July 25, 2000
Integrated Health Services, Inc.
The Highlands
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇▇▇:
The purpose of this letter is to set forth the terms of the engagement between
▇▇▇▇▇▇▇ & Marsal, Inc. ("A&M"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Officer") and Integrated
Health Services, Inc. (the "Company"), including the scope of the services to be
performed and the basis of compensation for those services. Upon your execution
and the effectiveness hereof pursuant to paragraph 8, this letter will
constitute an agreement between the Company, the Officer, and A&M.
1. Description of Services and Duties
(a) During the term of this engagement A&M shall make available to
the Company the services of the Officer. Subject to
sub-paragraph (b) below, the Officer shall be duly appointed
by the Board of Directors of the Company (the"Board") at the
next scheduled meeting of the Board as its Chief Executive
Officer. As such, the Officer shall report directly to the
Company's Board and shall, with senior management, develop
proposals for the Board's consideration to address the
Company's financial and operating performance. No such
proposals, including proposals related to the activities
listed below, shall be implemented by the Officer without the
Board's prior approval. It is anticipated the Officer shall
work with senior management on the following activities:
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(i) assistance in the preparation of a revised operating
plan and cash flow forecast and present such plan and
forecast to the Board and the Company's creditors;
(ii) assistance in the identification of cost reduction
opportunities related to the Company;
(iii) assistance in addressing financing issues, including
the preparation of reports, and communications
generally with the Company's shareholders and
creditors;
(iv) assistance in development of the Company's Plan of
Reorganization; and
(v) other activities as are approved by the Board.
(b) The Company currently has a Chief Executive Officer. You have
advised A&M that the current Chief Executive Officer will no
longer be working with the Company (and the position will
therefore be vacant) by agreement between the two parties,
effective upon entry of an Order by the Bankruptcy Court
having jurisdiction over the Company's Chapter 11 cases
approving the terms of that agreement (the "CEO Order"). In
the event the CEO Order has not been entered and the closing
under the agreement approved thereby has not occurred by the
time the Board meets to approve the appointment of the
Officer, as provided for in subparagraph (a) above, then at
such meeting, the Board will appoint the Officer (1) as Chief
Restructuring Officer until the CEO Order is entered and the
closing under the agreement approved thereby occurs and (2) as
Chief Executive Officer immediately upon entry of the CEO
Order and the closing of the agreement approved thereby. Prior
to entry of the CEO Order and the closing of the agreement
approved thereby, the Officer shall report directly to the
current CEO and the Board and in all other respects the other
provisions of this engagement letter shall remain the same
regardless of whether the Officer is serving as Chief
Restructuring Officer or Chief Executive Officer.
(c) The Officer will continue to be employed by A&M, and while the
Officer is rendering services to the Company, he will continue
to work with other personnel at A&M both in connection with
the Company's matters and possibly other unrelated matters. In
particular, the Officer shall be permitted to devote limited
services to Iridium LLC in conjunction with its sale of assets
and plan of reorganization and the parties hereto expect that
the services which the Officer continues to render to Iridium
LLC will not unduly interfere with the services the Company
requests of the Officer pursuant to this Agreement. In
rendering services to the Company, the Officer may use
additional A&M personnel to assist him.
(d) You understand that the services to be rendered by the Officer
may include the preparation of projections and other
forward-looking statements, and
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numerous factors can affect the actual results of the
Company's operations, which may materially and adversely
differ form those projections and other forward looking
statements. In addition, the Officer will be relying on
information provided by other members of the Company's
management in the preparation of those projections and other
forward-looking statements. Neither the Officer nor A&M makes
any representation or guarantee that an appropriate
restructuring proposal can be formulated for the Company, that
any restructuring proposal presented to the Board will be more
successful than all other possible restructuring proposals,
that restructuring is the best course of action for the
Company, or, if formulated, that any proposed restructuring
plan will be accepted by the Company's creditors, shareholders
and other constituents. Further, neither the Officer nor A&M
assumes responsibility for the selection of any restructuring
proposal which the Officer assists in formulating and
presenting to the Board, and the Officer shall be responsible
for implementation only of the restructuring proposal approved
by the Board and only to the extent and in the manner
authorized and directed by the Board.
2. Compensation
(a) A&M will receive a fee for the Officer and personnel who
assist the Officer at a rate of $275,000 per month. A&M will
staff this assignment with three to four people, including ▇▇.
▇▇▇▇▇ who will devote substantially full-time to this
engagement, consistent with functioning as a member of A&M.
(b) The Officer and A&M will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection with this
assignment such as travel, lodging and telephone charges. In
addition, A&M shall be reimbursed for the reasonable fees and
expenses of its counsel incurred in connection with the
preparation, negotiation and approval of this agreement. All
fees and expenses will be billed and payable on a monthly
basis.
(c) In addition to the monthly compensation, A&M shall be entitled
to incentive compensation payable promptly following the
confirmation of the Company's Plan of Reorganization ("POR")
consisting of an "Earnings Bonus" and a "Plan Bonus."
(i) The Earnings Bonus shall be equal to the greater of
(x) $2,000,000 or (y) the amount equal to the sum of
the following percentages of the product of four and
the Company's Operating EBITDA (as defined below) for
the Company's last complete fiscal quarter preceding
the confirmation date of its POR ("POR EBITDA"):
POR EBITDA Percentage
--------------- ----------
first $267,000,000 - 0.7491%
next $33,000,000 - 1.5152%
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next $50,000,000 - 4.0%
next $50,000,000 - 2.0%
amount in excess of $400,000,000 - 1.0%
provided, however if the Company sells, transfers or
otherwise disposes of assets prior to the
confirmation of the POR (or, in the event of a
dismissal or conversion to Chapter 7, prior to such
dismissal or conversion), then whenever the
Cumulative Sold Asset EBITDA (as defined below)
exceeds $5 million, A&M shall receive a fee equal to
a percentage(s) of such Cumulative Sold Asset EBITDA
at the closing of the disposition at which the
Cumulative Sold Asset EBITDA first exceeded $5
million. The percentage(s) shall be the same as in
the chart above, based on the same amount(s) of
Cumulative Sold Asset EBITDA as POR EBITDA in the
chart above. "Cumulative Sold Asset EBITDA" shall
mean (without duplication of any such amounts already
included in calculating the incentive compensation
previously paid to A&M under this proviso) the sum of
the Operating EBITDA (if positive) for each asset
sold, transferred or otherwise disposed of prior to
the confirmation of the POR (or, in the event of a
dismissal or conversion to Chapter 7, prior to such
dismissal or conversion) for the last fiscal quarter
prior to the disposition of each such asset times
four (4). In calculating the amount of incentive
compensation payable to A&M upon confirmation of the
POR, first, the amount of POR EBITDA in the chart
above shall be reduced by the aggregate amount of
Cumulative Sold Asset EBITDA included in calculating
the incentive compensation paid to A&M prior to
confirmation, such reduction applied first to the
$267 million line, then to the $33 million line, then
to the first $50 million line, then to the second $50
million line and last, to the $400 million excess
line; and second, for purposes of determining whether
the $2,000,000 minimum is applicable, amounts already
paid under this proviso shall be aggregated with the
amount payable upon confirmation and, in the event
the $2,000,000 is applicable, it shall be reduced by
the amounts already paid under this proviso.
"Operating EBITDA" shall mean EBITDA (earnings before
interest, taxes, depreciation and amortization) net
of other income (expense); extraordinary items; gains
or losses on the sale of assets; expenses of
litigation (including administrative proceedings) and
related professional fees, fines, damages and
settlement payments; and restructuring charges
(including, without limitation, professional fees and
expenses, employee severance and incentive payments,
costs of operations discontinued or identified to be
discontinued and cure payments for assumed contracts
or leases).
(ii) The Plan Bonus shall be $500,000 if the POR is
confirmed prior to September 1, 2001 and shall be
reduced commencing September 1, 2001 at a rate of
$83,333 per month, pro rated on a
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daily basis, with no Plan Bonus payable subsequent to
February 28, 2002.
No incentive compensation shall be earned after termination of
this agreement by the Company For Cause (as defined below), or
by A&M Without Good Reason (as defined below). A&M shall be
entitled to receive and retain any incentive compensation
earned prior to the date of such termination.
(d) The Company shall promptly remit to A&M a retainer in the
amount of $275,000 which shall be returned or credited against
any amounts due at the termination of this assignment.
3. Term
(a) The engagement will commence as of the date hereof and may be
terminated by either the Company or A&M without cause by
giving 30 days' written notice to the other party. In the
event of such terminaton by either the Company or A&M, any
fees and expenses due to A&M shall be remitted promptly, A&M
shall remain entitled to the incentive compensation which has
been agreed upon provided the criteria therefor are satisfied,
except as provided in 3(b) and 3(c).
(b) The Company may immediately terminate A&M's services hereunder
at any time for Cause by giving written notice to A&M. Upon
any such termination for Cause, A&M shall have no right to
compensation under Section 2 for any period subsequent to the
date of termination. For purposes of this Agreement, "Cause"
shall mean: (i) the Officer is convicted of a felony; or (ii)
the Officer or A&M willfully disobeys a lawful direction of
the Board.
(c) A&M may terminate its services under this Agreement without
Good Reason at any time by giving written notice to the
Company. Such termination will become effective upon the date
specified in such notice, provided that such date is at least
30 days after the date of delivery of the notice. Upon any
such termination the Company shall be relieved of all of its
obligations under this Agreement, except for payment of
monthly fees and expenses through the effective date of
termination and its obligations under paragraph 6.
(d) A&M shall be entitled to terminate its services hereunder for
Good Reason. For purposes of the Agreement, termination for
"Good Reason" shall mean its resignation caused by the breach
by the Company of any of its material obligations under this
Agreement which breach is not cured within 30 days of A&M
having given written notice to the Company thereof.
(e) A&M and the Company shall each have the right to terminate
this Agreement within 30 days following the confirmation of
any Chapter 11 plan of reorganization upon 30 days' written
notice to the other parties hereto. In
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such event A&M shall remain entitled to the incentive
compensation (subject to the conditions set forth in Section
2(c)).
(f) A&M shall have the right to terminate this Agreement
immediately if the Officer shall not have been appointed and
assumed the position of Chief Executive Officer within 60 days
of the date of this letter in accordance with paragraph 1.
Upon such termination, A&M shall be entitled to receive and
retain all compensation earned to date pursuant to paragraph 2
and reimbursement for all reimbursable expenses incurred and
shall be paid liquidated damages in the amount of $ 825,000
within 5 days of receipt of notice of termination.
4. Relationship of the Parties
The parties intend that an independent contractor relationship will be
created between A&M and the Company by this engagement letter. The
Officer shall remain an employee of A&M, which shall retain the rights
(subject to the terms hereof) to direct and control his performance.
The compensation set forth in paragraph 2 shall be exclusive, and the
Officer shall not be entitled to participate in any other compensation
or benefit plan or perquisite of the Company. Any amounts of cash paid
to the Officers shall be paid to and received by the Officer solely as
nominee for and on behalf of A&M and not on their own account. Neither
A&M nor any of its personnel or subcontractors is to be considered an
employee or agent of the Company and the personnel and subcontractors
of A&M are not entitled to any of the benefits that the Company
provides for the Company's employees. The Company acknowledges that
A&M's engagement shall not constitute an audit, review or compilation,
or any other type of financial statement reporting engagement that is
subject to the rules of the AICPA, SEC, or other state or national
professional or regulatory body.
5. Confidentiality / Non-Solicitation / Non-Competition
A&M and the Officer shall keep as confidential all non-public
information received from the Company in conjunction with this
engagement, except: (i) as requested by the Company or its legal
counsel; (ii) as required by legal proceedings or (iii) as reasonably
required in communication with the Company's shareholders, affiliates
and creditors, or their advisors, in the performance of this
engagement. The Company agrees not to solicit, recruit or hire any
employees of A&M for a period of two years subsequent to the
termination of this agreement. During the term of this agreement and
for a period of 12 months commencing on the date of termination of
services under this Agreement, the Officer shall not have any
relationship or association with a "Competitor" of the Company as an
independent contractor, service provider, stockholder (of more than two
percent of any equity interest), director, officer, consultant,
employee or otherwise. "Competitor" shall mean a corporation which
derives more than 30% of its revenues from long-term care or
respiratory care and which competes with the Company in more than 30%
of the
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Company's markets. This foregoing provision concerning activities with
a Competitor shall apply solely to the Officer and not to A&M or other
A&M employees.
6. Indemnification
The attached indemnification agreement is incorporated herein by
reference and shall be executed upon the acceptance of this agreement.
In addition to the indemnity provided in the indemnity agreement
incorporated herein, the Officer shall be indemnified by the Company
for all acts performed as an officer to the maximum extent permitted by
law. The Company shall continue to maintain its directors and officer's
liability insurance policy in the same or greater amounts as currently
provided and shall provide coverage for the officer under such policy.
The Company shall continue to provide such insurance coverage for the
Officer for two years after termination or this engagement. Termination
of this engagement shall not affect any of these indemnification
provisions, which shall remain in full force and effect.
7. Miscellaneous
This engagement letter (together with the attached indemnity
provisions); (a) shall be governed and construed in accordance with the
laws of the State of New York, regardless of the laws that might
otherwise govern under applicable principles of conflict of laws
thereof; (b) incorporates the entire understanding of the parties with
respect to the subject matter hereof; and (c) may not be amended or
modified except in writing executed by both parties hereto. The
Company, the Officer and A&M agree to waive trial by jury in any
action, proceeding or counterclaim brought by or on behalf of the
parties hereto with respect to any matter relating to or arising out of
the engagement or the performance or non-performance of the Officers or
A&M hereunder. The Company and A&M agree that the Bankruptcy Court
having jurisdiction over the Company's Chapter 11 case (or any case
into which it may be converted) shall have exclusive jurisdiction over
any and all matters arising under or in connection with this engagement
letter and the indemnity provisions and in connection with the services
rendered by A&M hereunder.
8. Effectiveness
This engagement letter shall become effective upon its execution by the
parties hereto, approval by the Company's Board of Directors and the
entry of an order (the "Order"), in form satisfactory to such parties,
of the Bankruptcy Court having jurisdiction over the Company's Chapter
11 case approving this engagement letter and the attached indemnity
provisions in the form executed and authorizing the retention of A&M on
the terms provided for herein; provided that effective immediately upon
the Company's execution below, the Company agrees to seek by motion
(the "Motion") such judicial approval and authorization as promptly as
possible. The Officer will commence the rendering of the service and
duties set forth in paragraph 1 upon execution of this letter by the
parties but before the entry of the
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Order. A&M may withdraw this letter at any time prior to the judicial
approval referred to above by providing written notice to the Company,
which shall be effective immediately, to that effect, in which case
this letter (and the attached Indemnification Agreement) shall be null
and void except insofar as it (including the provisions of the
Indemnification Agreement) relate to services already rendered.
Please sign the enclosed copy of this proposal to acknowledge your agreement
with its terms.
Very truly yours,
▇▇▇▇▇▇▇ & Marsal, Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Managing Director
ACCEPTED AND AGREED:
Integrated Health Services, Inc.
By: /s/ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
EVP and CFO
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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