SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated
the l4th day of May 1997, between EMERITUS
CORPORATION, a Washington corporation (the
"Company"), and Xxxxxxx X. Xxxxxxxxxx
("Executive").
RECITALS
A. Executive is currently employed by the
Company or one of its Subsidiaries.
B. The Board of Directors of the Company (the
"Board") has determined that it is appropriate to
reinforce the continued attention and dedication
of certain members of the Company's management,
including Executive, to their assigned duties
without distraction in potentially disturbing
circumstances arising from the possibility of a
Change in Control of the Company, as defined in
Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the
covenants and agreements hereinafter set forth,
the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are
not otherwise defined shall have the meanings
assigned to such terms in Schedule A attached
hereto.
2. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
Once a (Change in Control has occurred, no
termination of Executive's employment with the
Company, other than on account of death, shall be
effective unless the party causing such
termination of employment provides the other party
30 days' prior written notice of such termination,
which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in
reasonable detail the conflicts and circumstances
claimed to provide a basis for the termination of
Executive's employment constituting a Termination,
if any, under the provision so indicated.
3. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following
payments and benefits following a Change in
Control, whether or not a Termination occurs:
(a) SALARY AND BENEFITS. Executive shall
(i) receive an annual base salary no less than
$250,000 current market salary and an annual bonus
equal to at least the average of the two annual
bonuses paid to Executive in the two years prior
to the Change in Control, and (ii) be entitled to
participate in all employee expense reimbursement,
incentive, savings and retirement plans,
practices, policies and programs (including any
Company plan qualified under Section 401 (a) of
the Code) available to other peer executives of
the Company and its Subsidiaries, but in no event
shall the benefits provided to Executive under
this item (ii) be less favorable, in the
aggregate, than the most favorable of those plans,
practices, policies or programs in effect
immediately prior to the date that the Change in
Control occurs.
(b) WELFARE BENEFITS. The Company shall
at the Company's expense (except for the amount,
if any, of any required employee contribution
which would have been necessary for Executive to
contribute as an active employee under the plan or
program as in effect on the date of the Change in
Control continue to cover Executive (and his or
her dependents) under, or provide Executive (and
his or her dependents) with insurance coverage no
less favorable than, the Company's life,
disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on
the date of the Change in Control (such benefits,
the "Welfare Benefits").
(c) DEATH OF EXECUTIVE. In the event of
Executive's death prior to Termination, but while
employed by the Company or any Subsidiary, as the
case may he, his or her spouse, if any, or
otherwise the personal representative of his or
her estate shall be entitled to receive (i)
Executive's salary at the rate then in effect
through the date of death, as provided under the
Company's pay policy, and (ii) any Accrued
Benefits for the periods of service prior to the
date of death.
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(d) DISABILITY OF EXECUTIVE. In the
event of Executive's Disability prior to
Termination, but while employed by the Company or
any Subsidiary, as the case may be, Executive
shall be entitled to receive (i) his or her salary
at the rate then iii effect through the date of
the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued
Benefits for the periods of service prior to the
date of the determination of Disability, (iii)
payments under the Company 's short and long term
disability plans following the determination of
Disability, and (iv) Welfare Benefits for a period
of one year following the determination of
Disability.
(e) CAUSE; UPON EXPIRATION OF THIS
AGREEMENT; OTHER THAN FOR GOOD REASON. If
Executive's employment shall be terminated by the
Company for cause or upon expiration of this
Agreement or by Executive other than for Good
Reason, Executive shall be entitled to receive
only (i) his or her salary at the rate then in
effect through the date of such termination, as
provided under the Company's pay policy, and (ii)
any Accrued Benefits for the periods of service
prior to the date of such termination.
(f) WITHHOLDING. All payments under this
Section 4 arc; subject to applicable federal and
state payroll withholding or other applicable
taxes.
4. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following
payments and benefits following Termination:
(a) TERMINATION PAYMENT. Subject to
Section 4(b), in recognition of past services to
the Company by Executive, the Company shall make a
lump sum payment in cash to Executive as severance
pay within ten (10) business days following the
date of Termination equal to three times the sum
of: (i) Executive's annual base salary in effect
pursuant of Section 3(a) or such date of
Termination, whichever salary is higher; plus (ii)
Executive's target bonus for the current fiscal
year as determined by the Compensation Committee;
provided, however, that if Termination occurs
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prior to the determination of such target bonus
for a fiscal year, such bonus shall be the target
bonus for the prior fiscal year.
(b) TERMINATION BENEFITS; Certain
Additional Payments by the Company.
(i) Then the payments to Executive
under Section 4(a) shall be increased (such
increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by
the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes),
including, without limitation, any income taxes
and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up
Payment equal to such Excise Tax. The foregoing
calculations shall be made by the Company and
Executive. If no agreement on the calculations is
reached within ten (10) business days after the
date of Termination, then the accounting firm
which regularly audits the financial statements of
the Company (the "Auditors") shall review the
calculations, and report their determination of
the amount due to both Executive and the Company
within thirty (30) days of the termination. The
determination of such firm shall be conclusive and
binding on all parties and the expense for such
accountants shall be paid by the Company. Pending
such determination, the Company shall continue to
make all other required payments to Executive at
the time and in the manner provided herein.
(ii) As a result of the uncertainty
in the application of Section 280G and Section
4999 of the Code, it is possible that the Company
will make a payment (including a Gross-Up Payment)
under this Agreement that should not have been
made (an "Overpayment") or that the Company will
fail to make a payment (including a Gross-Up
Payment) under this Agreement that should have
been made (an "Underpayment"). If the Company and
Executive, or, if no agreement is reached by the
Company and Executive, the Auditors, determine
that Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to the
Executive which he shall repay to the Company,
together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the
Code. If the Company and Executive, or, if no
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agreement is reached by the Company and Executive,
the Auditors, determine that an Underpayment has
occurred, such Underpayment shall promptly be paid
by the Company to Executive, together with
interest at the applicable federal rate provided
for in section 7872(f)(2)(A) of the Code. The
Company and Executive agree to give each other
prompt written notice of any information or taxing
authority inquiry that could reasonably result in
the determination that an Overpayment or
Underpayment has been made.
(c) ACCRUED BENEFITS. Within ten (10)
business days following the date of Termination,
the Company shall make a lump sum payment in cash
to Executive in the amount of any Accrued Benefits
for the periods of service prior to the date of
Termination.
(d) WELFARE BENEFITS. The Company shall,
at its sole option and expense (except for the
amount, if any, of any required employee
contribution that would have been necessary for
Executive to contribute as an active employee
under the plan or program as in effect on the date
of Termination) either (i) continue to cover
Executive (and his or her dependents) under, or
provide Executive (and his or her dependents) with
Welfare Benefits (as in effect on the date of the
Change in Control or, at the option of Executive,
on the date of Termination) for a period of three
years following the date of Termination, or (ii)
pay Executive a lump sum cash payment within ten
(10) business days following the date of
Termination equal to the then-present value of the
cost to the Company of such Welfare Benefits;
provided, however, that if Executive is provided
by another employer during such three-year period
with benefits substantially comparable to the
Welfare Benefits, the benefits provided by the
Company shall, unless a lump sum payment has been
made by the Company (in which case Executive shall
not, for any reason, be required to return any
part of such payment), be reduced by the benefits
provided by such other employer, but only to the
extent of, and with respect to, the Welfare
Benefits otherwise payable by the Company to
Executive.
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(e) DEATH OF EXECUTIVE. In the event of
Executive's death subsequent to termination and
prior to receiving all benefits and payments
provided for by this Section 4, such benefits and
payments shall be paid to his or her spouse, if
any, or otherwise to the personal representative
of his or her estate, unless Executive has
otherwise directed the Company in writing prior to
his or her death.
(f) EXCLUSIVE SOURCE OF SEVERANCE PAY.
Benefits provided hereunder shall replace the
amount of any severance payments to which
Executive would otherwise be entitled under any
severance plan or policy generally available to
employees of the Company.
(g) NONSEGREGATION. No assets of the
Company need be segregated c1I- earmarked to
represent the liability for benefits payable
hereunder. The rights of any person to receive
benefits hereunder shall be only those of a
general unsecured creditor.
(h) WITHHOLDING. All payments under this
Section 4 are subject to applicable federal and
state payroll withholding or other applicable
taxes.
5. NONCOMPETITION
(a) NONCOMPETITION. In the event that,
after a change in Control, Executive's employment
is terminated by the Company or by Executive for
any reason, and provided that any payments due
Executive upon such termination are paid when due,
then for a period of one year after such
termination, Executive shall not engage in any
activities (including, without limitation,
activities for any subsequent employer of
Executive) directly competitive with the business
of the Company.
(b) COMPANY REMEDY. In the event of any
breach by Executive of the obligations set forth
in Section 5(a), the Company shall be entitled to
recover an amount equal to the total of all
amounts paid to Executive pursuant to Sections
4(a) and 4(b) of this Agreement in addition to any
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other remedies available to the Company at law or
in equity.
6. ARBITRATION
Any dispute or controversy arising under or
in connection with this Agreement shall be settled
exclusively by arbitration in Seattle, Washington,
in accordance with the Arbitration Rules of the
Judicial Arbitration & Mediation Services then in
effect. Judgment may be entered on the
arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall
not adversely affect, limit or terminate any other
agreement or arrangement between Executive and the
Company presently in effect or hereafter entered
into, including any employee benefit plan under
which Executive is entitled to benefits.
8. TERM, TERMINATION AND AMENDMENT
(a) The initial term of this Agreement shall
be from the date hereof until the anniversary date
of this Agreement. On each such annual anniversary
date, this Agreement shall automatically be
renewed for a period of one year, unless 60 days
prior to such anniversary date the Company shall
give notice to Executive that the Agreement is
terminated or amended, provided that no Change in
Control has occurred prior to such anniversary.
Notwithstanding such termination, the Company
shall remain liable for any rights or payments
arising prior to such termination to which
Executive is entitled under this Agreement. During
each such one year term, this Agreement may not be
amended or terminated except by written agreement
between Executive and the Company.
(b) In the event of a Change in Control,
unless earlier terminated as provided herein, this
Agreement shall continue in effect until for a
period of three years from the date of the Change
in Control at which time this Agreement shall
expire. For a three-year period following a Change
in Control, (i) this Agreement may not be
terminated, and (ii) no amendment or other action
of the Board which adversely affects the rights of
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Executive hereunder is valid and enforceable
without the prior written consent of Executive.
After the three-year period from the date of the
Change in Control, the Board may terminate or
amend this Agreement without the prior written
consent of Executive.
9. MISCELLANEOUS
(a) AMENDMENT. This Agreement may not be
amended except by written agreement between
Executive and the Company.
(b) NO MITIGATION. All payments and
benefits to which Executive is entitled under this
Agreement shall be made and provided without
offset, deduction or mitigation on account of
income Executive could or may receive from other
employment or otherwise, except as provided in
Section 4(d) and Section 5(b) hereof.
(c) EMPLOYMENT NOT GUARANTEED. Nothing
contained in this Agreement, and no decision as to
the eligibility for benefits or the determination
of the amount of any benefits hereunder, shall
give Executive any right to be retained in the
employ of the Company or rehired, and the right
and power of the Company to dismiss or discharge
any employee for any reason is specifically
reserved. Except as expressly provided herein, no
employee or any person claiming under or through
him or her shall have any right or interest
herein, or in any benefit hereunder.
(d) LEGAL EXPENSES. In connection with
any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or
Executive, with respect to the interpretation or
enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover
from the other party all costs and expenses,
including reasonable attorneys' fees and
disbursements, in connection with such litigation,
arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money
judgment obtained by Executive as a result of such
proceedings, calculated at the published
commercial interest rate of Seattle-First National
Bank for its best customers, as in effect from
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time to time from the date that payment should
have been made to Executive under this Agreement.
(e) NOTICES. Any notices required under
the terms of this Agreement shall be effective
when mailed, postage prepaid, by certified mail
and addressed to, in the case of the Company:
EMERITUS Corporation
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
and to, in the case of Executive
Xxxxxxx X. Xxxxxxxxxx
0000 XxXxxxxx Xxxxxxxxx Xxxx
Xxxxxxx, XX 00000
Either party may designate a different address by
giving written notice of change of address in the
manner provided above.
(f) WAIVER; CURE. No waiver or
modification in whole or in part of this
Agreement, or any term or condition hereof, shall
be effective against any party unless in writing
and duly signed by the party sought to be bound.
Any waiver of any breach of any provision hereof
or any right or power by any party on one occasion
shall not be construed as a waiver of, or a bar
to, the exercise of such right or power on any
other occasion or as a waiver of any subsequent
breach. Other than a breach of the provisions of
Section 5, any breach of this Agreement may be
cured by the breaching party within ten days of
the date that such breaching party shall have
received written notice of such breach from the
party asserting such breach.
(g) BINDING EFFECT; SUCCESSORS. Subject
to the provisions hereof, nothing in this
Agreement shall prevent the consolidation of the
Company with, or its merger into, any other
corporation, or the sale by the Company of all or
substantially all of its properties and assets, or
the assignment of this Agreement by the Company in
connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and
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Executive and their respective heirs, legal
representatives, successors and assigns. If the
Company shall be merged into or consolidated with
another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from
such consolidation. The Company shall require any
successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets
of the Company, including the successor to all or
substantially all of the business or assets of any
Subsidiary, division or profit center 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.
The provisions of this Section 9(g) shall continue
to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such
subsequent employer.
(h) SEPARABILITY. Any provision of this
Agreement which is held to be unenforceable or
invalid in any respect in any jurisdiction shall
be ineffective in such jurisdiction to the extent
that it is unenforceable or invalid without
affecting the remaining provisions hereof, which
shall continue in full force and effect. The
unenforceability or invalidity of a provision of
this Agreement in one jurisdiction shall not
invalidate or render unenforceable such provision
in any other jurisdiction.
(i) CONTROLLING LAW. This Agreement
shall be governed by and construed in accordance
with the laws of the state of Washington
applicable to contracts made and to be performed
therein.
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IN WITNESS WHEREOF, the Company and
Executive have executed this Agreement as of the
day and year first above written.
EMERITUS CORPORATION
By: /s/ Xxxxxx X. Xxxx
----------------------
Its: Chairman & CEO
EXECUTIVE:
By: /s/ Xxxxxxx X. Xxxxxxxxxx
--------------------------
Xxxxxxx X. Xxxxxxxxxx
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Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the
context requires a different meaning, the
following terms have the meanings indicated:
"ACCRUED BENEFITS" means the aggregate of any
compensation previously deferred by Executive
(together with any accrued interest or earnings
thereon), any accrued vacation pay and, if the
date of Termination occurs after the end of a
Fiscal Year for which a bonus is payable to
Executive, such bonus, in each case to the extent
previously earned and not paid.
"BASE AMOUNT" shall mean the "base amount" of
Executive as defined in Section 280G of the Code.
"CAUSE" means (a) willful misconduct on the
part of Executive that has a materially adverse
effect on the Company and its Subsidiaries, taken
as a whole, (b) Executive's engaging in conduct
which could reasonably result in his or her
conviction of a felony or a crime against the
Company or involving substance abuse, fraud or
moral turpitude, or which would materially
compromise the Company's reputation, as determined
in good faith by a written resolution duly adopted
by the affirmative vote of not less than two-
thirds of all of the directors who are not
employees or of officers of the Company, or (c)
unreasonable refusal by Executive to perform the
duties and responsibilities of his or her position
in any material respect. No action, or failure to
act shall be considered "willful" if it is done by
Executive in good faith and with reasonable belief
that his or her action or omission was in the best
interests of the Company.
"CHANGE IN CONTROL" means, and shall be
deemed to occur upon the happening of. any one of
the following:
(a) The occupying of a majority of the seats
(other than vacant seats) on the Board by
individuals who were neither nominated or
appointed by a majority of the Incumbent
Directors;
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(b) The acquisition, directly or indirectly,
by any Person (other than Xxxxxx X. Xxxx and his
affiliates) of beneficial ownership of 30% or more
of the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors, which acquisition is not approved in
advance by a majority of the Incumbent Directors;
(c) The approval by the stockholders of the
Company of a reorganization, merger or
consolidation or sale of substantially all of the
assets of the Company (an "Acquisition
Transaction") unless, following such Acquisition
Transaction, all or substantially all of the
individuals and entities who were the beneficial
owners of the outstanding voting securities of the
Company immediately prior to such Acquisition
Transaction beneficially own, directly or
indirectly, more than 50"% of the then outstanding
voting securities of the corporation resulting
from such Acquisition Transaction (including,
without limitation, a corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Acquisition Transaction of the outstanding
voting securities of the Company; or
(d) Approval by the stockholders of the
Company of a liquidation or dissolution of the
Company.
(e) For purposes of this definition, (i) the
terms "beneficial owner" and "beneficial
ownership" shall have the meanings set forth in
Rules 13d-3 and 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act,
(ii) the term "voting securities" shall mean the
voting securities of a corporation entitled to
vote generally in the election of directors and
the term "affiliate" shall have the meaning set
forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the 1~.xchange Act.
"CODE" means the Internal Revenue Code of
1986, as amended.
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"DISABILITY" means that (a) a person has been
incapacitated by bodily injury or physical or
mental disease so as to be prevented thereby from
performance of his or her duties with the Company
for 120 days in any 12-month period, and (b) such
person is disabled for purposes of any and all of
the plans or programs of the Company or any
Subsidiary that employs Executive under which
benefits, compensation or awards are contingent
upon a finding of disability. The determination
with respect to whether Executive is suffering
from such a Disability will be determined by a
mutually acceptable physician or, if there is no
physician mutually acceptable to the Company and
Executive, by a physician selected by the then
Xxxx of the University of Washington Medical
School.
"EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
"EXCISE TAX" means the excise tax, including
any interest or penalties thereon, imposed on
Executive by Section 4999 of the Code.
"FISCAL YEAR" means the 12-month period
ending on December 3 I in each year I or such
other fiscal year period established by the
Board).
"GOOD REASON" means, without Executive's
express written consent:
(a) (i) the assignment to Executive of
duties, or limitation of Executive's ,
responsibilities inconsistent with
Executive s title, position, duties,
responsibilities and status with the
Company Executive as such duties and
responsibilities existed immediately
prior to the date of the Change in
Control, or (ii) removal of Executive
from, or failure to re-elect Executive
to, Executive's positions with the
Company or any Subsidiary that employs
Executive immediately prior to the
Change in Control, except in connection
with the involuntary termination of
Executive's employment by the Company
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for Cause or as a result of Executive's
death or Disability;
(b) failure by the Company to pay, or
reduction by the Company of, Executive's
annual base salary, as reflected in the
Company's payroll records for
Executive's last pay period immediately
prior to the Change in Control;
(c) failure by the Company to pay, or
reduction by the Company of, Executive's
bonus;
( d) the relocation of the principal place of
Executive's employment to a location
that is more than 25 miles further from
Executive's principal residence than
such principal place of employment
immediately prior to the Change in
Control; or
(e) the breach of any material provision of
this Agreement by the Company,
including, without limitation, failure
by the Company to bind any successor to
the Company to the terms and provisions
of this Agreement in accordance with
Section 9(g).
"GROSS-UP PAYMENT" shall have the meaning set
forth in Section 4(b).
"INCUMBENT DIRECTOR" means a member of the
Board who has been either (a) nominated by a
majority of the directors of the Company then in
of ice or (b) appointed by directors so nominated,
but excluding, for this purpose, any such
individual whose initial assumption of office
occurs as a result of either an actual or
threatened election contest (as such terms are
used in Rule 14a-l1 of Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
"PARACHUTE PAYMENT" means any payment deemed
to constitute a "parachute payment" as defined in
Section 280G of the Code.
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"PERSON" means any individual, entity or
group (as such term is used in Section 13(d)(3 )
or 14(d)(2) of the Exchange Act).
"SUBSIDIARY" means an Person controlled by
the Company directly, or indirectly through one or
more intermediaries.
"TERMINATION" means, following the occurrence
of any Change in Control by the Company, (a) the
involuntary termination of the employment of
Executive for any reason other than death,
Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"WELFARE BENEFITS" shall have the meaning set
forth in Section 3(b).
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