Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
4th day of March, 1998 by and between PHYSICIAN SALES & SERVICE, INC., a Florida
corporation (hereinafter, the "Company" which term shall include the Company's
other subsidiaries, affiliates and successors), and PATRICK KELLY (hereinafter,
"Executive").
BACKGROUND
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The Company desires to engage Executive in Executive capacities set forth
herein, in accordance with the terms and conditions of this Agreement. Executive
is willing to serve as such in accordance with the terms and conditions of this
Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. This Agreement is effective as of March 4, 1998 (the
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"Effective Date").
2. Employment. Executive is hereby employed on the Effective Date as the
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Chairman of the Board and Chief Executive Officer of the Company. Executive's
responsibilities under this Agreement shall be in accordance with the policies
and objectives established by the Board of Directors of the Company and shall be
consistent with the responsibilities of similarly situated executives of
comparable companies in similar lines of business. In his capacity as Chairman
and Chief Executive Officer of the Company, Executive will report directly to
the Board of Directors.
3. Employment Period. Unless earlier terminated herein in accordance
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with Section 8 hereof, Executive's employment shall be for a five-year term (the
"Employment Period"), beginning on the Effective Date. The Employment Period
shall, without further action by Executive or the Company, be extended by an
additional one-year period on each anniversary of the Effective Date; provided,
however, that either party may, by notice to the other, cause the Employment
Period to cease to extend automatically. Upon such notice, the Employment
Period shall terminate upon the expiration of the then-current term, including
any prior extensions.
4. Directorship. Executive currently serves on the Board of Directors of
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the Company. At the end of Executive's current term as director and thereafter
during the Employment Period, the Board of Directors shall, subject to the
satisfaction of its fiduciary responsibilities, nominate Executive for re-
election to the Board of Directors.
5. Extent of Service. During the Employment Period, and excluding any
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periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote his business time, attention, skill and efforts exclusively to
the faithful performance of his duties hereunder; provided, however, that it
shall not be a violation of this Agreement for Executive to (i) devote
reasonable periods of time to charitable and community activities, and, with the
approval of the Company, industry or professional activities, and/or (ii) manage
personal business interests and investments, so long as such activities do not
materially interfere with the performance of Executive's responsibilities under
this Agreement.
6. Compensation and Benefits.
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(a) Base Salary. During the Employment Period, the Company will pay
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to Executive a base salary in the amount of $535,000.00 per year ("Base
Salary"), less normal withholdings, payable in equal monthly or more frequent
installments as are customary under the Company's payroll practices from time to
time. The Compensation Committee of the Board of Directors of the Company shall
review Executive's Base Salary annually and in its sole discretion, subject to
approval of the Board of Directors of the Company, may increase Executive's Base
Salary from year to year. The annual review of Executive's salary by the Board
will consider, among other things, Executive's own performance and the Company's
performance.
(b) Incentive, Savings and Retirement Plans. During the Employment
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Period, Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and program applicable generally to
executive officers of the Company and its affiliated companies, and on the same
basis as such other executive officers.
(c) Welfare Benefit Plans. During the Employment Period, Executive
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and Executive's family shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, employee life, group
life, accidental death and travel accident insurance plans and programs) to the
extent applicable generally to executive officers of the Company and its
affiliated companies.
(d) Expense. During the Employment Period, Executive shall be
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entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies to the extent applicable generally to other
executive officers of the Company and its affiliated companies.
(e) Fringe Benefits. During the Employment Period, Executive shall be
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entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Company and its affiliated companies in effect for executive
officers of the Company and its affiliated companies.
7. Change of Control. For the purposes of this Agreement, a "Change of
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Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule l3d-3 promulgated under the Exchange Act) of 50% or more of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following acquisitions shall not constitute a Change
of Control: (i) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (ii) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 7; or
(b) Individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners,
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respectively, of the Outstanding Company Common Stock and outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 25% or more of the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination, and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination.
8. Termination of Employment.
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(a) Death, Retirement or Disability. Executive's employment shall
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terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
there is no such retirement plan, "Retirement" shall mean voluntary termination
after age 65 with ten years of service. If the Company determines in good faith
that the Disability of Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to
Executive written notice in accordance with Section 16(f) of this Agreement of
its intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such written notice by Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of this
Agreement, "Disability" shall mean a mental or physical disability as determined
by the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term disability
plan, if any. At any time that the Company does not maintain such a long-term
disability plan, Disability shall mean the inability of Executive, as determined
by the Board, to substantially perform the essential functions of his regular
duties and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a period of
six consecutive months.
(b) Termination by the Company. The Company may terminate Executive's
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employment during the Employment Period with or without Cause. For purposes of
this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such failure
resulting from incapacity due to physical or mental illness, and specifically
excluding any failure by Executive, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to Executive by the Board of Directors of the Company which
specifically identifies the manner in which such Board believes that Executive
has not substantially performed Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by Executive in good
faith and in the best interests of the Company. The cessation of employment of
Executive shall not be deemed to be for Cause
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unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board of the Company at a meeting of such Board
called and held for such purpose (after reasonable notice is provided to
Executive and Executive is given an opportunity, together with counsel, to be
heard before such Board), finding that, in the good faith opinion of such Board,
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Termination by Executive. Executive's employment may be
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terminated by Executive for Good Reason or for no reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) without the written consent of Executive, the assignment to
Executive of any duties materially inconsistent with Executive's position
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities as in effect on the Effective Date, or any other
action by the Company which results in a material diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
Executive;
(ii) a reduction by the Company in Executive's Base Salary and
benefits as in effect on the Effective Date or as the came may be increased from
time to time, unless a similar reduction is made in salary and benefits of
similarly-situated officers of the Company, or the failure by the Company to
increase Executive's Base Salary each year during the Employment Period by an
amount which at least equals, on a percentage basis, the mean average percentage
increase in base salary for all officers of the Company, unless such failure to
increase is based on nonarbitrary criteria applied to Executive and other
similarly-situated employees;
(iii) any termination by the Company of Executive's employment
otherwise than for Cause, death or Disability;
(iv) any failure by the Company to comply with and satisfy
Section 15(b) of this Agreement; or
(v) any termination by Executive for any reason or no reason
during the 30-day period beginning on the first anniversary of a Change of
Control.
(d) Notice of Termination. Any termination by the Company for Cause,
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or by Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 16(f) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated, and (iii) if the Date
of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by Executive or the Company
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
Executive or the Company, respectively, hereunder or preclude Executive or the
Company, respectively, from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
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Executive's employment is terminated by the Company for Cause, or by Executive
for Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies Executive of such
termination, and (iii) if Executive's employment is terminated by reason of
death, Retirement or Disability, the Date of Termination shall be the date of
death or Retirement of Executive or the Disability Effective Date, as the case
may be.
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9. Obligations of the Company upon Termination.
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(a) Termination by Executive for Good Reason; Termination by the
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Company Other Than for Cause, Death or Disability. If, during the Employment
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Period, the Company shall terminate Executive's employment other than for Cause,
death or Disability, or Executive shall terminate employment for Good Reason
within a period of 90 days after the occurrence of the event giving rise to Good
Reason (or within 15 months after such Good Reason event if a Change of Control
shall first have occurred), then in consideration of Executive's services
rendered prior to such termination and as reasonable compensation for his
compliance with the Restrictive Covenants in Section 14 hereof:
(i) the Company shall pay to Executive in a lump sum in cash
within 30 days after the Date of Termination or, with respect to the pro rata
bonus described in clause A(2) below, within 30 days after the determination of
the bonus amount, the aggregate of the following amounts:
A. the sum of (1) Executive's Base Salary through the Date of
Termination to the extent not theretofore paid, (2) if the Date of
Termination occurs after or in connection with the occurrence of a Change
of Control, the product of (x) Executive's annual bonus that would have
been payable with respect to the fiscal year in which the Date of
Termination occurs (determined at the end of such year based on actual
performance results through the end of such year) and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to
the extent not theretofore paid (the sum of the amounts described in
clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to two (2) times Executive's Base Salary
in effect as of the Date of Termination (the "Severance Payment");
provided, however, that if the Date of Termination occurs after or in
connection with the occurrence of a Change of Control, the Severance
Payment shall be the amount equal to four (4) times Executive's Base Salary
in effect as of the Date of Termination; and
(ii) for two (2) years after Executive's Date of Termination (or
four (4) years in the event that the Date of Termination occurs after or in
connection with the occurrence of a Change of Control), or such longer period as
may be provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to Executive and/or Executive's
family at least equal to those which would have been provided to them in
accordance with the welfare plans, programs, practices and policies described in
Section 6(c) of this Agreement if Executive's employment had not been terminated
or, if more favorable to Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if Executive
becomes re-employed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the medical and
other welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility ("Welfare
Benefits");
(iii) the Company shall, on a monthly basis within 30 days of
receipt of a reasonably documented invoice therefor, reimburse Executive's
actual cost for office, secretarial and business expenses of up to a total of
$150,000 over a period of two (2) years after the Date of Termination (or up to
a total of $300,000 over a period of three years after the Date of Termination
if Executive's termination of employment occurred after or in connection with a
Change of Control); and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to Executive any other amounts or benefits required
to be paid or provided or which Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
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(b) Death. If Executive's employment is terminated by reason of
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Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations (excluding the pro-rata
bonus described in clause 2 of Section 9(a)(i)(A)), the timely payment or
provision of Other Benefits, and a lump sum amount equal to 90 days' salary,
based on Executive's Base Salary in effect as of the date of death. Accrued
Obligations shall be paid to Executive's estate or beneficiary, as applicable,
in a lump sum in cash within 30 days of the Date of Termination. With respect
to the provision of Other Benefits, the term Other Benefits as utilized in this
Section 9(b) shall include, without limitation, and Executive's estate and/or
beneficiaries shall be entitled to receive, benefits under such plans, programs,
practices and policies relating to death benefits, if any, as applicable
generally to executive officers of the Company and its affiliated companies and
their beneficiaries, and on the same basis as such executive officers and their
beneficiaries.
(c) Disability. If Executive's employment is terminated by reason of
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Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to Executive, other than for payment of
Accrued Obligations (excluding the pro-rata bonus described in clause 2 of
Section 9(a)(i)(A)) and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to Executive in a lump sum in cash within 30
days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 9(c) shall
include, without limitation, and Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits under such
plans, programs, practices and policies relating to disability, if any, as
applicable generally to executive officers of the Company and its affiliated
companies and their families, and on the same basis as such executive officers
and their families.
(d) Retirement. If Executive's employment is terminated by reason of
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Executive's Retirement during the Employment Period, this Agreement shall
terminate without further obligations to Executive, other than for payment of
Accrued Obligations (excluding the pro-rata bonus described in clause 2 of
Section 9(a)(i)(A)) and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to Executive in a lump sum in cash within 30
days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 9(d) shall
include, without limitation, and Executive shall be entitled after the Date of
Termination to receive, retirement and other benefits under such plans,
programs, practices and policies relating to retirement, if any, as applicable
generally to executive officers of the Company and its affiliated companies and
their families, and on the same basis as such executive officers and their
families.
(e) Cause or Voluntary Termination without Good Reason. If Executive's
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employment shall be terminated for Cause during the Employment Period, or if
Executive voluntarily terminates employment during the Employment Period without
Good Reason, this Agreement shall terminate without further obligations to
Executive, other than for payment of Accrued Obligations (excluding the pro-rata
bonus described in clause 2 of Section 9(a)(i)(A)), the continuation of Welfare
Benefits for a period of six months from the Date of Termination, the timely
payment or provision of Other Benefits, and a lump sum amount equal to six
months' salary, based on Executive's Base Salary in effect as of the Date of
Termination,
10. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
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limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which Executive may qualify, nor, subject to Section 16(d), shall
anything herein limit or otherwise affect such rights as Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
11. Certain Additional Payments by the Company.
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(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any benefit,
payment or distribution by the Company to or for the benefit of Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement
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or otherwise, but determined without regard to any additional payments required
under this Section 11) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then: Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Executive
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 11(a), if it shall be determined that Executive is entitled to a Gross-
Up Payment but that Executive, after taking into account the Payments and the
Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000
(taking into account both income taxes and any Excise Tax) as compared to the
net after-tax proceeds to Executive resulting from an elimination of the Gross-
Up Payment and a reduction of the Payments, in the aggregate, to an amount (the
"Reduced Amount") such that the receipt of Payments would not give rise to any
Excise Tax, then no Gross-Up Payment shall be made to Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 11(c), all determinations
required to be made under this Section 11, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
regular independent accounting firm at the expense of the Company or, at the
election and expense of Executive, another nationally recognized independent
accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations. Any determination by the Accounting Firm shall be binding upon
the Company and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 11(c) and Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
(c) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after Executive is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Executive shall not
pay such claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an after-
tax basis, for any Excise Tax or income tax (including interest and penalties
with respect thereto) imposed as a
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result of such representation and payment of costs and expenses. Without
limitation of the foregoing provisions of this Section 11(c), the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine, provided, however, that if the Company
directs Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to Executive, on an interest-free basis and
shall indemnify and hold Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 11(c), Executive becomes entitled to receive any
refund with respect to such claim, Executive shall (subject to the Company's
complying with the requirements of Section 11(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto).
12. Costs of Enforcement. In any action taken in good faith relating to
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the enforcement of this Agreement or any provision herein after the occurrence
of a Change of Control, Executive shall be entitled to be paid any and all costs
and expenses incurred by him in enforcing or establishing his rights hereunder,
including, without limitation, reasonable attorneys' fees, whether suit be
brought or not, and whether or not incurred in trial, bankruptcy or appellate
proceedings. In all other circumstances, each party in any such action shall
pay his or its own such costs and expenses.
13. Representations and Warranties. Executive hereby represents and
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warrants to the Company that Executive is not a party to, of otherwise subject
to, any covenant not to compete (other than as contained herein) with any person
or entity, and Executive's execution of this Agreement and performance of his
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Executive and any other person or
entity.
14. Restrictions on Conduct of Executive.
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(a) General. Executive and the Company understand and agree that the
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purpose of the provisions of this Section 14 is to protect legitimate business
interests of the Company, as more fully described below, and is not intended to
eliminate Executive's post-employment competition with the Company per se, nor
is it intended to impair or infringe upon Executive's right to work, cam a
living, or acquire and possess property from the fruits of his labor. Executive
hereby acknowledges that the post-employment restrictions set forth in this
Section 14 are reasonable and that they do not, and will not, unduly impair his
ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law upon the
restrictions set forth herein, Executive shall be subject to the restrictions
set forth in this Section 14.
(b) Definitions. The following capitalized terms used in this Section
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14 shall have the meanings assigned to them below, which definitions shall apply
to both the singular and the plural forms of such terms:
"Competitive Services" means any services provided by Company at the
Determination Date, including, but not limited to, the marketing, sale and
distribution of medical supplies, equipment and pharmaceuticals to primary care
and other office-based physicians; the marketing, sale and distribution of
medical diagnostic imaging supplies, chemicals, equipment and service to the
acute care and alternate care market; and the
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provisions of special group purchasing contract pricing and periodic cost
analyses to help manage the supply needs of individual physicians or practices.
"Confidential Information" means any confidential or proprietary
information possessed by the Company or its affiliated entities or relating to
its or their business, including without limitation, any confidential "know-
how", customer lists, details of client or consultant contracts, current and
anticipated customer requirements, pricing policies price lists, market studies,
business plans, operational methods, marketing plans or strategies, product
development techniques or plans, computer software programs (including object
code and source code), data and documentation, data base technologies, systems,
structures and architectures, inventions and ideas, past, current and planned
research and development, compilations, devices, methods, techniques, processes,
financial information and data, business acquisition plans, new personnel
acquisition plans and any other information that would constitute a Trade Secret
(as defined herein).
"Determination Date" means the date of termination of Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Employment Period) of an alleged breach of the Restrictive Covenants
by Executive.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"Protected Clients" means any Person to whom the Company provided
services or submitted a written proposal therefor, within eighteen (18) months
prior to the Determination Date.
"Protected Employees" means employees of the Company who were employed
by the Company at any time within six (6) months prior to the Determination
Date.
"Restricted Period" means the term of Executive's employment hereunder
and Employment Period and a period extending until eighteen (18) months from the
Date of Termination; provided, however that such period shall be extended by any
length of time during which Executive is in breach of the Restricted Covenants.
"Restrictive Covenants" means the restrictive covenants contained in
Section 14(c) hereof.
"Trade Secret" means any item of Confidential Information that
constitutes a "trade secret(s)" under the common law or statutory law of the
State of Florida.
(c) Restrictive Covenants.
----------------------
(i) Restriction on Disclosure and Use of Confidential
-------------------------------------------------
Information. Executive understands and agrees that the Confidential Information
- -----------
constitutes a valuable asset of the Company and its affiliated entities, and may
not be converted to Executive's own use. Accordingly, Executive hereby agrees
that Executive shall not, directly or indirectly, at any time during the
Restricted Period reveal, divulge, or disclose to any Person not expressly
authorized by the Company any Confidential Information, and Executive shall not,
directly or indirectly, at any time during the Restricted Period use or make use
of any Confidential Information in connection with any business activity other
than that of the Company, provided, however, in the event the Confidential
Information constitutes a Trade Secret, the Restricted Period referred to above
shall be five (5) years. Notwithstanding the above, this covenant shall expire
(except with respect to Trade Secrets) upon the occurrence of a Change of
Control.
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(ii) Nonsolicitation of Protected Employees. Executive understands and
--------------------------------------
agrees that the relationship between the Company and each of its Protected
Employees constitutes a valuable asset of the Company and may not be Converted
to Executive's own use. Accordingly, Executive hereby agrees that during the
Restricted Period, or until the earlier occurrence of a Change of Control,
Executive shall not directly or indirectly on Executive's own behalf or as a
Principal or Representative of any Person or otherwise solicit or induce any
Protected Employee to terminate his or her employment relationship with the
Company or to enter into any relationship of employment, agency or independent
contractorship with any other Person.
(iii) Restriction on Relationships with Protected Clients.
---------------------------------------------------
Executive understands and agrees that the relationship between the Company and
each of its Protected Clients constitutes a valuable asset of the Company and
may not be converted to Executive's own use. Accordingly, Executive hereby
agrees that during the Restricted Period, or until the earlier occurrence of a
Change of Control, Executive shall not, without the prior written consent of the
Company, become a Principal or Representative of a Protected Client or otherwise
provide services to a Protected Client as a consultant or independent
contractor.
(iv) Noncompetition with the Company. During the Restricted
-------------------------------
Period, or until the earlier occurrence of a Change of Control, Executive,
unless acting in accordance with the Company's prior written consent, will not
directly provide any Competitive Services to, and will not, directly or
indirectly, (i) own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or (ii) be
connected as a Principal or Representative or otherwise with, or (iii) permit
Executive's name to be used by or in connection with, any Person engaged in
providing Competitive Services to any Person conducting business activities
within the territory in which the Company is or was engaged in the provision of
the Competitive Services on the Determination Date; provided, however, that the
provisions of this Agreement shall not be deemed to prohibit the ownership by
Executive of any securities of the Company or its affiliated entities or not
more than five percent (5%) of any class of securities of any corporation having
a class of securities registered pursuant to the Securities Exchange Act of
1934, as amended.
(d) Exceptions from Disclosure Restrictions. Anything herein to the
---------------------------------------
contrary notwithstanding, Executive shall not be restricted from disclosing or
using Confidential Information that: (a) is or becomes generally available to
the public other than as a result of an unauthorized disclosure by Executive or
his agent; (b) becomes available to Executive in a manner that is not in
contravention of applicable law from a source (other than the Company or its
affiliated entities or one of its or their officers, employees, agents or
representatives) that is not bound by a confidential relationship with the
Company or its affiliated entities or by a confidentiality or other similar
agreement; (c) was known to Executive on a non-confidential basis and not in
contravention of applicable law or a confidentiality or other similar agreement
before its disclosure to Executive by the Company or its affiliated entities or
one of its or their officers, employees, agents or representatives; or (d) is
required to be disclosed by law, court order or other legal process; provided,
however, that in the event disclosure is required by law, Executive shall
provide the Company with prompt notice of such requirement so that the Company
may seek an appropriate protective order prior to any such required disclosure
by Executive.
(e) Enforcement of Restrictive Covenants.
------------------------------------
(i) Rights and Remedies Upon Breach. In the event Executive
-------------------------------
breaches, or threatens to commit a breach of, any of the provisions of the
Restrictive Covenants, the Company shall have the following rights and remedies,
which shall be independent of any others and severally enforceable, and shall be
in addition to, and not in lieu of, any other rights and remedies available to
the Company at law or in equity:
A. the right and remedy to enjoin, preliminarily and
permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to the Company and that money
damages would not provide an adequate remedy to the Company; and
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B. the right and remedy to require Executive to account for
and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by
Executive as the result of any transactions constituting a breach of
the Restrictive Covenants.
(ii) Severability of Covenants. Executive acknowledges and agrees
-------------------------
that the Restrictive Covenants are reasonable and valid in time and scope and in
all other respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, are invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
15. Assignment and Successors.
-------------------------
(a) Executive. This Agreement is personal to Executive and without
---------
the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of and be
-----------
binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
16. Miscellaneous.
--------------
(a) Waiver. Failure of either party to insist, in one or more
------
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part thereof,
------------
of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) Other Agents. Nothing in this Agreement is to be interpreted as
------------
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to it.
(d) Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement between the Company and Executive with respect to
the subject matter hereof, and it supersedes and invalidates any previous
agreements or contracts between them which relate to the subject matter hereof,
including without limitation that certain Contract of Employment, dated as of
May 29, 1992, by and between Executive and the Company. No representations,
inducements, promises or agreements, oral or otherwise, which are not embodied
herein shall be of any force or effect.
(e) Governing Law. Except to the extent preempted by federal law, and
-------------
without regard to conflict of laws principles, the laws of the State of Florida
shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
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(f) Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or three days after mailing if mailed, first class,
certified mail, postage prepaid:
To Company: Physician Sales & Service, Inc.
4345 Southpoint Boulevard
Jacksonville, Florida 32216
Facsimile No. (904) 332-3209
Attention: David Smith and Fred Elefant
To Executive: Patrick Kelly
1091 Ponte Vedra Boulevard
Ponte Vedra Beach, Florida 32082
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be amended or
----------------------------
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement; provided, however, that if, in the opinion of the
Corporation's accountants, any provision of this Agreement would preclude the
use of "pooling of interest" accounting treatment for a Change of Control
transaction that (1) would otherwise qualify for such accounting treatment, and
(2) is contingent upon qualifying for such accounting treatment then Executive
and the Company agree to negotiate in good faith to amend this Agreement so that
it will not preclude the use of "pooling of interest" accounting treatment for
such Change of Control transaction.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
PHYSICIAN SALES & SERVICE, INC.
By:
----------------------------
Title:
-------------------------
EXECUTIVE:
-------------------------------
Patrick Kelly
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ADDENDUM TO EMPLOYMENT AGREEMENT
THIS ADDENDUM TO EMPLOYMENT AGREEMENT (this "Addendum") is made and
entered into this 4th day of March, 1998, by and between PHYSICIAN SALES &
SERVICE, INC., a Florida corporation (hereinafter, the "Company"), and PATRICK
KELLY (hereinafter, "Executive"), and serves as an addendum to that certain
Employment Agreement of even date herewith between the Company and Executive
(the "Employment Agreement").
1. Stock Options. On or before March 4, 1998, Executive shall be awarded
-------------
under the Company's 1994 Long-Term Incentive Plan (the "Plan") stock options to
purchase 150,000 shares of common stock of the Company. Such options shall be
incentive stock options to the extent permitted by law. The exercise price per
share of such options shall be the Fair Market Value on the date of grant (as
defined in the Plan).
2. Definition of Good Reason. The term "Good Reason" is defined in
-------------------------
Section 8(c) of the Employment Agreement. Such definition is hereby amended by
adding the following additional events that shall constitute Good Reason for
purposes of the Employment Agreement (it being agreed that the event set forth
in clause (iii) below is in lieu of the event described in Section 8(c)(v) of
the Employment Agreement):
(i) Executive's removal or failure to be reelected as a director of
the Company, but not including Executive's voluntary resignation or failure to
accept nomination as a director; or
(ii) the Company's requiring Executive to be based at any office or
location other than in the greater Jacksonville, Florida Metropolitan area or
the Company's requiring Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date; or
(iii) any termination by Executive for any reason or no reason during
the one-year period after a Change in Control.
3. Forgiveness of Debt. In the event of the occurrence of a Change of
-------------------
Control (as defined in the Employment Agreement), the Company shall forgive the
remaining indebtedness, if any, of Executive represented by that certain
Promissory Note, due September 2007, in the original principal amount of
$3,000,000.
As amended hereby, the Employment Agreement shall be and remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Addendum to Employment Agreement as of the date first above written.
PHYSICIAN SALES & SERVICE, INC.
By:
---------------------------
David A. Smith
Executive Vice President
EXECUTIVE:
-------------------------------
Patrick Kelly
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