EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Employment Agreement dated as of April 13, 1998 between XXXXXX X.
XXXXXXXX, XX. (the "Executive") and PARAGON HEALTH NETWORK, INC., a Delaware
corporation (the "Company").
WHEREAS, the Company desires to employ the Executive as its Vice-
Chairman of the Board, Chief Operating Officer and President, 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 Agreement and Plan of
Merger dated as of April 13, 1998 among the Company, Mariner Health Group, Inc.
("Yank") and Paragon Acquisition Sub, Inc. (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 Vice-
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Chairman of the Board, Chief Operating Officer and President 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 Executive
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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 does not
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participate in the management or operation of such entity. The Executive shall
report to
the Chief Executive Officer of the Company and the Executive shall have
responsibility and authority to oversee the general operations of the Company
and to assist the Chief Executive Officer of the Company in 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 Vice-Chairman of the Board, Chief Operating
Officer and President) 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 or the Chief Executive Officer of the Company. 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) Base Salary. The Executive's base salary hereunder shall be
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$850,000 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 $850,000 a
year.
(b) Annual Bonus. The Company shall provide the Executive with an
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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 Executive
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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.
In addition, the Company shall reimburse the Executive for all out-of-pocket
costs incurred and paid by the Executive relating to the health care of the
Executive and his dependents that are not covered by the health benefit plans or
arrangements of the Company or its subsidiaries through the later of the Date of
Termination or the seventh anniversary of the Effective Date.
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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 1,000,000 shares of common stock 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; and (iv) 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.
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 the
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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
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
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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 the Executive's base
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salary below $850,000;
(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
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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 resign
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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 may be designated by the Company. The Company reserves the
right to accelerate
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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.
(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 (i)
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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, as amended as of April 13, 1998, 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 employment by
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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 11(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 be employed
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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 copies of such
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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
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occurs provided if there was a bonus or bonuses 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 $850,000 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
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counsel, auditors or consultants (and any such opinions or advice which are
in writing shall be attached to the statement).
(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 or bonuses paid to
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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 purposes of this
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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 $850,000 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
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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.
(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 Sections
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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.
(i) Continuation of Health Care Reimbursement. Nothing in this
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Section 12 or elsewhere in this Agreement shall reduce in any way the Company's
obligations set forth in the second sentence of Section 9 hereof to reimburse
the Executive for all out-of-pocket costs incurred and paid by the Executive
relating to the health care of the Executive and his dependents that are not
covered by the health benefit plans or arrangements of the Company or its
subsidiaries through the later of the Date of Termination or the seventh
anniversary of the Effective Date.
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
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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.
(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.
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(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
12
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
contained 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 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 (other than
Section 27), 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
13
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 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) Other than as provided in Section 27 hereof, 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, concerning the Executive's employment with the Company or any of
its predecessors; provided, however, that the rights, duties and obligations of
-----------------
the parties identified in Section 27 hereof under or with respect to the Yank
Employment Agreement (as defined in Section 27) shall be as set forth in Section
27 hereof. Notwithstanding the foregoing, nothing contained in this Section is
intended
14
to supercede or otherwise modify any of the Executive's rights under any
existing stock option award or any of the Executive's vested rights under any
employee benefit plan or program in which the Executive participates. 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:
To Executive at: Xxxxxx X. Xxxxxxxx, Xx.
000 Xxxxxxxx Xxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
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.
------------------------------
15
(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 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.
27. Yank Employment Agreement Matters. Immediately upon this
---------------------------------
Agreement becoming effective, Executive's employment with Yank shall, for all
purposes under the Amended and Restated Employment Agreement dated as of October
20, 1997 by and between Yank and Executive (the "Yank Employment Agreement"), be
deemed terminated by Yank pursuant to Section 5(b)(i) of the Yank Employment
Agreement as of the Effective Date, and as of the Effective Date Executive shall
be entitled to, and vested in, all rights and remedies available to Executive
under Sections 5(e)(iii), 5(f), 5(h), 8 and 9(b) of the Yank Employment
Agreement resulting from such termination. The Company hereby assumes the
duties of Yank pursuant to Sections Sections 5(e)(iii), 5(f), 5(h), 8 and 9(b)
of the Yank Employment Agreement and shall perform all such duties and
obligations in full in a timely manner. On the Effective Date, the Company
shall pay to Executive, in satisfaction of Section 5(e)(iii)(A) and clause (y)
of
16
the first sentence of Section 5(f) of the Yank Employment Agreement, by wire
transfer to an account specified by Executive an amount equal to $9,922,041 plus
any amounts required to be paid to Executive pursuant to Section 5(h) of the
Yank Employment Agreement (subject to any applicable payroll or other taxes
required to be withheld). Section 16 of this Agreement shall not be applicable
to any payments required to be made to Executive pursuant to this Section 27 or
the Yank Employment Agreement. For purposes of Section 16 of this Agreement, no
payments by the Company or Yank pursuant to this Section 27 or the Yank
Employment Agreement shall be considered in determining whether the limitations
set forth in Section 16 apply to, or shall be used as the basis for reducing any
payments required to be made to Executive pursuant to this Agreement in
connection with, any Change in Control of the Company or the termination of
Executive's employment after the Effective Date.
17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
PARAGON HEALTH NETWORK, INC.
BY: /s/ Xxxxx X. Xxxxx
--------------------------------------
NAME: Xxxxx X. Xxxxx
TITLE: Chairman of the Board, President
and Chief Executive Officer
THE EXECUTIVE
/s/ Xxxxxx X. Xxxxxxxx, Xx., M.D.
----------------------------------------
Xxxxxx X. Xxxxxxxx, Xx., M.D.
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