EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Agreement made effective as of March 31, 2006 by and between
Advocat Inc., a Delaware corporation (the "Company"), and L. Xxxxx Xxxxxx (the
"Executive").
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I
EMPLOYMENT
The Company agrees to employ the Executive and the Executive agrees to
be employed by the Company for the Period of Employment as provided in Section
III.A. below and upon the terms and conditions provided in the Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to serve as Chief
Financial Officer of the Company and to be responsible for the typical
management responsibilities expected of an officer holding such positions and
such other responsibilities as may be assigned to Executive from time to time by
the Board of Directors of the Company.
SECTION III
TERMS AND DUTIES
A. Period of Employment
The period of Executive's employment under this Agreement will
commence as of the date hereof and shall continue through March 31, 2007,
subject to extension or termination as provided in this Agreement ("Period of
Employment"). On each anniversary of the commencement of the Period of
Employment, the period of Executive's employment shall be extended for
additional one (1) year periods, unless either party gives notice thirty (30)
days in advance of the expiration of the then current period of employment of
such party's intent not to extend the Period of Employment.
B. Duties
During the Period of Employment, the Executive shall devote all of
his business time, attention and skill to the business and affairs of the
Company and its subsidiaries. The
Executive will perform faithfully the duties which may be assigned to him from
time to time by the Board of Directors.
SECTION IV
COMPENSATION AND BENEFITS
A. Compensation
For all services rendered by the Executive in any capacity during
the Period of Employment, the Executive shall be compensated as follows:
1. Base Salary
The Company shall pay the Executive a base salary ("Base Salary")
as follows: Two Hundred Eleven Thousand Three Hundred Fifty Dollars ($211,350)
per annum.
Base Salary shall be payable according to the customary payroll
practices of the Company but in no event less frequently than once each month.
The base salary shall be reviewed annually and shall be subject to increase
according to the policies and practices adopted by the Company from time to
time.
B. Annual Incentive Awards
The Company will pay the Executive annual incentive compensation
awards as may be granted by the Board or a Compensation Committee to the
Executive under any executive bonus or incentive plan in effect from time to
time.
C. Additional Benefits
The Executive will be entitled to participate in all compensation or
employee benefit plans or programs and receive all benefits and perquisites for
which any salaried employees are eligible under any existing or future plan or
program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, car allowance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance, disability
insurance, and contingent compensation plans including capital accumulation
programs, Restricted Stock programs, stock purchase programs and stock option
plans. Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried or senior
executives as long as such amendment or termination is applicable to all
salaried employees or senior executives. The Executive will be entitled to an
annual four-week paid vacation.
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SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel and
other expenses incurred by the Executive in connection with the performance of
his duties and obligations under this Agreement.
SECTION VI
DISABILITY
A. In the event of disability of the Executive during the Period of
Employment, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his disability,
until such time as Executive's long term disability insurance benefits are
available. However, in the event the Executive is disabled for a continuous
period of six (6) months after the Executive first becomes disabled, the Company
may terminate the employment of the Executive. In this case, normal compensation
will cease except for earned but unpaid Base Salary and Incentive Compensation
Awards which would be payable on a pro-rated basis for the year in which the
disability occurred. In the event of such termination, all unvested stock
options held by Executive shall be deemed fully vested on the date of such
termination.
B. During the period the Executive is receiving payments of either
regular compensation or disability insurance described in this Agreement and as
long as he is physically and mentally able to do so, the Executive will furnish
information and assistance to the Company and from time to time will make
himself available to the Company to undertake assignments consistent with his
prior position with the Company and his physical and mental health. If the
Company fails to make a payment or provide a benefit required as part of the
Agreement, the Executive's obligation to fulfill information and assistance will
end.
C. The term "disability" will have the same meaning as under any
disability insurance provided pursuant to this Agreement or otherwise.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, the Company's obligation to make payments under this Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
Incentive Compensation Awards which will be paid on a pro-rated basis for that
year. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
in this Agreement.
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SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. If the Executive's employment terminates due to either a Without
Cause Termination or a Constructive Discharge, as defined later in this
Agreement, the Company will pay the Executive in a lump sum an amount equal to
100% of his Base Salary as in effect at the time of the termination upon such
Termination or Constructive Discharge or, if necessary to comply with Code
Section 409A(a)(2)(B)(i), on the six (6) month anniversary of such Termination
or Constructive Discharge. Earned but unpaid Base Salary and Incentive
Compensation Awards will be paid in a lump sum upon such Termination or
Constructive Discharge. The benefits and perquisites described in this Agreement
as in effect at the date of termination of employment will be continued for
eighteen (18) months. If the Executive's employment terminates due to either a
Without Cause Termination or a Constructive Discharge, or pursuant to Section
XI, all stock options ("Options") granted to the Executive under the Company's
1991 Non-Qualified Stock Option Plan or other stock option program or plan (the
"Plan") shall be deemed vested, and the Company shall cause the Options to
remain exercisable until the later of (i) the fifteenth (15th) day of the third
(3rd) month following the date on which the Options would have expired or (ii)
December 31 of the calendar year in which the Option would have expired.
B. If the Executive's employment terminates due to a Termination for
Cause, earned but unpaid Base Salary will be paid on a pro-rated basis for the
year in which the termination occurs. No other payments will be made or benefits
provided by the Company.
C. Upon termination of the Executive's employment other than for
reasons due to death, disability, or pursuant to Paragraph A of this Section or
Section XI, the Period of Employment and the Company's obligation to make
payments under this Agreement will cease as of the date of the termination
except as expressly defined in this Agreement.
D. For this Agreement, the following terms have the following meanings:
1. "Termination for Cause" means termination of the Executive's
employment by the Company's Board of Directors acting in good faith by the
Company by written notice to the Executive specifying the event relied upon for
such termination, due to the Executive's serious, willful misconduct with
respect to his duties under this Agreement, including but not limited to
conviction for a felony or perpetration of a common law fraud, which has
resulted or is likely to result in material economic damage to the Company.
2. "Constructive Discharge" means termination of the Executive's
employment by the Executive due to a failure of the Company to fulfill its
obligations under this Agreement in any material respect including any reduction
of the Executive's Base Salary or other compensation other than reductions
applicable to all employees of the Company or failure to appoint or reappoint
the Executive to the position specified in Section II hereof, or other material
change by the Company in the functions, duties or responsibilities of the
position which would reduce the ranking or level, responsibility, importance or
scope of the position. The Executive will provide the Company a written notice
which describes the circumstances being
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relied on for the termination with respect to the Agreement within ninety (90)
days after the event giving rise to the notice. The Company will have thirty
(30) days to remedy the situation prior to the Termination for Constructive
Dismissal.
3. "Without Cause Termination" means termination of the Executive's
employment by the Company (a) other than due to death, disability, Termination
for Cause or pursuant to Section XI; or (b) upon expiration of the Period of
Employment as a result of the giving of notice by the Company of its intent not
to extend the Period of Employment as provided in Section III.A.
E. Stock Option Repurchase.
If the Executive's employment terminates due to either a Without
Cause Termination or a Constructive Discharge or pursuant to Section XI,
Executive may require the Company to repurchase any Options for an amount equal
to the difference between the fair market value of a share of the Company's
common stock on the date of termination and the per share exercise price set
forth in the Options, times the number of shares (whether vested or unvested)
granted to the Executive under the Options.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
cooperate with the Company as may reasonably be requested in connection with any
claims or legal actions in which the Company is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company, as hereinafter defined, is confidential and is a unique and
valuable asset of the Company. Access to and knowledge of this information are
essential to the performance of the Executive's duties under this Agreement. The
Executive will not during the Period of Employment or after except to the extent
reasonably necessary in performance of the duties under this Agreement, give to
any person, firm, association, corporation or governmental agency any
information concerning the affairs, business, clients, customers or other
relationships of the Company except as required by law. The Executive will not
make use of this type of information for his own purposes or for the benefit of
any person or organization other than the Company. The Executive will also use
his best efforts to prevent the disclosure of this information by others. All
records, memoranda, etc. relating to the business of the Company whether made by
the Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
C. During the Period of Employment and for a twelve (12) month period
thereafter, the Executive will not use his status with the Company to obtain
loans, goods or services from another organization on terms that would not be
available to him in the absence of his
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relationship to the Company. During the Period of Employment and for a twelve
(12) month period following termination of the Period of Employment, other than
termination due to a Without Cause Termination, a Constructive Discharge or
termination pursuant to Section XI: the Executive will not make any statements
or perform any acts intended to advance the interest of any existing or
prospective competitors of the Company in any way that will injure the interest
of the Company; the Executive without prior express written approval by the
Board of Directors of the Company will not directly or indirectly own or hold
any proprietary interest in or be employed by or receive compensation from any
party engaged in the same or any similar business in the same geographic areas
the Company does business; and the Executive without express prior written
approval from the Board of Directors, will not solicit any members of the then
current clients of the Company or discuss with any employee of the Company
information or operation of any business intended to compete with the Company.
For the purposes of the Agreement, proprietary interest means legal or equitable
ownership, whether through stock holdings or otherwise, of a debt or equity
interest (including options, warrants, rights and convertible interests) in a
business firm or entity, or ownership of more than 5% of any class of equity
interest in a publicly-held company. The Executive acknowledges that the
covenants contained herein are reasonable as to geographic and temporal scope.
For a twelve (12) month period after termination of the Period of Employment for
any reason, the Executive will not directly or indirectly hire any employee of
the Company or solicit or encourage any such employee to leave the employ of the
Company.
D. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section IX would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section IX without being required to prove damages or furnish any bond or other
security.
E. The Executive shall not be bound by the provisions of Section IX in
the event of the default by the Company in its obligations under this Agreement
which are to be performed upon or after termination of this Agreement.
SECTION X
INDEMNIFICATION, LITIGATION
The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and by-laws of the Company whichever affords the
greater protection to the Executive. The Executive will be entitled to any
insurance proceeds related to any award, or any fees or expenses incurred in
connection with any action, suit or proceeding to which he may be made a party
by reason of being a director or officer of the Company.
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SECTION XI
CHANGE IN CONTROL
In the event there is a Change in Control of the ownership of the
Company and within the six (6) month period following such event, the Executive
elects to resign upon written notice to the Company, the Company shall pay to
the Executive on such resignation or, if necessary to comply with Code Section
409A(a)(2)(B)(i), on the six (6) month anniversary of the Executive's
resignation in a lump sum an amount equal to 100% of his Base Salary as in
effect at the time of such resignation. In addition, earned but unpaid Base
Salary and Incentive Compensation Awards will be paid on a pro-rated basis for
the year in which resignation occurs. Any stock options granted to the Executive
prior to termination pursuant to the Plan, but subject to vesting restrictions,
will be fully vested upon a Change in Control whether or not the Executive
resigns. The benefits and perquisites described in this Agreement as in effect
at the date of termination of employment will also be continued for eighteen
(18) months from the effective date of termination pursuant to Change of
Control.
A "Change in Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of more than 50% of the
outstanding voting securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of such merger or
consolidation less than 75% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company, as the same shall have existed immediately prior to
such merger or consolidation, (iii) the Company shall sell all or substantially
all of its assets to another corporation which is not a wholly-owned subsidiary,
(iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as
in effect on the date hereof) of the Securities and Exchange Act of 1934
("Exchange "Act")), shall acquire more than 50% of the outstanding voting
securities of the Company (whether directly, indirectly, beneficially or of
record) ) or (v) the individuals who, as of the date hereof, constitute the
Board of the Company (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person or group other
than the Board. For purposes hereof, ownership of voting securities shall take
into account and shall include ownership as determined by applying the
provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to
the Exchange Act.
SECTION XII
PROCEDURES FOR DETERMINING
THE APPLICATION OF CODE SECTION 409A
The Executive and the Company shall cooperate to determine the
application of Code Section 409A for purposes of Sections VIII and XI of this
Agreement. If the Executive and the
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Company are unable to agree on the application of Code Section 409A within ten
(10) business days after the Executive's separation from service with the
Company, then the application of Code Section 409A for purposes of Sections VIII
and XI of this Agreement shall be determined by an accounting firm of recognized
national standing acceptable to the Executive and the Company. The accounting
firm shall be instructed to use every reasonable effort to make its
determination within ten (10) business days after it is retained. The parties
will cooperate fully with the accounting firm. The costs and expenses for the
services of the accounting firm shall be borne equally by the Executive and the
Company.
SECTION XIII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that shall be required
pursuant to any law or governmental regulation.
SECTION XIV
EFFECTIVE PRIOR AGREEMENTS
This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and supersedes any prior
employment or severance agreements between the Company and its affiliates, and
the Executive.
SECTION XV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from consolidating
or merging into or with, or transferring all or substantially all of its assets
to, another corporation which assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a Consolidation, Merger or Sale
of Assets, the term "the Company" as used will mean the other corporation and
this Agreement shall continue in full force and effect. This Section XV is not
intended to modify or limit the rights of the Executive hereunder, including
without limitation, the rights of Executive under Section XI.
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SECTION XVI
MODIFICATION
This Agreement may not be modified or amended except in writing signed
by the parties. No term or condition of this Agreement will be deemed to have
been waived except in writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and will not constitute
a waiver for the future or act on anything other than that which is specifically
waived.
SECTION XVII
GOVERNING LAW; ARBITRATION
This Agreement has been executed and delivered in the State of
Tennessee and its validity, interpretation, performance and enforcement shall be
governed by the laws of that state.
Any dispute among the parties hereto shall be settled by arbitration in
Nashville, Tennessee, in accordance with the rules then obtaining of the
American Arbitration Association and judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
SECTION XVIII
NOTICES
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid by registered mail, return receipt requested,
or if delivered by hand, overnight delivery service or confirmed facsimile
transmission, to the following:
(a) If to the Company, at 0000 Xxxxxxxx Xxxxxxxxx, Xxxxxxxxx,
XX 00000-0000, Attention: President or Chief Executive Officer, or at such other
address as may have been furnished to the Executive by the Company in writing;
or
(b) If to the Executive, at 0000 Xxxxxxxxx Xxxxx, Xxxxxxxx,
Xxxxxxxxx 00000, or such other address as may have been furnished to the Company
by the Executive in writing.
SECTION XIX
BINDING AGREEMENT
This Agreement shall be binding on the parties' successors, heirs and
assigns.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
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ADVOCAT INC.
By: /s/ Xxxxxxx X. Council III
-------------------------------------
Xxxxxxx X. Council, III
Title: President and Chief Executive Officer
EXECUTIVE:
/s/ L. Xxxxx Xxxxxx
---------------------------------------------
L. Xxxxx Xxxxxx
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