AMENDED AND RESTATED EMPLOYMENT AGREEMENT
of
KENDALL E. NUNGESSER
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement")
is made and entered into as of this ____ day of December, 1996, by and between
Rose Hills Company, a Delaware corporation and the parent company of RH Mortuary
Corporation and Rose Hills, Inc. (the "Company"), and Kendall E. Nungesser
("Executive").
RECITALS
WHEREAS, there was a change of ownership and control of the
Company pursuant to that certain Agreement and Plan of Merger dated as of
September 19, 1996, as amended ("Agreement and Plan of Merger"), by and among
Roses, Inc., the Stockholders of Roses, Inc. and RH Mortuary Corporation, a
Delaware corporation, as assignee of all right, title and interest of Rose Hills
Acquisition Corp. f/k/a Tudor Acquisition Corp. under the Agreement and Plan of
Merger; and
WHEREAS, the Company's affiliate, RH Mortuary Corporation,
desired to assure the retention of the services of the Executive for the purpose
of assisting in the management of Rose Hills Mortuary and Rose Hills Cemetery.
WHEREAS, the Company and Executive entered into an employment
agreement (the "Employment Agreement") on November 19, 1996 (the "Effective
Date") under which the Company agreed to the
1
retention of the services of the Executive as President and Chief Executive
Officer of the Company and the Executive agreed to perform services for the
Company; and
WHEREAS, the Company and the Executive desire to amend and
restate the Employment Agreement and desire that this Agreement set forth all
the terms and conditions of the Executive's employment by the Company as of the
Effective Date, including its assignment from RH Mortuary Corporation to the
Company as the Company is Executive's employer and administers the payroll for
officers and employees of Rose Hills Cemetery and Rose Hills Mortuary.
NOW THEREFORE, in consideration of the mutual promises,
covenants and agreements hereinafter set forth, the parties agree as follows:
A. Employment - Capacity and Term.
(1) Capacity. The Company hereby employs
Executive and Executive hereby accepts employment as President and Chief
Executive Officer of the Company. Executive shall have all powers and duties
necessary to enable him to discharge his duties hereunder.
(2) Term. The term of employment pursuant to
this Agreement shall commence on the date hereof and shall end on December 31,
1999.
B. Performance. During the term of this Agreement,
Executive covenants and agrees to serve in the capacity specified
above, and shall do and perform any and all services, acts or
things necessary to properly carry out the duties and
2
responsibilities reasonably delegated to him from time to time by
the Board of Directors of the Company.
C. Compensation and Other Benefits.
(1) Annual Salary and Bonuses. As compensation
for Executive's services hereunder, Executive shall receive a minimum annual
salary of $250,000 payable in accordance with the Company's regular payroll
practices for senior executives, subject to applicable withholding. Such salary
shall be subject to minimum annual adjustments in a percentage equal to the
annual increase in the cost/price index published by the Department of Labor,
Bureau of Labor Statistics for the Los Angeles Area (assuming the 1982-1984
cost/price guide is 100). In addition, Executive will be eligible to receive an
annual cash bonus of up to $250,000 for 1997 and an annual cash bonus of up to
$250,000 for 1998 in accordance with Schedule A attached hereto. For 1999, the
bonus formula will be a formula determined by the Executive and Board of
Directors of the Company (the "Board") based upon the Executive's performance
with respect to budgeted EBITDA and other criteria.
Regarding a long-term incentive arrangement, Executive shall
be entitled to the long term incentive arrangement described below (a) in the
event of a Change of Control [as that term is defined in _____________________]
of the Company which occurs after December 31, 1996, or (b) in the event Loewen
Group International, Inc. or its affiliates (collectively "LGII") disposes of
a majority of LGII's ownership of the
3
Company. In either event, there shall be a long-term incentive paid to Executive
in a lump-sum amount of $500,000 or more as set forth in Schedule B, provided
the performance criteria on Schedule B are realized. In either event, Executive
also shall also receive those amounts to which he would otherwise be entitled
under subparagraph (E)(1)(c) hereof (covering termination without cause). Such
amounts shall be payable in cash within 10 days after the occurrence of either
event described in clauses (a) or (b) of this paragraph.
The Board of the Company may, by unanimous vote, lower any of
the EBITDA targets set forth in Schedule A or Schedule B.
(2) Benefits. The Company shall provide
Executive with offices, secretarial and administrative services at the same
level as they are provided by the Company to its senior executives. Initially
his assistant shall be Lynelle Hernandez. During the term hereof, Executive
shall be entitled to at least four (4) weeks vacation per annum at full salary,
and he (and his dependents where applicable) shall be entitled to the benefits
available to him (or them) under the Company's employee benefit programs as
shall be maintained by the Company, all of which shall be substantially similar
to those in effect prior to the Effective Time as that term is defined in the
Agreement and Plan of Merger; provided, however, that the Company shall maintain
and Executive shall be entitled to participate in the Prudential PPO Program in
effect immediately prior to the Effective Time. In addition, the Company agrees
to provide to
4
Executive a supplemental retirement benefit under the assumed Rose Hills
Mortuary, L.P. Supplemental Employee Retirement Plan (guaranteed by The Loewen
Group Inc.).
The Company will provide the use of an automobile for business
purposes and the replacement thereof from time to time consistent with the
practice of the Company with respect to its senior executives.
(3) Business Expenses. All reasonable business
related expenses incurred by Executive in the performance of Executive's duties
under this Agreement shall be reimbursed by the Company. Such business related
expenses include, but are not limited to, travel expenses, professional mortuary
and cemetery industry related expenses, civic related expenses, professional
dues and memberships, business related club dues and expenses and such other
business entertainment and promotion expenses that arise in the performance of
Executive's duties and responsibilities.
(4) Purchase of Partnership Interests. As
described in the Offering Memorandum dated November 14, 1996 (page 45) for the
offering of debt securities to finance the Rose Hills acquisition, Executive and
one other officer of the Company will be provided with an opportunity to
purchase up to an aggregate of $500,000 of securities from Blackstone Capital
Partners II Merchant Banking Fund L.P. and/or its affiliates ("Blackstone").
Such securities will consist of limited partnership interests in the partnership
which owns RH Holdings
5
common stock. Such offer will be made on or before January 15, 1997 and will be
open for 10 days thereafter.
D. Non-Competition/Unfair Competition. The Executive
acknowledges that in accordance with the terms of the Agreement and Plan of
Merger he has entered into a Noncompetition Agreement with the Company
contemporaneously herewith and that the terms thereof are incorporated herein by
this reference.
E. Termination Provisions.
(1) Termination by the Company.
The Company may terminate Executive's employment at any time
for any reason:
(a) Upon a fifty (50%) percent vote
of the Board of Directors of the Company, this Agreement may be terminated for
Cause (as defined below). For purposes of this Agreement, "Cause" shall mean:
(i) stealing the Company's property or monies; (ii) commission of a felony;
(iii) continued wilful insubordination; (iv) failure to maintain the level of
performance satisfactory to the Company consistent with objectives established
by the Board; or (v) a material breach of material duties under this Agreement;
provided, however, that before Executive may be terminated for Cause by virtue
of subparagraph E(1)(a)(iv), the Company shall provide to him written notice
describing the actions or omissions giving rise to such alleged breach with
reasonable particularity and giving Executive thirty (30) days in which to
demonstrate to the Company's reasonable satisfaction that he is able to perform
in the manner set forth in this Agreement.
6
(b) Except as otherwise provided herein,
this Agreement shall terminate as of the date of death of Executive.
(c) In the event Executive is terminated
without cause or he is terminated because of a Change of Control in accordance
with subparagraph (C)(1), he shall be entitled to all base salary amounts due
for the remainder of the term hereunder, payable in cash within 10 days after
such termination or the Change of Control. In the event of termination for cause
which can not be cured, salary and benefit payments will be terminated upon such
termination.
(2) Termination by Executive. This Agreement may
be terminated by Executive if the Company fails to cure a material breach of its
material duties under this Agreement within sixty (60) days of its receipt of
written notice of such alleged breach from Executive. Except for the foregoing,
Executive may terminate this Agreement only upon ninety (90) days advance
written notice.
(3) Permanent Disability. If the Executive
becomes totally and permanently disabled (as defined in the Company's Long-Term
Disability Benefit Plan applicable to senior executive officers as in effect on
the date hereof), the Company or Executive may terminate Executive's employment
on written notice thereof and Executive shall receive or commence receiving, as
soon as practicable; (i) amounts payable pursuant to the terms of a disability
insurance policy or similar arrangement which the Company maintains during the
term hereof, and (ii) a cash lump
7
sum payment in respect of accrued but unused vacation days and to compensation
earned but not yet paid, and (iii) such payments under applicable plans or
programs, including but not limited to pursuant to the terms of such plans or
programs.
(4) No Mitigation. In the event of a breach of
this Agreement by the Company, Executive shall have no duty or obligation to
mitigate damages. Any income and any other employment benefits received by
Executive before or after the breach, expiration or termination of this
Agreement shall in no way reduce or otherwise affect the Company's obligation to
make payments and afford benefits hereunder or the Company's liability for
damages by virtue of any breach hereof.
F. Miscellaneous Provisions.
(1) Notices.
All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered or sent by
prepaid telegram or telecopy ("fax") or first class mail, postage prepaid,
registered or certified, as follows:
If to Executive: 2280 Robles Avenue
San Marino, CA 91108
If to the Company: 3888 South Workman Mill Road
Whittier, CA 90601
Fax No.: (310) 692-1412
Attention: Chief Executive Officer
Either party may change the address to which
such communications are to be delivered by giving written notice to the other
party. Any notice personally given shall be deemed
8
received upon delivery to the address designated; any notice by mail as provided
in this paragraph shall be deemed given on the third business day following such
mailing; and any notice given by telegram or fax as provided herein shall be
deemed delivered the business day following the delivery of such notice to the
telegraph company for transmission or placing such notice onto a compatible fax
machine with that of the party to receive notice.
(2) Entire Agreement. This Agreement supersedes
any and all other agreements, either oral or in writing, between the parties
hereto or their predecessors relating to Executive's employment. This Agreement
contains all of the terms and conditions agreed upon by the parties hereto with
reference to the subject matter hereof and, upon its effectiveness, supersedes
any and all prior written or verbal employment agreements. This Agreement may
not be modified except by a written instrument executed by both parties or their
permitted successors in interest, if any.
(3) Assignment. This Agreement shall not be
assignable by any party hereto without the prior written consent of the other
party, except that upon any merger, sale of all or a substantial portion of the
assets of the Company to another or dissolution of the Company, this Agreement
shall inure to the benefit of and be binding upon Executive and the purchasing,
surviving or resulting company, partnership or corporation in the same manner
and to the same extent as though such company, partnership or corporation were
the Company. Subject to the preceding sentence, this Agreement shall inure to
the benefit of
9
and be binding upon the parties hereto and their respective heirs, successors
and assigns.
(4) Counterparts. This Agreement may be executed
in counterparts each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument. This Agreement shall be
effective as of the date first above written despite the fact that various dates
of execution by the parties hereto may differ therefrom.
(5) Binding Arbitration. All disputes under this
Agreement (other than those brought pursuant to Section F.(7) hereof) shall be
settled in Los Angeles, California, before a single arbitrator pursuant to the
rules of practice administered by the Judicial Arbitration & Mediation Services,
Inc. ("JAMS"). Arbitration may be commenced at any time by any party hereto
giving written notice to the other party to the dispute that such dispute has
been referred to arbitration under this Agreement. The arbitrator shall be
selected by the joint agreement of the Executive and the Company, but if they do
not so agree within twenty (20) days after the date of the notice referred to
above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by JAMS. The arbitrator shall render his decision within
120 days of appointment. Any award rendered by the arbitrator shall be final,
conclusive and binding upon the parties hereto; provided, however, that any such
award shall be accompanied by a written opinion of the arbitrator giving the
reasons for the award. This provision for arbitration shall be specifically
enforceable by the parties and the decision of the
10
arbitrator in accordance herewith shall be final, binding and conclusive and
there shall be no right of appeal therefrom. Each party shall bear its own costs
and expenses (including attorney's fees) and the costs and expenses of the
arbitration shall be shared equally by the parties. The arbitrator shall not be
permitted to award punitive damages under any circumstances.
(6) Waiver. No action taken pursuant to this
Agreement shall be deemed to constitute a waiver by the party taking such action
of complete compliance on the representations, warranties, covenants and
agreements contained herein. No waiver shall be binding unless in writing and
signed by the person making the waiver. A waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach. Any party or parties may waive or modify performance
of any act which is intended solely for their benefit as long as the party for
whom such act is intended to benefit consents to such waiver or modification in
writing.
(7) Confidentiality. The Executive will hold
confidential all matters concerning the affairs of the Company, and the services
under this Agreement, in the same manner and to the same standard of care that
he would maintain regarding his own affairs. Without limiting the generality of
the foregoing, the Executive:
(a) will not divulge any information
received by him during his employment concerning the financial or
other affairs of the Company, all of which information will be
11
treated by him in strict confidence and will not be divulged by the Executive to
any person other than the Company; and
(b) acknowledges and agrees that all books
of account, documents, vouchers and other books or papers connected with the
business of the Company will be the property of the Company, whether paid for by
the Company or not, and will be turned over to the Company on the order of the
Company or on termination of this Agreement as the case may be. The expiration
or termination of this Agreement will not affect the obligations contained in
this paragraph which obligations will continue to bind the Executive for an
indefinite period following Expiration or termination of this Agreement.
(c) Executive agrees that any breach of the
covenants contained in this Section F(7) would irreparably injure the Company.
Accordingly, Executive agrees that the Company may, notwithstanding Section F(5)
hereof, in addition to pursuing other remedies it may have in law or in equity,
obtain an injunction against Executive from any court having jurisdiction over
the matter restraining any further violation of this agreement by the Executive.
(8) Miscellaneous. If any portion of this
Agreement is held to be unreasonable, arbitrary or against public policy, the
provisions of this Agreement shall be considered divisible both as to time and
as to geographical areas; and each month of each year of the specified period
shall be deemed to be a separate period of time. In the event any arbitrator
determines the specified time period or geographical area to be
12
unreasonable, arbitrary or against public policy, the lesser time period or
geographical area which is determined to be reasonable, non-arbitrary and not
against public policy may be enforced. Notwithstanding the foregoing, the
Executive agrees to honor the terms of this Agreement for the time periods and
areas specified herein and not to contest the enforceability of such periods or
areas.
(9) Applicable Law and Jurisdiction. The
formation, construction and performance of this Agreement shall be construed in
accordance with the laws of the State of California.
(10) No Third Party Beneficiaries. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
to give any person, other than the parties hereto (and the Executive's
dependents where applicable), any rights or remedies under or by reason of this
Agreement.
13
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Employment Agreement, all as of the Effective Date.
RH MORTUARY CORPORATION
By: ____________________________
Howard A. Lipson, President
________________________________
Kendall E. Nungesser
("Executive")
14
GUARANTEE
The Loewen Group Inc., a British Columbia corporation, hereby
unconditionally guarantees the due and punctual payment and performance of all
obligations of Rose Hills Company under the foregoing Amended and Restated
Employment Agreement dated as of December ___, 1996, as the same may be amended,
restated or otherwise modified from time to time.
THE LOEWEN GROUP INC.
By:_______________________________
Name:_____________________________
Title:____________________________
By:_______________________________
Name:_____________________________
Title:____________________________
15
SCHEDULE A
Annual Incentive Bonus Program
For the fiscal year ended December 31, 1997 and for the fiscal year ended
December 31, 1998, a bonus payment of up to $250,000 will be made annually.
Fifty percent of the bonus payment for 1997 will be based upon the Board of
Directors' determination of Executive's performance in restructuring the Company
through the assimilation of so called "satellite companies," realized operating
efficiencies, leadership and other similar factors. The balance of the bonus for
1997 and all of the bonus for 1998 will be based on the audited EBITDA (as
defined in the Put/Call Agreement dated _____________, 1996 between Loewen Group
International, Inc. and/or its affiliates and Blackstone Capital Partners II
Merchant Banking Fund L.P. and/or its affiliates (the "Put/Call Agreement")) in
relation to the projected EBITDA as described below (plus Budgeted EBITDA for
subsequent acquisitions). EBITDA will be determined after taking into account
the accrual for these bonus payments.
Projected EBITDA for the years ended December 31, 1997 and 1998 is $27.6 million
and $32.7 million, respectively. EBITDA targets for 1999 and later years will be
set each year, by unanimous consent of the Board of Directors of R H Mortuary
Corporation, by February 1 of the bonus year.
The bonus realization matrix for the annual incentive bonus program will be:
Percent EBITDA Percent Salary
Attained Paid as Bonus
Less than 90% .0%
90% 25.0%
91% 27.5%
92% 30.0%
93% 32.5%
94% 35.0%
95% 37.5%
96% 40.0%
97% 42.5%
98% 45.0%
99% 45.5%
100% 50.0%
101% 55.0%
102% 60.0%
103% 65.0%
104% 70.0%
105% 75.0%
106% 80.0%
107% 85.0%
108% 90.0%
1
A-1
109% 95.0%
110% 100.0%
+ 110% 100.0%
2
A-2
SCHEDULE B
FORECAST
Twelve months ended December 31, 1997 $27,600,000
Twelve months ended December 31, 1998 $32,700,000
Twelve months ended December 31, 1999 $37,900,000
Twelve months ended December 31, 2000 $42,900,000
Twelve months ended December 31, 2001 $48,000,000
Twelve months ended December 31, 2002 $51,300,000
Twelve months ended December 31, 2003 $54,800,000
Twelve months ended December 31, 2004 $58,600,000
Twelve months ended December 31, 2005 $62,700,000
Long Term Incentive Bonus
In order to earn the Long Term Incentive Bonus, Roses Inc. must have achieved
through the Exit Relevant Period (as defined in the Put/Call agreement) 95% of
the accumulated EBITDA as computed from the Forecast. If the Exit Relevant
Period is not a calendar year, the EBITDA forecast will be pro-rated based on
the applicable period.
The above amount of Long Term Incentive Bonus is calculated as follows:
PERIOD IN WHICH CLOSING OCCURS AMOUNT
Prior January 1, 2002 $500,000
January 01, 2002 to December 31, 2002 $600,000
January 01, 2003 to December 31, 2003 $700,000
January 01, 2004 to December 31, 2004 $800,000
January 01, 2005 or thereafter $900,000
[The formal employment agreement will contain provisions for vesting rights
(assuming entitlement targets have been met) in the Long Term Incentive Bonus
over an eight year period; vesting provisions to be supplied by counsel for
Loewen.]
1
B-1