EXHIBIT 10.16
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this 10th day of June, 1998, by and among MANOR CARE,
INC., a Delaware corporation (the "Company"), HEALTH CARE AND RETIREMENT
CORPORATION, a Delaware corporation ("HCR"), and XXXXXX X. XXXXXXX (the
"Employee").
W I T N E S S E T H
WHEREAS, HCR and the Company have entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the Company will become a
wholly-owned subsidiary of HCR; and
WHEREAS, the Boards of Directors of HCR and the Company have approved the
employment of the Employee on the terms and conditions set forth in this
Agreement; and
WHEREAS, the Employee is willing, for the consideration provided, to
continue in the employment of the Company on the terms and conditions set forth
in this Agreement;
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Employment. The Company hereby agrees to continue to employ the
Employee, and the Employee hereby accepts such continued employment, upon the
terms and conditions set
forth in this Agreement. HCR shall cause the Company to satisfy its obligations
under this Agreement; provided, however, that HCR shall have no obligations or
liabilities under this Agreement if the transactions contemplated by the Merger
Agreement are not consummated.
2. Term. The term (the "Term") of the Employee's employment under this
Agreement shall be the period commencing on June 10, 1998 (the "Effective Date")
and shall continue until the termination of the Employee's employment pursuant
to Section 5, 6, 7 or 8.
3. Position and Duties. During the Term, the Employee shall serve as
Executive Vice President of the Company, and shall have such responsibilities
and authority as commensurate with such office and as may from time to time be
prescribed by or pursuant to the Company's By-laws. The Employee shall devote
substantially all of his working time and efforts to the business and affairs of
the Company.
4. Compensation. During the Term, the Company shall provide the Employee
with the following compensation and other benefits:
(a) Base Salary. The Company shall pay to the Employee base salary at the
initial rate of $273,000 per an-
-2-
num, which shall be payable in accordance with the standard payroll practices of
the Company. Such base salary rate shall be reviewed annually in accordance with
the Company's normal policies; provided, however, that at no time during the
Term shall the Employee's base salary be decreased from the rate then in effect
except with the written consent of the Employee.
(b) Bonus. During the Term, the Employee shall participate in the annual
bonus program maintained for the executive officers of the Company. The
Employee's maximum bonus opportunity for each fiscal year during the Term shall
be no less than 55% of his annual base salary for that year.
(c) Other Benefits. In addition to the compensation and benefits otherwise
specified in this Agreement, the Employee (and, if provided for under the
applicable plan or program, his spouse) shall be entitled to participate in, and
to receive benefits under, the Company's employee benefit plans and programs
that are or may be available to executives generally and on terms and conditions
that are no less favorable than those generally applicable to other executives
of the Company. At no time during the Term shall the Employee's participation in
or benefits received under such plans and programs be decreased except (i) in
con-
-3-
nection with across-the-board reductions similarly affecting substantially all
executives of the Company or (ii) with the written consent of the Employee.
(d) Stay Bonus. If the Employee remains in employment with the Company
until December 31, 1998, the Employee shall be entitled to receive within 30
days thereafter in a lump sum a special bonus in an amount equal to the sum of
(i) his annual rate of base salary on December 31, 1998, (ii) the maximum bonus
that the Employee could receive under the Company's annual bonus program for the
Company's fiscal year ending May 31, 1999, and (iii) the Employee's car
allowance for the Company's fiscal year ending May 31, 1999. Except as otherwise
provided in Section 9(e), such special bonus shall not be payable to the
Employee if his employment with the Company terminates for any reason prior to
December 31, 1998.
(e) Expenses. The Employee shall be entitled to prompt reimbursement of all
reasonable expenses incurred by him in performing services hereunder, provided
he properly accounts therefor in accordance with the Company's policies.
(f) Office and Services Furnished. The Company shall furnish the Employee
with office space, secretarial assistance and such other facilities and services
as shall
-4-
be suitable to the Employee's position and adequate for the performance of his
duties hereunder.
5. Termination of Employment by the Company.
(a) For Cause. The Company may terminate the Employee's employment for
Cause if (i) the Employee willfully engages in conduct which is materially and
demonstrably injurious to the Company, or (ii) the Employee willfully engages in
an act or acts of dishonesty resulting in material personal gain to the Employee
at the expense of the Company. The Company shall exercise its right to terminate
the Employee's employment for Cause by (i) giving him written notice of
termination at least 20 days before the date of such termination specifying in
reasonable detail the circumstances constituting such Cause; and (ii) delivering
to the Employee a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors
(except the Employee), after reasonable notice to the Employee and an
opportunity for the Employee and his counsel to be heard before the Board of
Directors, finding that the Employee has engaged in the conduct set forth in
this subsection (a). In the event of such termination of the Employee's
employment for Cause, the Employee shall be entitled to receive (i) his base
salary pur-
-5-
suant to Section 4(a) and any other compensation and benefits to the extent
actually earned pursuant to this Agreement or any benefit plan or program of the
Company as of the date of such termination at the normal time for payment of
such salary, compensation or benefits and (ii) any amounts owing under Section
4(e). Except as provided in Section 10, the Employee shall receive no other
compensation or benefits from the Company.
(b) Without Cause. The Company may terminate the Employee's employment at
any time and for any reason, other than for Cause, by giving him a written
notice of termination to that effect at least 30 days before the date of
termination. In the event of such termination of the Employee's employment
without Cause, the Employee shall be entitled to the benefits described in
Section 9.
6. Termination of Employment for Good Reason. The Employee may terminate
his employment for Good Reason by giving the Company a written notice of
termination at least 30 days before the date of such termination specifying in
reasonable detail the circumstances constituting such Good Reason. In the event
of the Employee's termination of his employment for Good Reason, the Employee
shall be entitled to the benefits described in Section 9. For purposes of this
Agreement, Good
-6-
Reason shall mean (i) a significant reduction in the scope of the Employee's
authority, position, title, functions, duties or responsibilities from that
which is contemplated by this Agreement, (ii) the relocation of the Employee's
office location to a location more than 25 miles away from the Employee's
principal place of employment on the Effective Date, (iii) any reduction in the
Employee's base salary, (iv) a significant change in the Company's annual bonus
program adversely affecting the Employee, or (v) a significant reduction in the
other employee benefits provided to the Employee. If an event constituting a
ground for termination of employment for Good Reason occurs, and the Employee
fails to give notice of termination within 3 months after the occurrence of such
event, the Employee shall be deemed to have waived his right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 3-month period has not expired).
7. Resignation from Employment Other than for Good Cause. The Employee may
terminate his employment at any time and for any reason, other than pursuant to
Section 6, by giving the Company a written notice of termination to that effect
at least 30 days before the date of termination. In the event of the Employee's
termination of his employment pursuant to this Section 7, the Employee shall be
entitled to receive (i) his base salary pursuant to Section 4(a) and any other
compensation
-7-
and benefits to the extent actually earned by the Employee pursuant to this
Agreement or any benefit plan or program of the Company as of the date of such
termination at the normal time for payment of such salary, compensation or
benefits, and (ii) any amounts owing under Section 4(e). Except as provided in
Section 10, the Employee shall receive no other compensation or benefits from
the Company.
8. Termination of Employment By Death. In the event of the death of the
Employee during the course of his employment hereunder, the Employee's estate
shall be entitled to receive his base salary pursuant to Section 4(a) and any
other compensation and benefits to the extent actually earned by the Employee
pursuant to this Agreement or any other benefit plan or program of the Company
as of the date of such termination at the normal time for payment of such
salary, compensation or benefits, and any amounts owing under Section 4(e).
9. Benefits upon Termination Without Cause or For Good Reason. If the
Employee's employment with the Company shall terminate (i) because of
termination by the Company pursuant to Section 5(b) other than for Cause or (ii)
because of termination by the Employee for Good Reason pursuant to Section 6,
the Employee shall be entitled to the following:
-8-
(a) The Company shall pay to the Employee his base salary pursuant to
Section 4(a) and any other compensation and benefits to the extent actually
earned by the Employee under this Agreement or any benefit plan or program of
the Company as of the date of such termination at the normal time for payment of
such salary, compensation or benefits.
(b) The Company shall pay the Employee any amounts owing under Section
4(e).
(c) The Company shall pay to the Employee as a severance benefit an amount
equal to two times the sum of (i) his annual rate of base salary immediately
preceding his termination of employment, (ii) the maximum bonus that the
Employee could have received under the Company's annual bonus program for the
fiscal year in which his employment terminates, and (iii) the greater of the
Employee's car allowance for the Company's fiscal year ending May 31, 1999 or
for the fiscal year in which his employment terminates. Such severance benefit
shall be paid in a lump sum within 30 days after the date of such termination of
employment.
(d) The Company shall pay to the Employee as a bonus for the year of
termination of his employment an amount equal to a portion (determined as
provided in the
-9-
next sentence) of the maximum bonus that the Employee could have received under
the Company's annual bonus program for the fiscal year in which his employment
terminates. Such portion shall be determined by dividing the number of days of
the Employee's employment during such fiscal year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made in a lump sum
within 30 days after the date of such termination of employment, and the
Employee shall have no right to any further bonuses under said program.
(e) If the Employee's termination of employment occurs prior to December
31, 1998, the Employee shall be entitled to receive a special bonus equal to the
sum of (i) his annual rate of base salary immediately preceding his termination
of employment, (ii) the maximum bonus that the Employee could have received
under the Company's annual bonus program for the fiscal year in which his
employment terminates, and (iii) the greater of the Employee's car allowance for
the Company's fiscal year ending May 31, 1999 or for the fiscal year in which
his employment terminates. Such special bonus shall be paid in a lump sum within
30 days after the date of such termination of employment.
-10-
(f) During the period beginning on the date of the Employee's termination
of employment and continuing thereafter for a period of two years, the Employee
shall remain covered by the medical, dental, life insurance and long-term
disability plans of the Company that covered him immediately prior to his
termination of employment as if he had remained in employment for such period.
In the event that the Employee's participation in any such plan is barred, the
Company shall arrange to provide the Employee with substantially similar
benefits.
(g) The Employee shall receive under the Company's Supplemental Executive
Retirement Plan (the "SERP") the benefits that he would have been entitled to
receive under the SERP if he had continued in employment with the Company for
the period beginning on his date of termination of employment and continuing
thereafter for a period of two years and had received base salary for such
period at the rate in effect on such date of termination of employment.
(h) The Company shall credit to the Employee's Company Contribution Account
under the Company's Nonqualified Retirement Savings and Investment Plan (the
"Nonqualified Plan"), effective as of the date of the Employee's termination of
employment, an amount equal to the
-11-
product of (i) 12% and (ii) the Employee's annual rate of base salary
immediately preceding his termination of employment. In addition, effective as
of the date of the Employee's termination of employment, the Employee's account
balance under the Nonqualified Plan (as adjusted pursuant to the preceding
sentence) shall be increased by a factor of 20%, and the Employee shall receive
credit for vesting purposes for an additional two years of service.
(i) The Company shall arrange for an outplacement assistance firm to
provide outplacement assistance services to the Employee at the Company's
expense for a period of twelve months beginning on the date of termination of
the Employee's employment.
(j) If any payment or benefit received by or in respect of the Employee
under this Agreement or any other plan, arrangement or agreement with the
Company or any of its affiliates (determined without regard to any additional
payments required under this subsection (j) and Appendix A of this Agreement) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that
may hereafter be imposed) or any interest or penalties are incurred by the
Employee with respect to such excise tax
-12-
(such excise tax, together with any such interest and penalties, being
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to the Employee with respect to such Payment at the time specified in Appendix A
an additional amount (the "Gross-up Payment") such that the net amount retained
by the Employee from the Payment and the Gross-up Payment, after reduction for
any Excise Tax upon the Payment and any Federal, state and local income and
employment tax and Excise Tax upon the Gross-up Payment, shall be equal to the
Payment. The calculation and payment of the Gross-up Payment shall be subject to
the provisions of Appendix A. Anything in this subsection (j) or in Appendix A
to the contrary notwithstanding, no Gross-Up Payment shall be made in respect of
any payment of HCR stock ("Stock Payment") to the Employee (and, to the extent
any such Stock Payment constitutes a "parachute payment" within the meaning of
Section 280G of the Code, the Gross-Up Payments in respect of any Payments other
than Stock Payments shall be computed by first applying the Stock Payments which
are "parachute payments" against the "base amount" as that term is defined in
Section 280G).
10. Entitlement To Other Benefits. Except as provided in this Agreement,
this Agreement shall not be construed as limiting in any way any rights or
benefits that the Employee
-13-
or his spouse, dependents or beneficiaries may have pursuant to any other plan
or program of the Company.
11. Confidential Information. The Employee shall retain in confidence any
confidential information known to him concerning the Company, its subsidiaries,
and their respective businesses until such information is publicly disclosed.
This provision shall survive the termination of the Employee's employment for
any reason under this Agreement.
12. No Duty to Seek Employment. The Employee shall not be under any duty or
obligation to seek or accept other employment following termination of
employment, and no amount, payment or benefits due to the Employee hereunder
shall be reduced or suspended if the Employee accepts subsequent employment.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall, if the Employee so elects, be settled by arbitration,
conducted before a panel of three arbitrators in Washington, D.C. in accordance
with the applicable rules and procedures of the American Arbitration Association
then in effect. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction. Such arbitration shall be final and
binding on the parties. The panel of arbitrators shall be selected as
-14-
follows: the Employee and the Company shall each designate an individual to act
as arbitrator; the two arbitrators shall then jointly designate a third
arbitrator.
14. Legal Expenses. If any dispute or controversy arises under or in
connection with this Agreement, the Company shall promptly pay all legal fees
and expenses, including, without limitation, reasonable attorneys' fees,
incurred by the Employee in seeking to obtain or enforce any right or benefit
under this Agreement, provided, however, that this obligation of the Company
shall not apply unless the Employee prevails in whole or in part.
15. Successors. This Agreement shall be binding upon and inure to the
benefit of the Employee and his estate and the Company and any successor or
Parent (as hereinafter defined) of the Company, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the Employee. For
purposes of this Agreement, the term "Company" shall include Manor Care, Inc.
and its successors and any Parent thereof. "Parent" shall mean any company
owning, directly or indirectly, stock possessing more than 50% of the total
combined voting power of all classes of stock in Manor Care, Inc. or its
successor entitled to vote.
-15-
16. Severability. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. Notices. All notices required or permitted to be given under this
Agreement shall be given in writing and shall be deemed sufficiently given if
delivered by hand or mailed by registered mail, return receipt requested, to his
residence in the case of the Employee and to its principal executive offices in
the case of the Company. Either party may by giving written notice to the other
party in accordance with this Section 17 change the address at which it is to
receive notices hereunder.
18. Controlling Law. This Agreement shall in all respects be governed by
and construed in accordance with the laws of the State of Delaware (without
giving effect to principles of conflict of laws).
-16-
19. Changes to Agreement. This Agreement may not be changed orally but only
in a writing, signed by the party against whom enforcement is sought.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
21. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties with respect to its subject matter and supersedes all prior
agreements, drafts, and written or oral representations of either party.
-17-
IN WITNESS WHEREOF, the parties have executed this Agreement on the ____
day of June, 1998.
EMPLOYEE: MANOR CARE, INC.
______________________ By:__________________________________
ATTEST:
By:__________________________________
HEALTH CARE AND RETIREMENT
CORPORATION
By:__________________________________
ATTEST:
By:__________________________________
-18-
