AMENDMENT NO. 7 TO EMPLOYMENT AGREEMENT
Exhibit 10.97
AMENDMENT NO. 7 TO
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
This is an amendment, dated as of December 18, 2008 (the “Amendment) to the Employment
Agreement made as of the 1st day of March, 2000 (the “Employment Agreement”), by and
between SELECT MEDICAL CORPORATION, a Delaware corporation (the “Employer”), and XXXXXXXX X. XXXX,
an individual (the “Employee”).
Background
Employer and Employee executed and delivered the Employment Agreement, that certain Amendment
No. 1 to the Employment Agreement, dated as of August 8, 2000, that certain Amendment No. 2 to the
Employment Agreement, dated as of February 23, 2001, that certain Amendment No. 3 to the Employment
Agreement, dated as of December 10, 2004, that certain Amendment No. 4 to the Employment Agreement,
dated as of February 24, 2005, that certain Amendment No. 5 to the Employment Agreement, dated as
of April 27, 2005, and that certain Amendment No. 6 to the Employment Agreement, dated as of
February 13, 2008. Employer and Employee now desire to amend the Employment Agreement to, among
other things, comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and the regulations thereunder.
Agreement
1. Section 2.02(a) of the Employment Agreement is hereby amended and restated in its entirety to
read as follows:
“The employment of Employee under this Agreement shall immediately terminate (i)
upon the death of the Employee and (ii) upon the determination that the Employee
is “disabled.” For purposes of this Agreement, “disabled” or “disability” shall
mean that (i) the Employee is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of
not less than 12 months, (ii) the Employee is, by reason of any medically
determinable physical or mental impairment that can be expected to result in death
or can be expected to last for a continuous period of not less than 12 months,
receiving income replacement benefits for a period of not less than three months
under an accident and health plan covering employees of the Employer or (iii) the
Employee is determined to be “disabled” under the Employer’s long-term disability
insurance plan (provided that the definition of “disability” under such plan
complies with the requirements of Section 409A of the Code and the regulations
thereunder). Upon a termination of employment described in
this Section 2.02(a), (i) the Employee or her estate or beneficiaries, as
applicable, shall be entitled to receive any base salary and other benefits earned
and accrued under this Agreement prior to the date of termination, such amount to
be paid within 75 days following such termination, (ii) any stock options with
respect to the Employer’s or Select Medical Holdings Corporation’s (“Holdings”)
stock held by the Employee at the time of such termination shall become fully
exercisable as of the date of such termination and shall remain exercisable by the
Employee or her estate or beneficiaries, as applicable, until the expiration date
of such options, notwithstanding any contrary vesting schedules otherwise
applicable to such options, and (iii) the Employee and her estate and
beneficiaries shall have no further rights to any other compensation or benefits,
or any other rights, hereunder.”
2. The last sentence of Section 2.02(b) of the Employment Agreement is hereby
amended and restated in its entirety to read as follows:
“If the Employer terminates the Employee’s employment for cause pursuant to this
Section 2.02(b), (i) the Employer shall pay to the Employee, within 75 days
following such termination, any base salary and other benefits earned and accrued
under this Agreement prior to the termination of employment, excluding any unpaid
bonuses, whether or not earned or accrued, and (ii) the Employee shall have no
further rights to compensation or benefits, or any other rights, hereunder.”
3. Section 2.02(e) of the Employment Agreement is hereby amended and restated in its
entirety to read as follows:
“(e) Certain Terminations. The Employer may terminate the Employee’s
employment hereunder at any time for any reason or for no reason by providing a
Notice of Termination in accordance with Section 2.02(d). If either (a) the
Employee’s services are terminated by the Employer for any reason other than for
cause as defined in Section 2.02(b) hereof and other than due to death or
disability or (b) the Employee terminates her employment for good reason as defined
in Section 2.02(c) hereof: (i) the Employer shall pay to the Employee any base
salary and other benefits earned and accrued under this Agreement prior to the date
of termination, such amount to be paid within 75 days following such termination;
(ii) the Employer shall pay to the Employee a pro-rated bonus for the year of
termination in an amount equal to the product of (A) the target bonus established
with respect to the Employee for the year of termination, or if no such target is
established, the bonus paid or payable to the Employee for the year prior to the
year of termination, multiplied by (B) a fraction, the numerator of which is the
number of days in the year of termination completed prior to such termination and
the denominator of which is 365; provided that if a target bonus had been
established with respect to the
year of termination, a pro-rated bonus shall be payable pursuant to this Section
2.02(e)(ii) only if the performance goals established with respect to such target
bonus have been achieved by the date the bonus would have been paid in the absence
of the Employee’s termination of employment, such amount, in any case, to be paid,
subject to Section 7.10 hereof, on March 15th of the calendar year beginning
immediately after the Employee’s termination of employment; (iii) the Employer
agrees that such termination would not be voluntary or a termination “for cause”
as contemplated by any stock option or other incentive plans of the Employer or
Holdings and any stock option or other award agreements entered into between the
Employer or Holdings and the Employee (including agreements that may be entered
into after the date hereof), and that any stock options with respect to the
Employer’s or Holdings’ stock held by the Employee shall become fully vested and
exercisable as of the date of such termination, and shall remain exercisable until
the expiration date of such options, notwithstanding any contrary vesting
schedules otherwise applicable to such options; (iv) the Employer will continue to
pay the Employee on its regular payroll dates, for the balance of the Term, her
base salary as of the date of such termination, with such payments to begin on the
Employer’s first regular payroll date of the seventh month following such
termination of employment; provided, that, such first payment shall include an
amount equal to the Employee’s base salary for the period between the date of
termination and the first regular payroll date of the seventh month following such
termination; and (v) the Employee shall have no further rights hereunder.”
4. Clause (C) of Section 5.01(a) of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
“(C) the Employer agrees that such termination would not be voluntary or a
termination “for cause” as contemplated by any stock option or other incentive
plans of the Employer or Holdings and any stock option or other award agreements
entered into between the Employer or Holdings and the Employee (including
agreements that may be entered into after the date hereof), and that all unvested,
unexercised stock options to purchase stock of the Employer or Holdings held by
the Employee shall become fully vested and exercisable as of the date of such
termination, and the Employee shall have the right to exercise such options at any
time prior to the expiration date of such options, notwithstanding any contrary
vesting schedule otherwise applicable to such options, and”
5. Section 5.01(b) of the Employment Agreement is hereby amended and restated in its
entirety to read as follows:
“(b) Certain Terminations Prior to a Change of Control. If (i) the
Employee’s employment is terminated by the Employer other than for
cause during the Term, (ii) within the six-month period following such
termination, a Change of Control occurs, and (iii) the Employee reasonably
demonstrates that such termination of employment was at the request of a third
party who has taken steps reasonably calculated to effect the Change of Control,
then in lieu of the payments described in Section 2.02(e)(iv) hereof, the Employer
shall pay to the Employee an amount equal to the Employee’s total cash
compensation for base salary and bonus for the immediately preceding three
completed calendar years (or equal to three times her average total annual cash
compensation for base salary and bonus for her years of service to the Employer,
if less than three years), with such amount to be paid in equal installments on
each of the Employer’s regular payroll dates over the remainder of the Term;
provided, however, that the commencement of such payments shall be delayed until
the first payroll date of the seventh month following such termination; provided
further, that, the first payment made hereunder shall include the payments that
otherwise would be made had the delay described in the preceding clause not been
imposed.”
6. Section 5.02 of the Employment Agreement is hereby amended and restated in its entirety to
read as follows:
“(a) Prior to a Public Offering. Subject to Section 5.02(c) below, a “Change of
Control” shall mean, prior to a Public Offering
(as defined below):
(as defined below):
(i) during any period of twelve consecutive months, any sale, lease, exchange
or other transfer of all or substantially all of the property and assets of the
Employer or Holdings (on a consolidated basis) to an entity, other than an entity
at least 75% of the combined voting power of the voting securities of which are
owned by persons in substantially the same proportion as their ownership of the
Employer or Holdings, as applicable, immediately prior to such sale or other
transfer;
(ii) any merger or consolidation to which the Employer or Holdings is a party
and as a result of which the holders of the voting securities of the Employer or
Holdings, as applicable, immediately prior thereto own less than 50% of the
outstanding voting securities of the surviving entity immediately following such
transaction;
(iii) any person’s (excluding WCAS, GTCR and Xxxxx Xxxxxxx Partners, the
financial sponsors of the Employer as of the date hereof), including a group’s,
becoming the beneficial owner of securities representing more than 50% of the
voting securities of the Employer or Holdings then outstanding
(b) Following a Public Offering. Subject to Section 5.02(c) below, a “Change of Control” shall
mean, following a Public Offering:
(i) any person including a group, but excluding any stockholder of the Employer or Holdings
who immediately prior to the Public Offering beneficially owned 12% or more of the Employer’s or
Holdings’ outstanding shares, becomes the beneficial owner of shares of more than 50% of the total
number of votes that may be cast for the election of directors of the Employer or Holdings, as
applicable;
(ii) during any period of twelve consecutive months, beginning immediately after the
effective date of the Public Offering, any person including a group, other than the Employee or
any group of which the Employee is a party, increases their beneficial ownership of voting
securities of the Employer or Holdings by a number of voting securities of the Employer or
Holdings equal to at least 33% of the total number of votes that may be cast for the election of
directors of the Employer or Holdings, as applicable;
(iii) during any period of twelve consecutive months, the individuals who served on the Board
of Directors of the Employer as of the effective date hereof (the “Incumbent Directors”) or who
served on the Board of Directors of Holdings (the “Holdings Board”) as of the effective date
hereof (the “Holdings Incumbent Directors”) cease for any reason to constitute at least a majority
of the Board of Directors of the Employer or the Holdings Board, as applicable; provided, however,
that any person who becomes a director subsequent to the effective date hereof, whose election or
nomination for election was approved by a vote of at least a majority of the directors then
constituting the Incumbent Directors or the Holdings Incumbent Directors, as applicable, shall for
purposes of this clause (3) be considered an Incumbent Director or a Holdings Incumbent Director,
as applicable;
(iv) the consummation of a merger or consolidation of the Employer or Holdings in which the
stockholders of the Employer or Holdings, as applicable, immediately prior to such merger or
consolidation, would not, immediately after such merger or consolidation, beneficially own,
directly or indirectly, shares representing in the aggregate at least 50% of the combined voting
power of the voting securities of the corporation issuing cash or securities in the merger or
consolidation (or of its ultimate parent corporation, if any); or
(v) during any period of twelve consecutive months, the Employer or Holdings sells or
otherwise disposes of all or substantially all of such entity’s assets (on a consolidated basis),
other than a sale or disposition by the Employer or Holdings of all or substantially all of such
entity’s assets
to an entity, at least 50% of the combined voting power of the voting securities of
which are owned by persons in substantially the same proportion as their ownership
of the Employer or Holdings, as applicable, immediately prior to such sale or
disposition.
(c) Minimum Consideration. Notwithstanding the foregoing, in no event
shall a “Change of Control” be deemed to occur for purposes of this
Agreement, whether prior to or following a Public Offering, unless the
total consideration for the transaction or transactions which would, absent
this provision, constitute a Change of Control, has a value that is equal to
or greater than $3.75 per share of common stock of the Employer or
Holdings, as applicable (the “Minimum Value”); provided, however, that
such Minimum Value shall be adjusted to reflect changes to such common
stock in the event of a stock dividend, stock split, reverse stock split, stock
combination, reclassification, recapitalization, or other similar change in
the structure or capitalization of the Employer or Holdings, or any other
event which in the discretion of the Board necessitates such an adjustment.
(d) Certain Definitions. For purposes of this Section 5.02, (A) the terms
“person,” “group,” “beneficial owner,” and “beneficially own” have the
meanings set forth in Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder,
(B) the term “Public Offering” shall mean the consummation of the first
public offering of shares of common stock of the Employer or Holdings
after December 18, 2008 in a firm commitment underwritten offering
registered under the Securities Act of 1933, as amended, on Form S-1 or
its successor forms, and (C) the term “voting securities” shall mean
securities, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect the corporate directors (or persons
performing similar functions).”
7. A new section 6.03 is added to the Employment Agreement to read as follows:
“6.03. Notwithstanding anything contained herein to the contrary, the Gross-Up
Payment must be made no later than the last day of the taxable year following the
taxable year in which the Employee pays the taxes giving rise to such Gross-Up
Payment.”
8. A new Section 7.10 is hereby added to the Employment Agreement to read as follows:
“7.10. Section 409A of the Code. Notwithstanding any other provision of
this Agreement to the contrary, if the Employee is a “specified employee” within
the meaning of Code Section 409A and the regulations issued thereunder, and a
payment or benefit provided for in this Agreement would be subject to additional
tax under Code Section 409A if such payment or benefit is paid within six months
after the Employee’s “separation from service” (within the meaning of Code Section
409A),
then such payment or benefit required under this Agreement shall not be paid (or
commence) during the six-month period immediately following the Employee’s
separation from service except as provided in the immediately following sentence.
In such an event, any payments or benefits that would otherwise have been made or
provided during such six-month period and which would have incurred such
additional tax under Code Section 409A shall instead be paid to the Employee in a
lump-sum cash payment on the earlier of (i) the first regular payroll date of the
seventh month following the Employee’s separation from service or (ii) the
10th business day following the Employee’s death. If the Employee’s
termination of employment hereunder does not constitute a “separation from
service” within the meaning of Code Section 409A, then any amounts payable
hereunder on account of a termination of the Employee’s employment and which are
subject to Code Section 409A shall not be paid until the Employee has experienced
a “separation from service” within the meaning of Code Section 409A. In addition,
no right to reimbursement hereunder or otherwise may be liquidated or exchanged
for any other benefit and any reimbursement to which the Employee is entitled
hereunder shall be made later than the last day of the calendar year following the
calendar year in which such expenses were incurred.”
9. Except as amended hereby, the Employment Agreement shall continue in effect in accordance with
its terms.
Please indicate your acceptance of the above Amendment by signing below in the space
indicated.
| Very truly yours, SELECT MEDICAL CORPORATION, a Delaware Corporation |
||||
| By: | /s/ Xxxxxxx X. Xxxxxx | |||
| Xxxxxxx X. Xxxxxx, | ||||
| Executive Vice President | ||||
| /s/ Xxxxxxxx X. Xxxx | ||||
