AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This AMENDMENT No. 2 is made effective as of November 18, 1997 (the "Effective
Date"), by and between INTEGRATED HEALTH SERVICES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and XXXXXX X. XXXXXX (hereinafter
referred to as the "Executive").
W I T N E S S E T H:
WHEREAS, effective January 1, 1994, the Executive entered into an
employment agreement with the Company (the "Original Agreement");
WHEREAS, effective January 1, 1995, the Executive and the Company entered
into Amendment No. 1 to Employment Agreement ("Amendment No. 1"), which amended
the Original Agreement; and
WHEREAS, the parties desire to further amend the Original Agreement as
amended by Amendment No.1 (such amended agreement being referred to hereinafter
as the "Agreement").
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements herein contained, the parties, intending to be legally bound, hereby
agree to amend the Agreement as follows:
1. The second sentence of Section 2.1 of the Agreement is amended to read
in its entirety as follows:
1
"On each Anniversary Date, the Salary shall be increased by a percentage
that is equal to the percentage increase in the "Consumer Price Index for
All Urban Consumers" published by the United States Department of Labor's
Bureau of Labor Statistics for the then most recently ended 12-month period
as of the date of such adjustment, and increased by such additional amounts
as may be determined by the Board in its discretion."
2. Section 2.1 of the Agreement is further amended to add the following
sentence at the end of such Section:
"The Salary may not be decreased at any time, or for any purpose
(including, without limitation, for the purpose of determining severance
benefits pursuant to Section 3)."
3. The last sentence of Section 2.2 (b) of the Agreement is amended to add
the following phrase before the phrase "with interest at the prime rate of
Citibank, N.A.":
", net of all taxes paid or payable (except to the extent that the
Executive receives tax benefits, through deductions, for the repayments),"
4. Section 2.3(f) is amended to add the following sentence at the end of
such Section:
"Additionally, the Executive shall have the right, but not the obligation,
at any time during the Term and for one year thereafter, to purchase from
the Company the Gulfstream II aircraft currently owned by the Company (or
any comparable successor aircraft then owned by the Company), at a price
equal to the then book value of such aircraft, and to lease or purchase
from the
2
Company at a fair market rental, or purchase from the Company at book
value, the hangar space for such aircraft at the Naples, Florida, airport;
provided that such aircraft or such hanger, as the case may be, are still
owned by the Company at such time; and provided further that the Company
shall give the Executive no less than 30 days advance written notice before
selling, or otherwise transferring, such aircraft or such hangar, as the
case may be, to any third party."
5. Section 2.3(g) of the Agreement is amended to read in its entirety as
follows:
"(g) The Executive shall participate in the Integrated Health Services,
Inc. Key Employee Supplemental Executive Retirement Plan (Plan A), which
became effective March 1, 1996 (hereinafter, "SERP A"). No amendment of
SERP A that is adverse to the Executive shall be effective as to the
Executive without his prior written consent (or, if he is no longer living,
the consent of his beneficiary (or beneficiaries) designated in accordance
with Section 2.1 of the Trust B Agreement (as hereinafter defined) or any
successor to such Section). Any interpretation, construction,
determination, act or failure to act of the Company or the "Committee" ( as
defined in SERP A) that relates to SERP A and is adverse to the Executive
shall be subject to de novo review in accordance with Section 6.9 of this
Agreement."
6. Article II of the Agreement is amended to add the following new Section
2.5:
"2.5. Trust Agreement."
"(a) The Company shall promptly establish a trust ("Trust B"), with a
banking or other financial institution acceptable to the Executive as
trustee, under a trust agreement (the "Trust B Agreement") substantially in
the form of Exhibit A. The Company shall make irrevocable contributions to
Trust B at
3
the times, and in the amounts, specified in Schedule A to Exhibit A. The
Executive's retirement benefits under SERP A and this Agreement shall be
paid at the times, in the amounts, and in the forms set forth in Schedule B
to Exhibit A.
(b) No amendment of the Trust B Agreement that is adverse to the Executive
shall be effective without his prior written consent (or, if he is no
longer living, the consent of his beneficiary (or beneficiaries) designated
in accordance with Section 2.1 of the Trust B Agreement or any successor to
such Section). No trustee of Trust B shall be removed by the Company, and
no successor trustee of Trust B shall be appointed by the Company, without
the consent of the Executive (or, if he is no longer living, the consent of
his beneficiary (or beneficiaries) designated in accordance with Section
2.1 of the Trust B Agreement or any successor to such Section), which
consent may not be unreasonably withheld."
"(c) Notwithstanding anything to the contrary in this Section 2.5, in the
Trust B Agreement, or in any other plan, trust or agreement of the Company,
the Company shall at all times remain obligated to make all payments in
respect of retirement or deferred compensation benefits to which the
Executive (or his beneficiaries) is entitled under SERP A or this Agreement
(including, without limitation, Sections 3.4(a), 3.9(b) and 3.10(b) of this
Agreement), subject to offset for any such payment made from Trust B or
other sources."
"(d) The Company shall use reasonable efforts to acquire, from an insurance
company, bank or other institution reasonably acceptable to the Executive
(the "Institution"), an insurance policy, letter of credit or comparable
form of financial guarantee (the "Financial Guarantee"), approved by the
Executive as to form and substance (which approval shall not be
unreasonably withheld), to guarantee the Company's obligations, under SERP
A, Schedule A to the Trust
4
B Agreement, and this Agreement (including, without limitation, Sections
2.5(a), 3.9(c) and 3.10(c)), to make contributions to Trust B. The
Financial Guarantee shall have the following properties: (1) the
beneficiary of the Financial Guarantee shall be Trust B; (2) within 60 days
of the Company's failure to timely make a required contribution to Trust B,
the Institution shall make the contribution; and (3) contributions made by
the Institution shall have the same status as contributions made by the
Company and shall be available to creditors of the Company in the event of
the bankruptcy or insolvency of the Company."
7. The first sentence of Section 3.2(a) of the Agreement, and the first
sentence of Section 3.3(a) of the Agreement, are each amended to replace the
words "this Agreement" with the words "the Executive's employment with the
Company".
8. The second sentence of Section 3.2(a) of the Agreement is amended to
read in its entirety as follows:
"For purposes of this Agreement and of all other plans, programs,
agreements and arrangements of the Company (or any of its subsidiaries) to
which the Executive is a party or in which the Executive participates or is
eligible to participate, Cause shall mean, with respect to the Executive:
(i) the Executive is convicted of a felony involving moral
turpitude; or
(ii) in carrying out his duties under this Agreement, the
Executive engages in conduct that constitutes willful gross neglect or
willful gross misconduct resulting, in either case, in material
economic harm to the Company, unless the Executive believed in good
faith that
5
such conduct was in or not opposed to the best interests of the
Company."
9. The first sentence of Section 3.2(b) of the Agreement is amended to
replace the phrase "Notwithstanding anything in Section 3.2(a) to the contrary,
a termination shall not be for Cause unless" with the following phrase:
"No termination of the Executive's employment for Cause shall be effective
as a termination for Cause for purposes of this Agreement, or as a
termination for cause for purposes of any other plan, program, agreement or
arrangement of the Company (or any of its subsidiaries) to which the
Executive is a party or in which the Executive participates or is eligible
to participate, unless"
10. Section 3.2(b)(i) is amended to replace the phrase "the determination
that Cause exists is made by the Board" with the following phrase:
"the determination that Cause exists is made by resolution approved by at
least three-quarters of the members of the Board"
11. Section 3.3(a)(1)(iv) is amended to delete the phrase "(other than a
reduction in salary permitted by Section 2.1)".
12. Section 3.3(a)(2) of the Agreement shall be amended to read in its
entirety as follows:
"any termination of the Executive's employment within one (1) year
following a "Change of Control" as defined in Section 3.3(b), provided that
in the case of any such termination, regardless of whether by the Company
or the Executive and regardless of the reason therefor (including, without
limitation, death or Disability), then, notwithstanding any other provision
of this
6
Agreement, such termination shall be deemed to be by the Executive for Good
Reason, with the result, among other things, that the Executive shall be
entitled to all of the payments and benefits provided under Section 3.4
(and, without duplication, any benefits to which he would be entitled to
upon death or Disability, if applicable)."
13. Section 3.3(b) of the Agreement is amended to read in its entirety as
follows:
"(b) For purposes of this Agreement and, to the extent of the Executive's
entitlements or participation therein, any other plan, program, agreement
or arrangement of the Company (or any of its subsidiaries), a "Change of
Control" shall be deemed to occur, with respect to the Executive, if (i)
any "person," as such term is used in Section 13(d) of the Securities
Exchange Act of 1934 (the "1934 Act"), other than the Executive and any
"group" (as such term is used in Section 13(d)(3) of the 0000 Xxx) of which
he is a member, becomes a "beneficial owner," as such term is used in Rule
13d-3 promulgated under the 1934 Act, of 20% or more of the "Voting Stock"
(as defined below) of the Company; (ii) the majority of the Board consists
of individuals other than Incumbent Directors, which term means the members
of the Board on the effective date of Amendment No. 2 to this Agreement;
provided that any person becoming a director subsequent to such date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director, unless such election or nomination was the result
of any actual or threatened election contest of a type contemplated by
Regulation 14a-11 under the 1934 Act; (iii) the Company adopts any plan of
liquidation providing for the distribution of all or substantially all of
its assets; (iv) there is consummated any consolidation, reorganization or
merger of the Company in which the Company is not a continuing or surviving
corporation or pursuant to which all or substantially all of the Company's
Voting Stock is converted into
7
cash, securities or other property (unless the shareholders of the Company
immediately prior to such merger, consolidation or reorganization
beneficially own, directly or indirectly, in substantially the same
proportion as they owned the Voting Stock of the Company, all of the Voting
Stock or other ownership interests of the entity or entities, if any, that
succeed to the business of the Company); (v) in any transaction not
described in preceeding clause (iv), all or substantially all of the assets
or business of the Company is disposed of pursuant to a merger,
consolidation or other transaction (unless the shareholders of the Company
immediately prior to such merger, consolidation or other transaction
beneficially own, directly or indirectly, in substantially the same
proportion as they owned the voting stock of the Company, all of the Voting
Stock or other ownership interests of the entity or entities, if any, that
succeed to the business of the Company); or (vi) the Company combines with
another company and is the surviving corporation but, immediately after the
combination, the shareholders of the Company immediately prior to the
combination hold, directly or indirectly, 50% or less of the shares of
Voting Stock of the combined company (there being excluded from the number
of such shares held by such shareholders, but not from the Voting Stock of
the combined company, any such shares received by "affiliates", as such
term is defined in the rules of the United States Securities and Exchange
Commission, of such other company in exchange for stock of such other
company). "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation."
14. The first sentence of Section 3.4(a) of the Agreement is amended to
replace the term "Article II" with the term "Section 1.3" and to replace the
phrase "the Company's Supplemental Executive Retirement Plan" with the phrase
"SERP A".
8
15. The second sentence of Section 3.4(a) of the Agreement is amended to
delete the period that appears at the end of the second sentence and to add the
following material at the end of the second sentence:
"and (3) a 'Pro Rata Bonus Amount,' which shall equal (A) the product
obtained by multiplying (x) the Bonus Amount times (y) a fraction, the
numerator of which is the number of days that shall have elapsed, through
the effective date of such termination, in the fiscal year of the Company
in which the termination occurs and the denominator of which is 365 minus
(B) any payments in respect of a Bonus for the fiscal year in which the
termination occurs that have been received by the Executive and are not
required to be repaid by him pursuant to Section 2.2(b)."
16. The third sentence of Section 3.4(a) of the Agreement is replaced in
its entirety with the following sentence:
"The Severance Amount, Bonus Amount, and Pro Rata Bonus Amount shall all be
paid in one lump-sum cash payment on the effective date of the termination
of the Executive's employment (or, if payment in full on such effective
date is not practicable, as promptly as practicable thereafter, but in no
event more than ten (10) days after such effective date)."
17. Section 3.4 is amended to delete clause (v) in its entirety and to
redesignate clause (vi) as clause (v).
18. Section 3.4(b) of the Agreement is redesignated as "Section 3.13
Gross-Up.". Thus redesignated, such section is moved to the end of Article III.
Such section is further amended to add the words "in connection with one or more
events or conditions involving the Company (whether or not on account of
payments or benefits arising hereunder)" after
9
the words "Section 280G of the Code" and to add the following five sentences at
the end of the section:
"Any payment otherwise required under the preceding sentence shall be made
whether or not a Change of Control shall have occurred and whether or not
the Executive's employment with the Company shall have been terminated. An
independent auditor (the "Auditor"), jointly selected by the Company and
the Executive and paid by the Company, shall determine whether any payment
or payments are due from the Company to the Executive pursuant to this
Section 3.13 and, if so, the amount and the time of any payment(s) to be
made. The Auditor shall be a nationally recognized United States public
accounting firm which has not, during the three years preceding the date of
its selection, acted in any way on behalf of the Company or any affiliate
thereof. If the Executive and the Company cannot agree on the firm to serve
as the Auditor, then the Executive and the Company shall each select one
nationally recognized United States public accounting firm and those two
firms (both of which shall be paid by the Company) shall jointly select the
accounting firm to serve as the Auditor. In making its determinations, the
Auditor shall assume that the Executive is subject to tax at the highest
applicable marginal Federal, state and local income tax rates."
19. The first sentence of Section 3.5(a) of the Agreement is amended to
replace the phrase "The Company may terminate the Executive following a
determination by the Board that" with the following phrase:
"Either party may terminate the Executive's employment with the Company
following a determination that"
10
20. The second sentence of Section 3.5(a) is amended to replace the word
"vote" with the word "termination".
21. Section 3.5(b)(i) of the Agreement is amended to replace the phrase
"for a period of thirty (30) months following the effective date of such
termination" with the following phrase:
"for the period beginning on the effective date of such termination and
ending at the later of (x) the end of the thirtieth month following such
date and (y) the end of the month in which the Executive attains age 62"
22. Article III of the Agreement is amended to add the following new
Sections 3.7 through 3.12 after the end of Section 3.6:
"3.7 Pro Rata Bonus. On termination of the Executive's employment either
(x) for Permanent Disability in accordance with Section 3.5 or (y) by
death, the Executive shall be entitled to receive a Pro Rata Bonus Amount,
determined and paid in accordance with Section 3.4(a) as if the Executive
had resigned for Good Reason on the effective date of such termination."
"3.8 Stock Option Exercisability on a Termination that is Neither by the
Company for Cause, Nor by the Executive without Good Reason Before His 55th
Birthday. Except as set forth in the immediately succeeding sentence, upon
any termination of the Executive's employment with the Company, he shall be
entitled to exercise any outstanding stock option that is exercisable on
the effective date of such termination, or that becomes exercisable in
connection with such termination, at any time until the earlier of (w) the
fifth anniversary of the effective date of such termination and (x) the
expiration of the maximum stated term of the option. The immediately
preceding sentence shall not apply to (y) any termination by the Company
for Cause or (z) any
11
termination by the Executive that occurs before he attains age 55 and that
is not for death, Permanent Disability or Good Reason."
"3.9 Change of Control. Upon any Change of Control that occurs while the
Executive is employed with the Company, he shall be entitled to the
following benefits (in addition to any other payments and benefits
otherwise available hereunder or under any other plan, program or agreement
of the Company):
(a) the continued right to exercise any outstanding stock option until the
later of (i) the fifth anniversary of any termination of the Executive's
employment with the Company and (ii) the fifth anniversary of the
occurrence of the Change of Control, any such stock option to become fully
exercisable and nonforfeitable on the date of the Change of Control,
provided that no stock option shall in any event be exercisable after the
expiration of its maximum stated term;
(b) a vested, nonforfeitable right to retirement benefits determined and
paid in a lump sum in accordance with SERP A (but without any reduction for
retirement prior to attaining age 62) as if he had retired from employment
with the Company with 15 Years of Service on the date that the Change of
Control occurs; and
(c) a prompt, irrevocable contribution by the Company to Trust B, made no
later than 30 days following the date of the Change of Control, in an
amount sufficient to fully and irrevocably fund the benefit accruing under
Section 3.9(b)."
"3.10 Termination Followed By a Change of Control. Upon any Change of
Control that occurs within 12 months following the effective date of any
termination of the Executive's employment with the Company, other than a
termination by the Company for Cause or a termination by the Executive that
12
is not for death, Permanent Disability or Good Reason, he shall be entitled
to the following benefits (in addition to any other payments and benefits
otherwise available hereunder or under any other plan, program or agreement
of the Company):
(a) the continued, or renewed, right to exercise any stock option that was
outstanding on the date of such termination and that has not yet been
exercised when the Change of Control occurs, until the fifth anniversary of
the occurrence of the Change of Control, any such stock option to become
fully exercisable and nonforfeitable on the date of the Change of Control,
provided that no stock option shall in any event be exercisable after the
expiration of its maximum stated term;
(b) a vested, nonforfeitable right to a lump-sum retirement benefit that is
equal to (i) the lump-sum actuarial equivalent of the retirement benefit to
which he would have been entitled under SERP A on the date of the
termination of his employment if (A) he had had 15 Years of Service on that
date and (B) no reduction for retirement prior to age 62 had been applied
minus (ii) the sum of all payments in respect of his retirement benefits
under SERP A that he or his beneficiaries have previously received; and
(c) a prompt, irrevocable contribution by the Company to Trust B, made no
later than 30 days following the date of the Change of Control, in an
amount sufficient to fully and irrevocably fund the benefit accruing under
Section 3.10(b)."
"3.11 Purchase of Automobile. Upon any Change of Control or any termination
of the Executive's employment with the Company (other than a termination by
the Company for Cause or a termination by the Executive that is not for
Permanent Disability or Good Reason), the Executive shall have the
13
right to purchase his current 1998 Mercedes S-600 four-door sedan, or any
successor automobile furnished to him by the Company, at a price equal to
the automobile's then book value."
"3.12 Conforming Amendments. In the event of any inconsistency between the
terms of this Agreement (including, without limitation, the provisions of
Section 2.5, Section 3.2 (a), Section 3.2 (b), Section 3.3(b), Section 3.8,
Section 3.9 or Section 3.10) and any other plan, program, agreement or
arrangement of the Company (or any of its subsidiaries) to which the
Executive is a party or in which the Executive participates or is eligible
to participate, the terms of this Agreement shall prevail."
23. The first sentence of Section 4.2 of the Agreement is amended to insert
the phrase "(which consent shall not be unreasonably withheld)" after the phrase
"without the express written consent of the Company".
24. The first sentence of Section 4.2 of the Agreement is further amended
to delete clauses (i), (ii) and (iii) in their entirety and to replace them with
the following:
", and other than in connection with performing his duties under this
Agreement, (i) solicit for employment, or recommend that any subsequent
employer of the Executive seek to employ, any person who at the time of
such solicitation or recommendation is known by the Executive to be
employed by the Company or any of its affiliates; (ii) solicit, divert, or
endeavor to entice away any customer of the Company or of any of its
affiliates who at the time of such solicitation, diversion or enticement is
known by the Executive to be a customer of the Company or of any of its
affiliates at the time of such solicitation, diversion or enticement; or
(iii) be employed by, be a director, officer or manager of, act as a
consultant for, be a partner in, have a material proprietary interest in,
or otherwise render material assistance to any person,
14
enterprise, partnership, association, corporation, joint venture or other
business entity that then derives 5% or more of its consolidated gross
revenues from owning, operating or managing subacute healthcare facilities
in markets in which it is known by the Executive to compete directly with
subacute healthcare facilities owned, operated or managed by the Company or
its subsidiaries and from which the Company then derives 5% or more of its
consolidated gross revenues (any such person or entity being hereinafter
referred to as a 'Competitor')"
25. Section 4.2 of the Agreement is further amended to insert the following
clause before the period at the end of the second sentence:
"or (iv) being employed by, or rendering services to, any subsidiary or
division of a Competitor so long as (A) such subsidiary or division does
not itself compete directly with the Company or any of its subsidiaries in
any subacute healthcare market and (B) the Executive has no duties or
responsibilities in respect of any portion of the business of the
Competitor that does compete directly with the Company or any of its
subsidiaries in any subacute healthcare market ."
26. Section 6.3 of the Agreement is amended to replace the period that
appears at the end thereof with the following:
"or which are contrary to the provisions incorporated herein through
Amendment No. 2 hereto."
27. Section 6.8(b) of the Agreement is amended to read in its entirety as
follows:
"(b) in connection with (i) any dispute brought by the Executive arising
under or relating to this Agreement unless there is a determination that
the Executive
15
has no reasonable basis for his claim and (ii) any dispute brought by the
Company arising under or relating to this Agreement."
28. The first sentence of Section 6.9 is amended to replace the phrase
"shall be settled exclusively by arbitration" with the following phrase:
"(or, unless expressly required otherwise by an applicable plan, program or
arrangement of the Company, under or in connection with such plan, program
or agreement) shall, at the Executive's election, be settled exclusively by
arbitration"
29. All of the remaining terms and provisions of the Agreement shall remain
in full force and effect, without amendment or modification.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of
the day and year first above written.
COMPANY EXECUTIVE
INTEGRATED HEALTH SERVICES,
INC., a Delaware corporation
By: ____________________________ /s/_________________________
Xxxxxx X. Xxxxxx
Name: ____________________________
Title: ___________________________
---------------------------
16
EXHIBIT A
FORM OF TRUST B AGREEMENT
17
EXHIBIT A
Integrated Health Services, Inc.
Key Employee Supplemental
Executive Retirement Plan A
Trust
("Trust B")
INTEGRATED HEALTH SERVICES, INC.
KEY EMPLOYEE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN A
TRUST AGREEMENT
("TRUST B")
TABLE OF CONTENTS
PREAMBLE ......................................................................1
ARTICLE I - TRUST B FUND...............................................3
ARTICLE II - DEFINITIONS AND USAGE......................................4
ARTICLE III - TRUSTEE POWERS............................................10
ARTICLE IV - TRUSTEE RESPONSIBILITY IN THE EVENT OF
INSOLVENCY OF THE EMPLOYER................................12
ARTICLE V - BENEFIT DISTRIBUTIONS ....................................15
ARTICLE VI - APPOINTMENT OF SUCCESSOR TRUSTEE..........................18
ARTICLE VII - MISCELLANEOUS ............................................21
SIGNATURE.....................................................................25
SCHEDULE A - CONTRIBUTION SCHEDULE.....................................26
SCHEDULE B - PAYMENT SCHEDULE..........................................31
INTEGRATED HEALTH SERVICES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN A TRUST AGREEMENT
("TRUST B")
PREAMBLE
WHEREAS, Xxxxxx X. Xxxxxx (the "Participant") is employed by Integrated Health
Services, Inc. (the "Company") pursuant to the Employment Agreement (as defined
in Section 2.1);
WHEREAS, the Employment Agreement provides for the participation of the
Participant in a nonqualified deferred compensation plan established by the
Company ("Plan A", as defined in Section 2.1);
WHEREAS, the Employment Agreement provides for certain deferred compensation
benefits determined with reference to this Trust B Agreement, the Employment
Agreement and Plan A;
WHEREAS, the Company has incurred and expects to incur liability with respect to
such benefits;
WHEREAS, the Company established in 1996 Trust A (as defined in Section 2.1) to
provide funds to pay participants in Plan A certain deferred compensation
benefits under Plan A;
WHEREAS, the Employment Agreement provides for the establishment and funding of
an additional trust ("Trust B") to provide funds to pay the Participant certain
deferred compensation benefits under Plan A and the Employment Agreement;
WHEREAS, the Participant is a participant in a second non-qualified deferred
compensation plan established by the Company ("Plan Z", as defined in Section
2.1);
1
WHEREAS, the Company established in 1995 a trust ("Trust Z", as defined in
Section 2.1) to provide funds to pay participants in Plan Z certain deferred
compensation benefits under Plan Z;
WHEREAS, the Company intends that the assets in Trust Z attributable to the
Participant's Plan Z Benefits (as defined in Section 2.1) be transferred to
Trust B;
WHEREAS, the Company wishes to establish Trust B and to contribute to Trust B
assets that shall be held therein, subject to the claims of the Company's
creditors in the event of the Company's Insolvency (as defined in Section 2.1),
until paid to the Participant or his Beneficiaries (as defined in Section 2.1);
WHEREAS, it is the intention of the Company and the Trustee that Trust B shall
constitute an unfunded arrangement and shall not affect the status of any plan
maintained by the Company for the purpose of providing deferred compensation for
a select group of management or highly compensated employees as an unfunded plan
for purposes of Title I of ERISA;
WHEREAS, it is the intention of the Company to make contributions to Trust B to
provide itself with a source of funds to assist it in meeting deferred
compensation benefit liabilities with respect to the Participant; and
WHEREAS, the Company and the Trustee desire to enter into this Trust B
Agreement.
NOW, THEREFORE, the Company and the Trustee do hereby establish Trust B and
agree that Trust B shall be comprised, held and disposed of as follows:
2
ARTICLE I
TRUST B FUND
Section 1.1 Establishment of Trust B.
(a) The Company hereby deposits with the Trustee in trust the amounts that
are to be deposited on this date as provided on Schedule A attached
hereto (the "Contribution Schedule"), and shall deposit additional
amounts as provided in the Contribution Schedule, which amounts shall
become the principal of Trust B to be held, administered and disposed
of by the Trustee as provided in this Trust B Agreement.
(b) Trust B hereby established shall be irrevocable.
(c) Trust B is intended to be a grantor trust, of which the Company is the
grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Code, and this Trust B Agreement shall be
construed accordingly.
(d) The principal of Trust B, and any earnings thereon, shall be held
separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes of the Participant and of
general creditors of the Company as herein set forth. The Participant
and his Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of Trust B. Any rights
created under Plan A , Plan Z, the Employment Agreement Pension
Provisions (as defined in Section 2.1) and this Trust B Agreement
shall be mere unsecured contractual rights of the Participant and his
Beneficiaries against the Company. Any assets held in Trust B shall be
subject to the claims of the Company's general creditors under federal
and state law in the event of the Company's Insolvency (as defined in
3
Section 2.1).
ARTICLE II
DEFINITIONS AND USAGE
Section 2.1 Definitions. Wherever used in this Trust B Agreement, the following
words and phrases shall have the meaning set forth below unless the context
plainly requires a different meaning:
"Actuarial Equivalent" shall mean a benefit of equivalent value, computed
on the basis of (i) the 1983 Group Annuity Mortality Table for males and
(ii) the Applicable Discount Rate.
"Allocable Amount", when used with reference to Trust A, shall mean the
amount, if any, of the realizable value of the corpus of Trust A that is
then irrevocably allocated to the payment of the Participant's Retirement
Benefits.
"Applicable Discount Rate" shall mean (except as otherwise expressly
provided) an interest rate equal to the average yield on 30-year United
States Treasury securities for the calendar month preceding the calendar
month in which the Termination Date occurs.
"Average Annual Compensation" shall have the meaning provided under Plan A.
"Beneficiary" shall mean any individual or trust designated by the
Participant as a beneficiary with respect to any Retirement Benefit,
4
any benefit attributable to his Employee Deferral Contributions or any Plan
Z Benefit in his most recent written designation with respect to such
benefit filed with the Company before his death; provided, however, that if
the Participant fails to make a designation with respect to a benefit or if
no individual so designated is alive, and no trust so designated is in
existence, the term "Beneficiary" shall mean in order of priority (a), with
respect to any Retirement Benefit or any benefit attributable to his
Employee Deferral Contributions, (i) the spouse of the deceased
Participant, or (ii) if no spouse is alive, the surviving children of the
deceased Participant, or (iii) if no children are alive, the parent or
parents of the deceased Participant, or (iv) if no parent is alive, the
legal representative of the deceased Participant's estate and (b), with
respect to any Plan Z Benefit, (i) the spouse of the deceased Participant,
or (ii) if no spouse is alive, the Participant's then living descendants,
if any, per stirpes, or (iii) if no descendant is alive, the Participant's
estate.
"Board" shall mean the board of directors of the Company.
"Change of Control" shall have the meaning set forth in the Employment
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time. Any reference to a particular Code section shall include any
provision that modifies, replaces or supersedes it.
"Company" shall mean Integrated Health Services, Inc., a corporation
organized under the laws of the state of Delaware, and any successor
thereto.
5
"Contribution Schedule" shall have the meaning set forth in Section 1.1(a).
"Election" shall mean a written election by the Participant to receive his
Retirement Benefits in a form other than a lump-sum distribution, which
election is in effect on the Termination Date in accordance with to Section
6.2 of Plan A.
"Employee Deferral Contribution" shall have the meaning provided under Plan
A.
"Employment Agreement" shall mean the written employment agreement between
the Participant and the Company, effective as of January 1, 1994, as it is
amended from time to time.
"Employment Agreement or Supplemental Agreement Pension Provision" shall
mean any provision in the Employment Agreement or Supplemental Agreement
relating to retirement benefits (including, without limitation, Sections
2.3(g), 2.5, 3.4, 3.9 and 3.10 of the Employment Agreement, and Section 2
of the Supplemental Agreement, as each agreement is amended through the
date of this Trust B Agreement).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Any reference to a particular ERISA section
shall include any provision that modifies, replaces or supersedes it.
"Insolvent" shall mean that (i) the Company is unable to pay its debts as
they become due, or (ii) the Company is subject to a pending proceeding as
a debtor under the United States Bankruptcy Code.
6
"Participant" shall mean Xxxxxx X. Xxxxxx.
"Party" shall mean either the Company or the Trustee.
"Payment Schedule" shall have the meaning set forth in Section 5.1(a).
"Plan A" shall mean the Integrated Health Services, Inc. Key Employee
Supplemental Executive Retirement Plan ("Plan A"), established effective
March 1, 1996, as it is amended from time to time.
"Plan Z" shall mean the Integrated Health Services, Inc. Supplemental
Deferred Compensation Plan, effective as of January 1, 1995.
"Plan Z Benefit" shall mean any benefit to which the Participant (or any
Beneficiary) is entitled under Plan Z.
"Plan Z Contribution" shall mean any contribution by the Company to Trust B
in respect of Plan Z Benefits.
"Retirement Benefit" shall mean any Retirement Benefit as that term is
defined in Plan A and any additional or different retirement benefit
provided under the Employment Agreement Pension Provisions (other than Plan
Z Benefits, benefits attributable to Employee Deferral Contributions, and
benefits that are determined without reference to Plan A or Plan Z).
"Scheduled Amount" shall mean the 1998 Scheduled Amount, 1999 Scheduled
Xxxxxx, 0000 Scheduled Amount or 2001 Scheduled Amount, as such terms are
defined in Section 2 of Schedule A.
7
"Supplemental Agreement" shall mean the Supplemental Agreement, effective
as of November 18, 1997, between the Company and the Participant, as that
agreement may be from time to time amended.
"Termination Date" shall mean the date on which the Participant's
employment with the Company terminates.
"Trust A" shall mean the Integrated Health Services, Inc. Key Employee
Supplemental Executive Retirement Plan Trust (Trust A), which was
established in connection with Plan A in 1996 and of which The Xxxxxxx
Xxxxxx Trust Company is the initial trustee.
"Trust B" shall mean the trust established by this Trust B Agreement.
"Trust B Agreement" shall mean this trust agreement, as it may be amended
from time to time, and includes for all purposes the Contribution Schedule
and the Payment Schedule.
"Trust Z" shall mean the Integrated Health Services, Inc. Supplemental
Deferred Compensation Plan Trust Agreement, which was established in
connection with Plan Z in 1995 and of which The Xxxxxxx Xxxxxx Trust
Company is the initial trustee.
"Trust Z Transfer" means any amount or property transferred from Trust Z to
Trust B.
"Trustee" shall mean Xxxxx Xxxxxx, Inc. or any successor appointed in
accordance
8
with Article VI.
Section 2.2 Usage. Except where otherwise indicated by the context, any
masculine terminology used herein shall also include the feminine and vice
versa, and the definition of any term herein in the singular shall also include
the plural and vice versa.
9
ARTICLE III
TRUSTEE POWERS
Section 3.1 Trustee Powers.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.
(b) If the Trustee undertakes or defends any arbitration, proceeding or
litigation arising in connection with Trust B, the Company agrees to
indemnify the Trustee against the Trustee's costs, expenses and liabilities
(including, without limitation, reasonable attorneys' fees and expenses)
relating thereto and to be primarily liable for such payments.
(c) The Trustee may consult with legal counsel (who, prior to any Change of
Control, may also be counsel for the Company generally) with respect to any
of its duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder. The expense of such
professionals shall be paid by the Company.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein;
provided, however, that if an insurance policy is held as an asset of Trust
B, the Trustee shall have no power to name a beneficiary of the policy
other than Trust B, to assign the policy (as distinct from conversion of
the policy to a different form) other than to a successor Trustee, or to
loan
10
to any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust B Agreement or to applicable law, the Trustee shall not have any
power that could give Trust B the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of
the Procedure and Administrative Regulations promulgated pursuant to the
Code.
Section 3.2 Investment Powers. In no event may the Trustee invest in obligations
issued by the Company, other than a de minimis amount held in common investment
vehicles in which the Trustee invests. All rights associated with assets of
Trust B shall be exercised by the Trustee or a person designated by the Trustee,
and shall in no event be exercisable by, or rest with, the Participant.
11
ARTICLE IV
TRUSTEE RESPONSIBILITY IN THE EVENT OF
INSOLVENCY OF THE EMPLOYER
Section 4.1 Trustee Responsibility Regarding Payments To The Trust Beneficiary
When The Company Is Insolvent.
(a) The Trustee shall cease payment of benefits to the Participant and his
Beneficiaries if the Company is Insolvent.
(b) At all times during the continuance of Trust B, the principal and
income of Trust B shall be subject to claims of general creditors of the
Company under federal and state law as set forth below.
(i) The Board and the Chief Executive Officer of the Company shall
have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is
Insolvent and, pending such determination, the Trustee shall
discontinue payment of benefits to the Participant and his
Beneficiaries.
(ii) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person
claiming to be a creditor alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such evidence
concerning the Company's solvency as may be furnished to the Trustee
and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
12
(iii) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to the Participant
and his Beneficiaries and shall hold the assets of Trust B for the
benefit of the Company's general creditors. Nothing in this Trust B
Agreement shall in any way diminish any rights of the Participant or
his Beneficiaries to pursue their rights as general creditors of the
Company with respect to benefits due under Plan A, the Employment
Agreement Pension Provisions, or otherwise.
(iv) The Trustee shall resume payments to the Participant (or his
Beneficiaries) in accordance with Section 5 of this Trust B Agreement
only after the Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets in Trust B, if the Trustee
discontinues payments from Trust B to the Participant (or his
Beneficiaries) pursuant to Section 4.1(b) hereof and subsequently resumes
such payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to the Participant and his
Beneficiaries under the terms of the Payment Schedule for the period of
such discontinuance, less the aggregate amount of any payments in respect
of amounts that would otherwise remain due under the terms of the Payment
Schedule that were made to the Participant or his Beneficiaries by the
Company, the trustee of Trust A, the trustee of Trust Z, or any other
person in lieu of such payments during any such period of discontinuance.
(d) Whenever the Trustee must determine the insolvency or solvency of the
Company under the provisions of this section, the Trustee is authorized to
request and obtain an opinion as to the Company's insolvency or solvency
from the external financial auditors of the Company. If the Company's
external financial auditors are unable to or decline to
13
render such an opinion to the Trustee, the Trustee shall obtain such
opinion from an auditing firm of Trustee's choice and the Company shall
cooperate with such auditing firm to enable such auditing firm to render
such an opinion. The expenses and fees of an auditing firm in providing
such service and opinion shall be an administrative expense of the Trust
and unless paid by the Company shall be paid from the Trust. The Trustee
may rely on such opinion in taking appropriate action under the terms of
this Trust.
14
ARTICLE V
BENEFITS DISTRIBUTIONS
Section 5.1 Payment Schedule.
(a) Simultaneously with the execution and delivery of this Trust B
Agreement, the Company is delivering to the Trustee a schedule (the
"Payment Schedule") in the form attached hereto as Schedule B that
indicates (i) the amounts payable in respect of Retirement Benefits,
Employee Deferral Contributions and Plan Z Benefits to the Participant (and
his Beneficiaries) or a formula or other instructions acceptable to the
Trustee for determining the amounts so payable, (ii) the form in which such
amounts are to be paid and (iii) the time of payment, or of commencement of
payment, of such amounts. Except as otherwise provided herein, the Trustee
shall make payments to the Participant (and his Beneficiaries) in
accordance with such Payment Schedule. The Trustee shall make provision for
the reporting and withholding of any federal, state or local taxes that may
be required to be withheld with respect to such payments and shall pay
amounts withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by the Company. The
Company shall certify to the Trustee the types and amount of taxes to be
withheld from each payment hereunder. The Trustee shall forward a check for
taxes withheld from each such payment to the Company. Company shall deposit
such withheld taxes with the appropriate taxing authorities and report such
deposits to the taxing authorities and to the participants and/or
beneficiaries.
(b) The entitlement of the Participant and his Beneficiaries to payments in
respect of Retirement Benefits, Employee Deferral Contributions and Plan Z
Benefits shall be determined as provided in the Payment Schedule, the
Employment Agreement, the Supplemental Agreement, Plan Z (in the case of
payments in respect of Plan Z Benefits) and Plan A (in the case of all
other payments). Any claims for such benefits shall be
15
considered and reviewed under the procedures provided in this Trust B
Agreement, the Employment Agreement, the Supplemental Agreement, Plan A and
Plan Z.
(c) The Company may make payments in respect of Retirement Benefits,
Employee Deferral Contributions and Plan Z Benefits directly to the
Participant or his Beneficiaries as they become due. The Company shall
notify the Trustee of its decision to make such direct payments prior to
the time such payments become due. No payment by the Company shall be
treated as made in respect of Retirement Benefits, Employee Deferral
Contributions or Plan Z Benefits unless the Participant (or the recipient
Beneficiary) consents in writing to such characterization, which consent
shall not be unreasonably withheld.
(d) If the assets of Trust B are not sufficient to make all payments in
respect of Retirement Benefits, Employee Deferral Contributions and Plan Z
Benefits when due under the Payment Schedule, the Company shall make the
balance of each such payment as it falls due. The Trustee shall promptly
notify the Company if the assets of Trust B are not sufficient to make such
payments.
Section 5.2 Payments to the Company. Except as provided in Section 4.1(b)
hereof, the Company shall have no right or power to direct the Trustee to return
to the Company, or to divert to others, any of the assets of Trust B before all
payments that are, or may become, due in respect of Retirement Benefits,
Employee Deferral Contributions, and Plan Z Benefits have been made to the
Participant and his Beneficiaries.
Section 5.3 Disposition of Income. During the term of Trust B, all income and
earnings received by Trust B, net of expenses and taxes, shall be accumulated
and reinvested.
Section 5.4 Accounting by the Trustee. The Trustee shall keep accurate and
detailed records
16
of all investments, receipts, disbursements, and all other transactions made in
respect of Trust B, including such specific records as shall be agreed upon in
writing between the Company and the Trustee. The Trustee shall establish and
maintain three separate bookkeeping accounts for Trust B. One account shall
reflect all Trust B income, earnings and assets attributable to Employee
Deferral Contributions. A second account shall reflect all Trust B income,
earnings and assets attributable to Trust Z Transfers or Plan Z Contributions. A
third account shall reflect all other Trust B income, earnings and assets.
Within forty-five (45) days following the close of each calendar year and within
thirty (30) days after the removal or resignation of the Trustee, the Trustee
shall deliver to the Company a written account of its administration of Trust B
during such year or during the period from the close of the last preceding year
to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in Trust B at the end of such year or as of the date of such removal or
resignation, as the case may be.
Section 5.5 Compensation and Expenses of the Trustee. The Company shall pay all
administrative and Trustee's fees and expenses. The amount of the Trustee's fees
shall be as agreed upon by the Company and the Trustee.
17
ARTICLE VI
APPOINTMENT OF SUCCESSOR TRUSTEE
Section 6.1 Resignation and Removal of the Trustee.
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective thirty (30) days after receipt of such notice
unless the Company and the Trustee agree otherwise.
(b) The Trustee may, with the written consent of the Participant (or, if he
is no longer living, his Beneficiaries), which consent may not be
unreasonably withheld, be removed by the Board on thirty (30) days notice
or upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets of Trust B shall subsequently be transferred
to the successor Trustee. The transfer shall be completed within thirty
(30) days after receipt of notice of the resignation, removal or transfer,
unless the Board extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed in
accordance with Section 6.2 no later than the effective date of such
resignation or removal. If no such appointment has been made by such
effective date, the Trustee may apply to a court of competent jurisdiction
for appointment of a successor or for instructions. All expenses of the
Trustee in connection with such a proceeding shall be allowed as
administrative expenses of Trust B.
Section 6.2 Appointment of Successor Trustee.
18
(a) If the Trustee resigns (or is removed) in accordance with Section
6.1(a) or (b) hereof, the Board may, with the written consent of the
Participant (or, if he is no longer living, his Beneficiaries), which
consent may not be unreasonably withheld, appoint any bank trust department
or other party that may be granted corporate trustee powers under state law
as a successor to replace the Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the successor
Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the assets of Trust B. The former Trustee
shall execute any instrument necessary or reasonably requested by the
Company or the successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing assets of Trust B,
subject to Sections 3 and 5.4 hereof. The successor Trustee shall not be
responsible for, and the Company shall indemnify and defend the successor
Trustee from, any claim or liability resulting from any action or inaction
of any prior Trustee or from any other past event, or any condition
existing at the time it becomes successor Trustee.
(c) Upon settlement of the account and transfer of the assets of Trust B to
a successor Trustee, all rights and privileges of the Trustee under this
Trust B Agreement shall vest in the successor Trustee and all
responsibility and liability of the Trustee with respect to Trust B and
assets thereof shall terminate subject only to the requirements that the
Trustee execute all necessary documents to transfer the assets of Trust B
to the successor Trustee, and that the Trustee deliver a final accounting
of Trust B to the Company.
Section 6.3 Amendment or Termination.
(a) This Trust B Agreement may, with the written consent of the Participant
(or, after his death, his Beneficiaries), be amended by a written
instrument executed by the Trustee
19
and the Company. Notwithstanding the foregoing, no such amendment shall (i)
conflict with the terms of the Employment Agreement or (ii) make Trust B
revocable, unless the Participant (or, after his death, his Beneficiaries)
consents in writing to such conflict or revocability, as applicable.
(b) Trust B shall not terminate until (i) the Participant and his
Beneficiaries have received all payments that are, or may become, due to
them with respect to Retirement Benefits, Employee Deferral Contributions
and Plan Z Benefits and (ii) the Trustee's final accounting report has been
accepted and approved.
(c) Upon termination of Trust B, the Trustee shall distribute any assets
remaining in Trust B to the Company or to such designee as selected by the
Company.
20
ARTICLE VII
MISCELLANEOUS
Section 7.1 Indemnification. In addition to and not in derogation of any other
indemnification and hold harmless provisions in this Trust agreement, the
Company agrees to indemnify and hold the Trustee harmless from and against any
liability, loss or claim that the Trustee may incur or which may be assessed or
made against the Trustee in the administration of the Trust, including, without
limitation, liability for legal and other professional fees ("liabilities"),
unless arising from the Trustee's own gross negligence or willful misconduct, or
except as such indemnification may be prohibited by applicable law. With respect
to such aforementioned liabilities or the Trustee's own fees from the Trust,
should the Trust prove insufficient or it is held by a court of competent
jurisdiction that such liabilities and/or fees are not properly payable from the
Trust, the Company shall remain liable to indemnify the Trustee against such
liabilities and/or to pay the Trustee such fees. This indemnification and hold
harmless provision as well as all other such indemnification and hold harmless
provisions in this Trust agreement shall survive the term of the Trustee acting
as such under this Trust agreement and shall survive the term of this Trust
agreement.
Section 7.2 Spendthrift Trust. Benefits payable to the Participant or his
Beneficiaries under this Trust B Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable process.
Section 7.3 Severability. If any provision or provisions of this Trust B
Agreement shall for any reason be invalid or unenforceable, the remaining
provisions of this Trust B Agreement shall be carried into effect unless the
effect thereof would be to materially alter or defeat the purpose of this Trust
B Agreement.
21
Section 7.4 Governing Law. This Trust B Agreement shall be subject to and
construed in accordance with the laws of the state of Maryland, without
reference to principles of conflict of laws, to the extent not preempted by the
provisions of ERISA.
Section 7.5 Waiver. No waiver by either Party of any breach by the other Party
of any condition or provision contained in this Trust B Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by an authorized officer of the Company
or the Trustee, as the case may be.
Section 7.6 Arbitration. Any dispute that arises between the Parties, or between
either Party and the Participant or any of his Beneficiaries, and that relates
to this Trust B Agreement (including, without limitation, the Contribution
Schedule and the Payment Schedule) shall, at the election of the Trustee, the
Participant or, after the Participant's death, any Beneficiary (provided that
such electing person is a party to the dispute), be resolved exclusively by
confidential arbitration in Baltimore, Maryland, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Judgement
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The Company shall pay all fees and costs of the American
Arbitration Association and the arbitrators in connection with any such
arbitration, and all reasonable costs and expenses (including reasonable
attorneys fees) incurred by the Participant or any of his Beneficiaries in
connection with any such arbitration.
Section 7.7 Resolution of Inconsistencies. In the event of an inconsistency
between (i) Plan A or Plan Z and (ii) the Employment Agreement, the Supplemental
Agreement or this Trust B Agreement, the terms of the Employment Agreement, the
Supplemental Agreement and this Trust B Agreement shall prevail.
Section 7.8 Notices.
22
(a) Any notice, consent, demand, request, or other communication given to a
Party or the Participant in connection with this Trust B Agreement shall be
in writing and shall be deemed to have been given (a) when delivered
personally to the person specified or (b), provided that a written
acknowledgment of receipt is obtained, two days after delivery by certified
or registered mail, or by a nationally recognized overnight courier, to the
address set forth below for the person specified (or to such other address
for such person as shall be specified by ten days advance notice given
pursuant to this Section 7.7).
If to the Company: Integrated Health Services, Inc.
00000 Xxx Xxx Xxxxxxxxx
Xxxxxx Xxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Xxxxx
With a copy to: Xxxxxxxx X. Xxxxxx
Integrated Health Services, Inc.
00000 Xxx Xxx Xxxxxxxxx
Xxxxxx Xxxxx, Xxxxxxxx 00000
If to the Participant: Xx. Xxxxxx X. Xxxxxx
0000 Xxx Xxxxxx Xxxxx #X0000
Xxxxxx, Xxxxxxx 00000
With a copy to: Xxxxxx X. Xxxxxxx
Xxxxxx & Xxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
23
If to the Trustee: Xxxxx Xxxxxx, Inc.
0 Xxxxxxx Xxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: Xxxx Xxxx
With a copy to:
(b) any notice or other communication given by a Party to a Beneficiary in
connection with this Trust B Agreement shall be in writing and shall be
deemed to have been given (a) when delivered personally to the person
specified or (b), provided that a written acknowledgment of receipt is
obtained, two days after delivery by certified or registered mail, or by a
nationally recognized overnight courier, to the address for such
Beneficiary first provided to the Party by the Participant (or to such
other address for such Beneficiary as shall be specified by the Participant
or the Beneficiary by ten days advance notice given pursuant to this
Section 7.7).
Section 7.9 Headings. The headings of the sections contained in this Trust B
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any of its provisions.
24
IN WITNESS WHEREOF, this Trust B Agreement has been executed this 25th day of
November, 1997 by the Company, as the Grantor, and Xxxxx Xxxxxx, Inc. as the
Trustee to evidence their adoption of this Trust B Agreement.
Signed and delivered in the presence of:
Integrated Health Services, Inc.
________________________________ By ____________________________
-------------------------------- -------------------------------
Witness as to the Company Print Name/Title
Attest ________________________
-------------------------------- -------------------------------
Trustee
-------------------------------- -------------------------------
Witness as to the Trustee Print Name/Title
25
SCHEDULE A
CONTRIBUTION SCHEDULE
1. The Company shall irrevocably deposit the following amounts in trust
with the Trustee on or before the following dates:
--------------------------------------------------------------------------------
Date of Contribution Amount of Contribution
--------------------------------------------------------------------------------
On the date that Trust B is established $1,000
--------------------------------------------------------------------------------
No later than ten days after Trust B is
established An additional $3,573,000
--------------------------------------------------------------------------------
No later than the later of (i) ten days after
Trust B is established and (ii) January 2, 1998 1998 Scheduled Amount
--------------------------------------------------------------------------------
No later than January 4, 1999 The 1999 Scheduled Amount
--------------------------------------------------------------------------------
No later than January 2, 2000 The 2000 Scheduled Amount
--------------------------------------------------------------------------------
No later than January 2, 2001 The 2001 Scheduled Amount
--------------------------------------------------------------------------------
2. For purposes of this Schedule A,
a. "1998 Scheduled Amount" shall mean an amount such that:
(i) such Scheduled Amount, compounded at 8% annually from January
1, 1998, through July 1, 2001, plus three additional equal
amounts, compounded at 8% annually (x) from January 1, 1999
through July 1, 2001; (y) from January 1, 2000 through July 1,
2001; and (z) from January 1, 2001 through July 1, 2001,
respectively, would equal
(ii) the excess (if any) of (x) $23.9 million over (y) an amount
equal to the
26
value of the corpus of Trust B as of January 1, 1998 (excluding
the value of any contribution in respect of the 1998 Scheduled
Amount), compounded at 8% annually from January 1, 1998 through
July 1, 2001.
b. "1999 Scheduled Amount" shall mean an amount such that:
(i) such Scheduled Amount, compounded at 8% annually from January
1, 1999, through July 1, 2001, plus two additional equal amounts,
compounded at 8% annually (x) from January 1, 2000 through July
1, 2001 and (y) from January 1, 2001 through July 1, 2001,
respectively, would equal
(ii) the excess (if any) of (x) $23.9 million over (y) an amount
equal to the value of the corpus of Trust B as of January 1, 1999
(excluding the value of any contribution in respect of the 1999
Scheduled Amount), compounded at 8% annually from January 1, 1999
through July 1, 2001.
c. "2000 Scheduled Amount" shall mean an amount such that:
(i) such Scheduled Amount, compounded at 8% annually from January
1, 2000, through July 1, 2001, plus an additional equal amount,
compounded at 8% annually from January 1, 2001 through July 1,
2001, would equal
(ii) the excess (if any) of (x) $23.9 million over (y) an amount
equal to the value of the corpus of Trust B as of January 1, 2000
(excluding the value of any contribution in respect of the 2000
Scheduled Amount), compounded at 8% annually from January 1, 2000
through July 1, 2001.
27
d. "2001 Scheduled Amount" shall mean an amount such that
(i) such Scheduled Amount, compounded at 8% annually from January
1, 2001, through July 1, 2001, shall equal
(ii) the excess (if any) of (x) $23.9 million over (y) an amount
equal to the value of the corpus of Trust B as of January 1, 2001
(excluding the value of any contribution in respect of the 2001
Scheduled Amount), compounded at 8% annually from January 1, 2001
through July 1, 2001.
3. To illustrate the operation of Sections 1 and 2 of this Schedule A with
an example, suppose that the value of the corpus of Trust B on January 1, 1999
is $10,000,000. The 1999 Scheduled Amount would then be $3,491,186 , since
$3,491,186 compounded at 8% annually for 2.5 years plus $3,491,186 compounded at
8% annually for 1.5 years plus $3,491,186 compounded at 8% annually for 0.5
years equals $11,778,416, which is the excess of $23.9 million over $10 million
compounded at 8% annually for 2.5 years.
4. No later than the first business day in each calendar year after 2001,
the Company shall irrevocably contribute to Trust B any additional amount (an
"Additional Contribution") as may be required to assure that the sum of (i) the
realizable value of the corpus of Trust B (excluding assets attributable to
Employee Deferral Contributions, Trust Z Transfers or Plan Z Contributions),
plus (ii) the Allocable Amount of Trust A, is equal to or greater than:
a. if the Termination Date has already occurred, the lump-sum
Actuarial Equivalent (determined as of the first business day of
such year and using an Applicable Discount Rate equal to the
average yield on 30-year United States Treasury securities for
the last month of the preceding year) of all unpaid Retirement
Benefits; and
28
b if the Termination Date has not yet occurred, the lump-sum
payment with respect to Retirement Benefits to which the
Participant would have been entitled had the Termination Date
occurred on the first business day of such year without his
having made an Election.
5 Upon any Change of Control, the Company shall, as soon as practicable but
in no event later than 30 days following the Change of Control, irrevocably
contribute to Trust B any additional amount (a "Change of Control Contribution")
as may be required to assure that the sum of (i) the realizable value of the
corpus of Trust B (excluding assets attributable to Employee Deferral
Contributions, Trust Z Transfers or Plan Z Contributions), plus (ii) the
Allocable Amount of Trust A, is equal to or greater than:
a if the Termination Date has already occurred, the lump-sum
Actuarial Equivalent (determined as of the date of the Change of
Control and using an Applicable Discount Rate equal to the
average yield on 30-year United States Treasury securities for
the month preceding the month in which the Change of Control
occurs) of all unpaid Retirement Benefits; and
b if the Termination Date has not yet occurred, the lump-sum
payment with respect to Retirement Benefits to which the
Participant would have been entitled had the Termination Date
occurred on the date of the Change of Control without his having
made an Election.
6 Unless the Participant (or, after his death, his Beneficiaries) consents
in writing to an alternative procedure, the amount of any Scheduled
Contribution, Additional Contribution, and Change of Control Contribution shall
be determined by a Big Six accounting firm that (a) has not provided services to
the Company or any of its affiliates during the three years preceding the date
29
on which the determination is made, (b) is selected and paid for by the Company,
and (c) is reasonably acceptable to the Participant (or, after his death, his
Beneficiaries).
7 The Company shall irrevocably contribute to Trust B amounts equal to any
amounts the Participant may designate as Employee Deferral Contributions
pursuant to Article V of Plan A. Each such contribution shall be due from the
Company to Trust B no later than 30 days after the date on which the
corresponding deferred amount would have been due to the Participant had he not
elected to defer it.
8 All deposits and contributions made by the Company to Trust B pursuant to
Sections 1 through 5 of this Contribution Schedule shall be made in cash.
9 The Company shall use reasonable efforts to secure the prompt transfer to
Trust B of (a) the assets in Trust A that are attributable to contributions made
by the Company in respect of the Executive's Retirement Benefits under Plan A
and (b) the assets in Trust Z that are attributable to contributions by the
Company in respect of the Executive's Plan Z Benefits.
10 The Company, in its sole discretion, may at any time, or from time to
time, make additional irrevocable contributions of cash or other property to
Trust B, beyond the contributions referred to in Sections 1 through 9 of this
Contribution Schedule.
11 This Contribution Schedule forms part of the Trust B Agreement, and all
capitalized terms in it shall have the meanings set forth in the Trust B
Agreement.
30
SCHEDULE B
PAYMENT SCHEDULE
1 On any termination of the Participant's employment with the Company that
occurs on or after July 1, 2005 and that is not on account of death, the Trustee
shall make the following payments from Trust B in respect of the Participant's
Retirement Benefits.
(a) In the event that the Participant has made an Election,
(i) if the Participant has elected to receive his Retirement
Benefits as a single life annuity, he shall be paid an annual annuity
for his life, with each annual payment equaling seventy percent (70%)
of his Average Annual Compensation;
(ii) if the Participant has elected to receive his Retirement
Benefits as a joint and fifty percent (50%) survivor annuity,
(A) he shall be paid an annual annuity for his life that is
the Actuarial Equivalent, when his right to payments under
Section 1(a)(ii)(B) is taken into account, of the annual annuity
determined in accordance with Section 1(a)(i), and
(B) upon the death of the Participant, his Beneficiary (if
then living) shall be paid an annual annuity for his or her life,
with each annual payment equaling 50% of the Participant's annual
annuity payment determined in accordance with Section
1(a)(ii)(A); and
(iii) if the Participant has elected to receive his Retirement
Benefits in the form of a number of substantially equal annual
payments,
31
(A) each such annual payment shall equal the amount that is
required to make the present value of all such payments,
determined as of the Termination Date and using the Applicable
Discount Rate, equal to the lump-sum Actuarial Equivalent of the
annual annuity determined in accordance with Section 1(a)(i); and
(B) if the Participant dies before all payments provided for
under Section 1(a)(iii)(A) are due, his Beneficiary (or
Beneficiaries) shall receive any remaining payments not yet due.
(b) In the event that the Participant has not made an Election, the
Participant shall be paid a lump-sum distribution in respect of
his Retirement Benefits that is the Actuarial Equivalent of the
annual annuity determined in accordance with Section 1(a)(i).
2 On any termination of the Participant's employment with the Company that
occurs after July 1, 2001 but before July 1, 2005 and that is not on account of
death, the Trustee shall make the following payments from Trust B in respect of
the Participant's Retirement Benefits.
(a) In the event that the Participant has made an Election,
(i) if the Participant has elected to receive his Retirement
Benefits as a single life annuity, he shall be paid an annual annuity
for his life, with each annual payment equaling seventy percent (70%)
of his Average Annual Compensation, except that each such payment
shall be reduced by two-twelfths of one percent for each full calendar
month by which his Termination Date precedes July 1, 2005;
(ii) if the Participant has elected to receive his Retirement
Benefits as a joint and fifty percent (50%) survivor annuity,
32
(A) he shall be paid an annual annuity for his life that is
the Actuarial Equivalent, when his right to payments under
Section 2(a)(ii)(B) is taken into account, of the annual annuity
determined in accordance with Section 2(a)(i); and
(B) upon the death of the Participant, his Beneficiary (if
then living) shall be paid an annual annuity for his or her life,
with each annual payment equaling 50% of the Participant's annual
annuity payment determined in accordance with Section
2(a)(ii)(A); and
(iii) if the Participant has elected to receive his Retirement
Benefits in the form of a number of substantially equal annual
payments,
(A) each such annual payment shall equal the amount that is
required to make the present value of all such payments,
determined as of the Termination Date and using the Applicable
Discount Rate, equal to the lump-sum Actuarial Equivalent of the
annual annuity determined in accordance with Section 2(a)(i); and
(B) if the Participant dies before all payments provided for
under Section 2(b)(iii)(A) are due, his Beneficiary (or
Beneficiaries) shall receive any remaining payments not yet due.
(b) In the event that the Participant has not made an Election, the
Participant shall be paid a lump-sum distribution in respect of his
Retirement Benefits that is the Actuarial Equivalent of the annual annuity
determined in accordance with Section 2(a)(i).
3 On any termination of the Participant's employment with the Company that
occurs prior July 1, 2001 and that is not on account of death, the Trustee shall
make the following payments from Trust B in respect of the Participant's
Retirement Benefits.
33
(a) In the event that the Participant has made an Election,
(i) if the Participant has elected to receive his Retirement
Benefits as a single life annuity, he shall be paid an annual annuity
for his life that is the Actuarial Equivalent of the following
annuity: an annual annuity for his life, commencing on July 1, 2005,
with each annual payment equaling the percentage of his Average Annual
Compensation that is determined in accordance with Appendix I to Plan
A.
(ii) if the Participant has elected to receive his Retirement
Benefits as a joint and fifty percent (50%) survivor annuity,
(A) he shall be paid an annual annuity for his life that is
the Actuarial Equivalent, when his right to payments under
Section 3(a)(ii)(B) is taken into account, of the annual annuity
determined in accordance with Section 3(a)(i); and
(B) upon the death of the Participant, his Beneficiary (if
then living) shall be paid an annual annuity for his or her life,
with each annual payment equaling 50% of the Participant's annual
annuity payment determined in accordance with Section
3(a)(ii)(A); and
(iii) if the Participant has elected to receive his Retirement
Benefits in the form of a number of equal annual payments,
(A) each such annual payment shall equal the amount that is
required to make the present value of all such payments,
determined as of the Termination Date and using the Applicable
Discount Rate, equal to the lump-sum Actuarial Equivalent of the
annual annuity determined in accordance with Section 3(a)(i); and
34
(B) if the Participant dies before receiving all payments
provided for under Section 3(b)(iii)(A), his Beneficiary (or
Beneficiaries) shall receive any remaining payments not yet due.
(b) In the event that the Participant has not made an Election, the
Participant shall be paid a lump-sum distribution in respect of his
Retirement Benefits that is the Actuarial Equivalent of the annual annuity
determined in accordance with Section 3(a)(i).
4 The first annual payment due pursuant to Sections 1(a), 2(a) and 3(a)
shall be due on the Termination Date and shall be paid as soon as practicable
thereafter, but in no event more than 30 days after the Termination Date. Each
subsequent annual payment due pursuant to such Sections shall be due on
anniversaries of the Termination Date. Payments due pursuant to Sections 1(b),
2(b) and 3(b) shall be due on the Termination Date and shall be paid as soon as
practicable thereafter, but in no event more than 30 days after the Termination
Date.
5 Upon any termination of the Participant's employment with the Company on
account of death, the Trustee shall make from Trust B to the Participant's
Beneficiary (or Beneficiaries), as soon as practicable but in no event more than
30 days after the Participant's death, a lump-sum payment that is equal to the
lump-sum payment that the Participant would have received had his employment
with the Company terminated on the day before his death without his having made
any Election.
6 Upon any Change of Control occurring while the Participant is employed
with the Company, the Trustee shall make from Trust B to the Participant (or his
Beneficiaries), as soon as practicable but in no event more than 60 days after
the Change of Control occurs, a lump-sum payment in respect of the Participant's
Retirement Benefits equaling (a) the lump-sum Actuarial Equivalent of the
following annuity: an annual annuity for his life, commencing as of the date of
the
35
Change of Control and determined as if the Termination Date had occurred on the
date of the Change of Control, under which each annual payment equals seventy
percent (70%) of his Average Annual Compensation minus (b) the sum of any
payments in respect of Retirement Benefits previously received by the
Participant (or his Beneficiaries) in respect of Retirement Benefits. Any such
lump-sum payment, if made timely and in full, shall extinguish any right to
payments from Trust B under Sections 1 through 5.
7 Upon any Change of Control occurring within 12 months following any
termination of the Participant's employment with the Company, the Trustee shall
make from Trust B to the Participant (or his Beneficiaries), as soon as
practicable but in no event more than 60 days after the Change of Control
occurs, a lump-sum payment in respect of the Participant's Retirement Benefits
equaling (a) the lump-sum Actuarial Equivalent of the following annuity: an
annual annuity for his life, determined and commencing as of the Termination
Date, under which each annual payment equals seventy percent (70%) of his
Average Annual Compensation minus (b) the sum of any payments in respect of
Retirement Benefits previously received by the Participant (or his
Beneficiaries) in respect of Retirement Benefits. Any such lump-sum payment, if
made timely and in full, shall extinguish any right to further payments from
Trust B under Sections 1 through 5.
8 Subject to the provisions of Section 5.1(c) of the Trust B Agreement,
payments due to the Participant (or his Beneficiaries) under Sections 1 through
7 of this Payment Schedule shall be offset by payments in respect of Retirement
Benefits that the Participant (or his Beneficiaries) have already received from
Trust A, the Company or other sources.
9 This Section 9 addresses payments made from assets of Trust B that are
attributable to Employee Deferral Contributions (if any). The Trustee shall pay
to the Participant, from such assets, any payment authorized to be made prior to
the Termination Date pursuant to Section 5.4 of Plan A (or any successor to such
Section). Any such payment shall be made as soon as practicable (but in no event
more than 30 days) after the payment has been authorized
36
pursuant to Section 5.4 of the Plan (or any successor to such Section). No later
than 30 days after the Termination Date, the Trustee shall pay to the
Participant (or his Beneficiaries) the proceeds of all assets attributable to
Employee Deferral Contributions that then remain in Trust B. Subject to the
provisions of Section 5.1(c) of the Trust B Agreement, payments due to the
Participant (or his Beneficiaries) under this Section 9 shall be offset by
payments in respect of Employee Deferral Contributions that the Participant (or
his Beneficiaries) have already received from the Company or other sources.
10 This Section 10 addresses payments from the assets of Trust B that are
attributable to Trust Z Transfers or Plan Z Contributions. No later than 30 days
after the Termination Date, the Trustee shall pay to the Participant (or his
Beneficiaries) in respect of his (or their) Plan Z Benefits the proceeds of all
assets attributable to Trust Z Transfers or Plan Z Contributions that then
remain in Trust B. Subject to the provisions of Section 5.1(c) of the Trust B
Agreement, payments due to the Participant (or his Beneficiaries) under this
Section 10 shall be offset by payments in respect of Plan Z Benefits that the
Participant (or his Beneficiaries) have already received from Trust A, the
Company or other sources.
11 Each payment made pursuant to Section 1 through 10 shall be made in
cash, unless the Participant (or the Beneficiary who is to receive the payment)
requests in writing a different form of payment.
12 This Payment Schedule forms part of the Trust B Agreement, and all
capitalized terms in it shall have the meanings set forth in the Trust B
Agreement.
37
