated
pursuant to Section 1 l(b)(ii) hereof, provided that payments so made to the
Executive during the Disability Period shall be reduced by the sum of the
amounts, if any, payable to the Executive with respect to such period under
disability benefit plans of the Company or under the Social Security disability
insurance program, and which amounts were not previously applied to reduce any
such payment.
(b) If the Executive's employment is terminated by his
death or Disability, the Company shall pay (i) any amounts due to the Executive
under Section 6(b) through the date of such termination and (ii) an amount equal
to the bonus he would have received for the fiscal year that ends on or
immediately after the Date of Termination, assuming the Company achieved the
lowest target level for which a bonus is paid under the plan described in
Section 6(c), prorated for the period beginning on the first day of the fiscal
year in which occurs the Date of Termination through the Date of Termination. In
addition, if the Executive's employment is terminated by his death, the Company
shall continue to pay to his estate his salary for an additional six months at
the rate then in effect.
(c) If the Executive's employment shall be terminated by
the Company for Cause or by the Executive for other than Good Reason, the
Company shall pay the Executive his full salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, and the
Company shall have no further obligations to the Executive under this Agreement.
(d) If (A) following a Change in Control the Company shall
terminate the Executive's employment in breach of this Agreement, or (B)
following a Change in Control the Executive shall terminate his employment for
Good Reason, then
(i) the Company shall pay the Executive his full
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and all other unpaid amounts, if any, to
which the Executive is entitled as of the Date of Termination under any
compensation plan or program of the Company, at the time such payments are
due;
(ii) in lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, the Company
shall pay as liquidated damages to the Executive an aggregate amount equal
to the product of (A) the sum of (1) the Executive's annual salary rate in
effect as of the Date of Termination and (2) the average of the annual
bonuses actually paid to the Executive by the Company with respect to the
two fiscal years which immediately precede the year of the Term in which
the Date of Termination occurs provided if there was a bonus or bonuses
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paid to the Executive with
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respect only to one fiscal year which immediately precedes the year of the
Term in which the Date of Termination occurs, then such single year's bonus
or bonuses shall be utilized in the calculation pursuant to this clause
(2), provided, further, that for purposes of this Agreement, if the Date of
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Termination occurs before the end of the first fiscal year that ends after
the Effective Date, the amount of the bonus paid by the Company to the
Executive shall be deemed to be $700,000 and (B) the number three (3);
(iii) the Company shall (x) continue coverage for
the Executive, on the same terms and conditions as would be applicable if
the Executive were an active Employee, under the Company's life insurance,
medical, health, disability and similar welfare benefit plans for a period
equal to the greater of the remainder of the Term and eighteen (18) months,
and (y) provide the benefits which the Executive would have been entitled
to receive pursuant to any supplemental retirement plan maintained by the
Company had his employment continued at the rate of compensation specified
herein for the remainder of the Term. Benefits otherwise receivable by the
Executive pursuant to clause (x) of this Section 12(d)(iii) shall be
reduced to the extent comparable benefits are actually received by the
Executive from a subsequent employer during the period during which the
Company is required to provide such benefits, and the Executive shall
report any such benefits actually received by him to the Company; and
(iv) the payments provided for in this Section
12(d) (other than Section 12(d)(iii)) shall be made not later than the
thirtieth day following the Date of Termination, provided, however, that if
the amounts of such payments, and the limitation on such payments set forth
in Section 16 hereof, cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the
remainder of such payments (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code (as defined in Section 16)) as soon as
the amount thereof can be determined but in no event later than the
sixtieth (60th) day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount determined by the
Company within six (6) months after payment to have been due, such excess
shall constitute a loan by the Company to the Executive, payable no later
than the thirtieth (30th) business day after demand by the Company
(together with interest at the rate provided in section 1274(b)(2)(B) of
the Code). At the time that payments are made under this Section 12(d), the
Company shall provide the Executive with a written statement setting forth
the manner in which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other advice
the Company has received from outside counsel, auditors or consultants (and
any such opinions or advice which are in writing shall be attached to the
statement).
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(e) If prior to any Change of Control the Company shall
terminate the Executive's employment without Cause or the Executive terminates
his employment under clause (C) of Section 11(d) hereof, then
(i) the Company shall pay the Executive his full
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and all other unpaid amounts, if any, to
which the Executive is entitled as of the Date of Termination under any
compensation plan or program of the Company, at the time such payments are
due;
(ii) in lieu of any further salary payments to
the Executive for periods subsequent to the Date of Termination, the
Company shall pay as liquidated damages to the Executive an aggregate
amount equal to the product of (A) the sum of (1) the Executive's annual
salary rate in effect as of the Date of Termination and (2) the average of
the annual bonuses actually paid to the Executive by the Company with
respect to the two fiscal years which immediately precede the year of the
Term in which the Date of Termination occurs provided if there was a bonus
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or bonuses paid to the Executive with respect only to one fiscal year which
immediately precedes the year of the Term in which the Date of Termination
occurs, then such single year's bonus or bonuses shall be utilized in the
calculation pursuant to this clause (2), provided, further, that for
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purposes of this Agreement, if the Date of Termination occurs before the
end of the first fiscal year that ends after the Effective Date, the amount
of the bonus paid by the Company to the Executive shall be deemed to be
$700,000 and (B) the lesser of (x) the number three (3) and (y) the greater
of (aa) the number of years (including partial years) remaining in the Term
and (bb) the number two (2); such amount to be paid in substantially equal
monthly installments during the period commencing with the month
immediately following the month in which the Date of Termination occurs and
ending with the month corresponding to the end of the Term hereunder; and
(iii) the Company shall (x) continue coverage for
the Executive, on the same terms and conditions as would be applicable if
the Executive were an active employee, under the Company's life insurance,
medical, health, disability and similar welfare benefit plans for a period
equal to the greater of the remainder of the Term and eighteen (18) months,
and (y) provide the benefits which the Executive would have been entitled
to receive pursuant to any supplemental retirement plan maintained by the
Company had his employment continued at the rate of compensation specified
herein for the remainder of the Term. Benefits otherwise receivable by the
Executive pursuant to clause (x) of this Section 12(e)(iii) shall be
reduced to the extent comparable benefits are actually received by the
Executive from a subsequent employer during the period during which the
Company is required to provide such benefits, and the Executive shall
report any such benefits actually received by him to the Company.
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(f) If the Executive shall terminate his employment under
clause (B) of Sections 11(d) or 11(e) hereof, the Company shall pay the
Executive his full salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, and the Company shall have no
further obligations to the Executive under this Agreement.
(g) The Executive shall not be required to mitigate the
amount of any payment provided for in this Section 12 by seeking other
employment or otherwise, and, except as provided in Sections 12(d) and 12(e)
hereof, the amount of any payment or benefit provided for in this Section 12
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer or by retirement benefits.
(h) Release. Prior to making any payment pursuant to
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Sections 12(d)(ii) and 12(d)(iii) or Sections 12(e)(ii) and 12(e)(iii),
whichever is applicable, the Company shall have the right to require the
Executive to sign, and the Executive hereby agrees to sign, an agreement to be
bound by the terms of Section 15 of this Agreement and a waiver of all claims
the Executive may have (including any claims under the Age Discrimination in
Employment Act), other than claims for payments or benefits hereunder or claims
for indemnification for director or officer liability, in connection with the
termination of the Executive's employment with the Company and the Company may
withhold payment of such amount until the period during which the Executive may
revoke such waiver (normally seven days) has elapsed.
13. Representations and Covenants.
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(a) The Company represents and warrants that this Agreement
has been authorized by all necessary corporate action of the Company and is a
valid and binding agreement of the Company enforceable against it in accordance
with its terms. The Company agrees and covenants that it will (i) provide the
Executive with customary director and officer indemnification; and (ii) maintain
director and officer liability insurance which is of a type customarily
maintained by companies of similar size and with a similar business as the
Company.
(b) The Executive represents and warrants that he is not a
party to any agreement or instrument which would prevent him from entering into
or performing his duties in any way under this Agreement. The Executive agrees
and covenants that he will obtain, and submit to, such physical examinations as
may be necessary to facilitate the Company obtaining an insurance policy for its
benefit insuring the life of the Executive.
14. Successors: Binding Agreement.
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(a) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
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(b) This Agreement is a personal contract and the rights
and interests of the Executive hereunder may not be sold, transferred, assigned,
pledged, encumbered, or hypothecated by him, except as otherwise expressly
permitted by the provisions of this Agreement. This Agreement shall inure to the
benefit of and be enforceable by the Executive and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had the Executive continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his devisee, legatee or other designee or, if there
is no such designee, to his estate.
15. Confidentiality and Non-Competition Covenants.
---------------------------------------------
(a) The Executive covenants and agrees that he will not at
any time during or at any time after the end of the Term, directly or
indirectly, use for his own account, or disclose to any person, firm or
corporation, other than authorized officers, directors and employees of the
Company or its subsidiaries, Confidential Information (as hereinafter defined)
that is treated as trade secrets by the Company and will not at any time during
or for a period of five (5) years after the end of the Term, directly or
indirectly, use for his own account, or disclose to any person, firm or
corporation, other than authorized officers, directors and employees of the
Company or its subsidiaries, any other Confidential Information. As used herein,
"Confidential Information" of the Company means information of any kind, nature
or description which is disclosed to or otherwise known to the Executive as a
direct or indirect consequence of his association with the Company, which
information is not generally known to the public or in the business in which the
Company is engaged or which information relates to specific investment
opportunities within the scope of the Company's business which were considered
by the Executive or the Company during the term of this Agreement. Confidential
Information that is treated as confidential trade secrets by the Company shall
include, but not be limited to, strategic operating plans and budgets, policy
and procedure manuals, computer programs, financial forms and information,
patient or resident lists and accounts, supplier information, accounting forms
and procedures, personnel policies, information pertaining to the salaries,
positions and performance reviews of the Company's employees, information on the
methods of the Company's operations, research and data developed by or for the
benefit of the Company and information relating to revenues, costs, profits and
the financial condition of the Company. During the Term and for a period of two
years following the termination of the Executive's employment, the Executive
shall not induce any employee of the Company or its subsidiaries to terminate
his or her employment by the Company or its subsidiaries in order to obtain
employment by any person, firm or corporation affiliated with the Executive.
(b) The Executive covenants and agrees that any
information, materials, ideas, discoveries, techniques or programs developed or
discovered by the Executive in connection with the performance of his duties
hereunder shall remain the sole and exclusive property of the Company and, to
the extent it constitutes Confidential Information, shall be subject to the
covenants containeed in the preceding paragraph.
(c) The Executive covenants and agrees that during the Term
and, if the Executive's employment is terminated by the Executive for other than
Good Reason, for a
12
period of two (2) years following the termination of the Executive's employment,
the Executive shall not, directly or indirectly, own an interest in, operate,
join, control, or participate as a partner, director, principal, officer, or
agent of, enter into the employment of, or act as a consultant to, in any case
in which he has control or supervision over a significant portion of any entity
(i) whose principal business is the operation of one or more skilled nursing
facilities or (ii) which operates a skilled nursing business that is material in
relation to the Company's comparable business and (iii) in either case, which
derives at least 10% of its skilled nursing facility revenue from facilities
which are located within 35 miles of a center or facility operated by the
Company. Notwithstanding anything herein to the contrary, the foregoing
provisions of this Section 15(c) shall not prevent the Executive from acquiring
securities representing not more than 5% of the outstanding voting securities of
any publicly held corporation.
(d) Without limiting the right of the Company to pursue all
other legal and equitable remedies available for violation by the Executive of
the covenants contained in this Section 15, it is expressly agreed by the
Executive and the Company that such other remedies cannot fully compensate the
Company for any such violation and that the Company shall be entitled to
injunctive relief, without the necessity of proving actual monetary loss, to
prevent any such violation or any continuing violation thereof. Each party
intends and agrees that if in any action before any court or agency legally
empowered to enforce the covenants contained in this Section 15, any term,
restriction, covenant or promise contained herein is found to be unreasonable
and accordingly unenforceable, then such term, restriction, covenant or promise
shall be deemed modified to the extent necessary to make it enforceable by such
court or agency. The covenants contained in Section 15 shall survive the
conclusion of the Executive's employment by the Company.
16. Prohibition on Parachute Payments.
---------------------------------
(a) Notwithstanding any other provisions of this Agreement,
in the event that at any time on or after the first anniversary of the Effective
Date any payment or benefit received or to be received by the Executive in
connection with a Change in Control of the Company or the termination of the
Executive's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any person whose actions
result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including, without limitation, base
salary and bonus payments, being hereinafter called "Total Payments") would not
be deductible (in whole or in part), by the Company, an affiliate or any Person
making such payment or providing such benefit as a result of section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to make such portion of the Total Payments deductible (and after
taking into account any reduction in the Total Payments provided by reason of
section 280G of the Code in such other plan, arrangement or agreement), (A) such
cash payments shall first be reduced (if necessary, to zero), and (B) all other
non-cash payments by the Company to the Executive shall next be reduced (if
necessary, to zero). For purposes of this limitation, (i) no portion of the
Total Payments the receipt or enjoyment of which the Executive shall have
effectively waived in writing prior to the Date of Termination shall be taken
into account, (ii) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Company's independent
auditors and reasonably acceptable to the Executive does
13
not constitute a "parachute payment" within the meaning of section 280G(b)(2) of
the Code, including by reason of section 280G(b)(4)(A) of the Code, (iii) such
payments shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in clauses (i) or (ii)) in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel referred to in
clause (ii); and (iv) the value of any non-cash benefit or any deferred payment
or benefit included in the Total Payments shall be determined by the Company's
independent auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code.
(b) If it is established pursuant to a final determination
of a court or an Internal Revenue Service proceeding that, notwithstanding the
good faith of the Executive and the Company in applying the terms of this
Section 16, the aggregate "parachute payments" paid to or for the Executive's
benefit are in an amount that would result in any portion of such "parachute
payments" not being deductible by reason of section 280G of the Code, then the
Executive shall have an obligation to pay the Company upon demand an amount
equal to the sum of (i) the excess of the aggregate "parachute payments" paid to
or for the Executive's benefit over the aggregate "parachute payments" that
could have been paid to or for the Executive's benefit without any portion of
such "parachute payments" not being deductible by reason of section 280G of the
Code; and (ii) interest on the amount set forth in clause (i) of this sentence
at the rate provided in section 1274(b)(2)(B) of the Code from the date of the
Executive's receipt of such excess until the date of such payment.
17. Entire Agreement. This Agreement contains all the understandings
----------------
between the parties hereto pertaining to the matters referred to herein, and on
the Effective Date shall supersede all undertakings and agreements, whether oral
or in writing, previously entered into by them with respect thereto. The
Executive represents that, in executing this Agreement, he does not rely and has
not relied upon any representation or statement not set forth herein made by the
Company with regard to the subject matter, bases or effect of this Agreement or
otherwise.
18. Amendment or Modification. Waiver. No provision of this
---------------------------------
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of any breach by another party hereto of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.
19. Notices Any notice to be given hereunder shall be in writing and
-------
shall be deemed given when delivered personally, sent by courier or telecopy or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
14
To Executive at: Xxxxx X. Xxxxx
_____________________________
_____________________________
_____________________________
To the Company at: Paragon Health Network, Inc.
Xxx Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Any notice delivered personally or by courier under this Section 19
shall be deemed given on the date delivered and any notice sent by telecopy or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date telecopied or mailed.
20. Severability. If any provision of this Agreement or the
------------
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.
21. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
22. Governing Law: Attorney's Fees.
------------------------------
(a) This Agreement will be governed by and construed in
accordance with the laws of the State of Georgia, without regard to its
conflicts of laws principles.
(b) The prevailing party in any dispute arising out of this
Agreement shall be entitled to be paid its reasonable attorney's fees incurred
in connection with such dispute from the other party to such dispute.
23. Dispute Resolution. The Executive and the Company shall not
------------------
initiate legal proceedings relating in any way to this Agreement or to the
Executive's employment or termination from employment with the Company until
thirty days after the party against whom the claim is made ("respondent")
receives written notice from the claiming party of the specific nature of any
purported claims and the amount of any purported damages attributable to each
such claim. The Executive and the Company further agree that if respondent
submits the claiming party's claim to the CPR Institute for Dispute Resolution,
JAMS/Endispute, or other local dispute resolution service for nonbinding
mediation prior to the expiration of such thirty day period, the claiming party
may not institute arbitration or other legal proceedings against respondent
until the earlier of: (a) the completion of good-faith mediation efforts or (b)
90 days after the date on which the respondent received written notice of the
claimant's claim(s); provided, however, that nothing in this Section 23 shall
prohibit the Company from pursuing
15
injunctive or other equitable relief against the Executive prior to,
contemporaneous with, or subsequent to invoking or participating in these
dispute resolution processes. The Company shall pay the cost of the Mediator.
24. Headings. All descriptive headings of sections and paragraphs in
--------
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
25. Withholdings All payments to the Executive under this Agreement
------------
shall be reduced by all applicable withholding required by federal, state or
local tax laws.
26. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PARAGON HEALTH NETWORK, INC.
BY: /s/ Xxxxx Xxxxxx Xxxxxxx
-------------------------------
NAME: Xxxxx Xxxxxx Xxxxxxx
TITLE: Senior Vice President and
General Counsel
THE EXECUTIVE
/s/ Xxxxx X. Xxxxx
----------------------------------
Xxxxx X. Xxxxx
16
