EXHIBIT 10.36
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EMPLOYEE AND EMPLOYEE BENEFITS AGREEMENT
dated as of January 31, 1990
between
NATIONAL MEDICAL ENTERPRISES, INC.
and
THE HILLHAVEN CORPORATION
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TABLE OF CONTENTS
Page
ARTICLE I ...................................................... 2
1.1. Definitions ........................................ 2
ARTICLE II Employee Benefit Plans .......................... 4
2.1. New Hillhaven Deferred Savings Plan ................ 4
2.2. Old Hillhaven Annuity Plan ......................... 4
2.3. NME Retirement Plan and NME ESOP ................... 4
ARTICLE III Executive and Incentive Compensation
Plans of New Hillhaven ........................ 5
3.1. New Hillhaven AIP .................................. 5
3.2. New Hillhaven LTIP ................................. 5
3.3. New Hillhaven Stock Incentive Plan ................. 5
3.4. New Hillhaven SERP ................................. 6
3.5. New Hillhaven DCMP ................................. 6
3.6. New Hillhaven Senior DCP ........................... 6
3.7. New Hillhaven Directors' Option Plan ............... 6
ARTICLE IV Executive and Incentive Compensation
Plans of NME and Old Hillhaven ................ 7
4.1. NME AIP ............................................ 7
4.2. NME LTIP ........................................... 7
4.3. NME Stock Incentive Plan ........................... 8
4.4. NME SERP ........................................... 9
4.5. Old Hillhaven Deferred Compensation Plan ........... 9
4.6. Old Hillhaven Short Term DCP ....................... 10
4.7. NME Deferred Compensation Plan ..................... 10
4.8. Excluded Employees ................................. 10
ARTICLE V Employee Welfare Benefit Plans .................. 10
5.1. New Hillhaven Welfare Plans ........................ 10
5.2. Welfare Benefits and Liabilities ................... 11
ARTICLE VI Indemnification ................................. 11
6.1. In General ......................................... 11
6.2. Procedures for Indemnification ..................... 11
ARTICLE VII Assumption of Liability ......................... 12
Page
ARTICLE VIII No Acceleration of Benefit Entitlement
or Payment..................................... 12
ARTICLE IX Dispute Resolution Procedures.................... 13
ARTICLE X Miscellaneous.................................... 13
10.1. Entire Agreement; Amendment......................... 13
10.2. Access to Information............................... 14
10.3. No Right to Continued Employment.................... 14
10.4. No Third Party Beneficiaries........................ 14
10.5. Successors and Assigns.............................. 14
10.6. Notices............................................. 14
10.7. Termination......................................... 15
10.8. Counterparts........................................ 15
10.9. Governing Law....................................... 15
10.10. Construction........................................ 15
EMPLOYEE AND EMPLOYEE BENEFITS AGREEMENT, dated as of January 31,
1990, between NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("NME"),
and THE HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven") and a
wholly-owned subsidiary of The Hillhaven Corporation, a Tennessee corporation
("Old Hillhaven"), which in turn is wholly-owned by NME.
WHEREAS, NME and New Hillhaven have entered into a Reorganization and
Distribution Agreement (the "Distribution Agreement") providing for a
reorganization of certain of the businesses heretofore conducted by NME's long
term care group and a pro rata distribution to the holders of NME's capital
stock, as of the record date established by NME in connection therewith, of
approximately 85% of the outstanding shares of common stock, par value $0.15 per
share, of New Hillhaven (the "Distribution") on or about the date hereof;
WHEREAS, NME and New Hillhaven have determined that it is appropriate
and desirable for all of the employees (with certain exceptions) of Old
Hillhaven and its subsidiaries who are engaged in the business to be conducted
by New Hillhaven to become employees of New Hillhaven and for New Hillhaven to
assume any and all obligations of NME, Old Hillhaven and any of their
subsidiaries with respect to employee benefits, employee welfare and any other
matters relating to the compensation and employment of such New Hillhaven
Employees and all employees, past or present, of Old Hillhaven and its
subsidiaries, excluding certain persons or entities identified herein who are
not New Hillhaven Employees; and
WHEREAS, NME and New Hillhaven have determined that it is necessary
and desirable to make certain agreements regarding employee benefits, employee
welfare and other matters relating to the compensation and employment of New
Hillhaven Employees in order to effect such determinations in connection with
the above-mentioned transactions;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
1.1. Definitions.
-----------
Capitalized terms used in this Agreement shall have the meanings
herein specified. Capitalized terms that are used in this Agreement and which
are not defined herein shall have the meanings specified in the Distribution
Agreement.
"Agreement": this Employee and Employee Benefits Agreement, together
---------
with the Exhibits attached hereto, as the same may be amended from time to time
in accordance with the terms hereof.
"Code": the Internal Revenue Code of 1986, as amended, or any
----
successor legislation.
"Distribution Date": January 31, 1990.
-----------------
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended.
"New Hillhaven AIP": the Annual Incentive Plan of New Hillhaven for
-----------------
certain New Hillhaven employees.
"New Hillhaven DCMP": the New Hillhaven Deferred Compensation Master
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Plan for certain New Hillhaven employees who generally are members of
management.
"New Hillhaven Deferred Savings Plan": the New Hillhaven Deferred
-----------------------------------
Savings Plan for certain non-highly compensated employees.
"New Hillhaven Directors' Option Plan": the New Hillhaven Directors'
------------------------------------
Stock Option Plan for members of the New Hillhaven Board of Directors who are
not New Hillhaven employees.
"New Hillhaven Employee" (hereinafter sometimes also called
----------------------
"Employee"): any individual who, immediately prior to the Distribution Date, was
employed by NME or Old Hillhaven or any of the Old Hillhaven Subsidiaries and
who, immediately after the Distribution Date, is employed by New Hillhaven or a
Subsidiary of New Hillhaven.
"New Hillhaven Employee Plans": the New Hillhaven AIP, the New
----------------------------
Hillhaven DCMP, the New Hillhaven LTIP, the New Hillhaven Senior DCP, the New
Hillhaven SERP, the New Hillhaven Stock Incentive Plan, the New Hillhaven
Welfare Plans, and each other employee benefit plan or arrangement, whether or
not subject to ERISA, to be maintained by New
2
Hillhaven or a Subsidiary of New Hillhaven for the benefit of eligible New
Hillhaven employees.
"New Hillhaven LTIP": the Long Term Incentive Plan of New Hillhaven
------------------
for key executives of New Hillhaven.
"New Hillhaven Senior DCP": the New Hillhaven Senior Management
------------------------
Deferred Compensation Plan for certain highly compensated New Hillhaven
executives.
"New Hillhaven SERP": the New Hillhaven Supplemental Executive
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Retirement Plan for certain highly compensated or managerial New Hillhaven
employees.
"New Hillhaven Stock Incentive Plan": the New Hillhaven 1990 Stock
----------------------------------
Incentive Plan for certain key New Hillhaven employees.
"New Hillhaven Welfare Plans": the "employee welfare benefit plans"
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(as defined in ERISA Section 3(1)) to be established by New Hillhaven or
Subsidiaries of New Hillhaven for the benefit of their eligible employees in
accordance with Section 5.1(a).
"NME AIP": the NME Annual Incentive Plan for key employees of NME,
------
Old Hillhaven and other Subsidiaries of NME.
"NME Deferred Compensation Plan": the NME Deferred Compensation Plan
------------------------------
for certain employees of NME, Old Hillhaven and other Subsidiaries of NME.
"NME Employee Plans": the NME AIP, the NME LTIP, the Old Hillhaven
------------------
Deferred Compensation Plan, the Old Hillhaven Short Term DCP, the NME SERP,
the NME Stock Incentive Plan, the NME Deferred Compensation Plan, NME ESOP, NME
Retirement Plan and each other employee benefit plan or arrangement, whether or
not subject to ERISA, maintained by NME or Old Hillhaven for the benefit of its
eligible employees.
"NME ESOP": the NME Employee Stock Ownership Plan for certain
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participating facilities.
"NME LTIP": the NME Long Term Incentive Plan for certain key
--------
management employees of NME.
"NME Retirement Plan": the Employees' Retirement Plan of NME for
-------------------
certain participating facilities.
"NME SERP": the NME Supplemental Executive Retirement Plan for
--------
certain executive officers of NME and other management employees of NME.
3
"NME Stock Incentive Plan": the NME 1983 Stock Incentive Plan for
------------------------
certain key employees of NME.
"Old Hillhaven Annuity Plan": the Old Hillhaven Individual Retirement
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Annuity Plan which is a contributory individual retirement account available to
certain employees.
"Old Hillhaven Deferred Compensation Plan": the two Old Hillhaven
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Corporation Deferred Compensation Plans, effective January 1, 1989, for certain
key management employees of Old Hillhaven, in the one case, and for certain
selected key management employees of Old Hillhaven, in the other case.
"Old Hillhaven Short Term DCP": the Old Hillhaven Short Term Deferred
----------------------------
Compensation Plan for certain selected key management employees of Old
Hillhaven.
ARTICLE II
Employee Benefit Plans
----------------------
2.1. New Hillhaven Deferred Savings Plan. New Hillhaven has adopted
-----------------------------------
the New Hillhaven Deferred Savings Plan, which shall be effective as soon as
practicable after the Distribution Date but in no event later than 60 days after
the Distribution Date. The New Hillhaven Deferred Savings Plan is in
substantially the form provided in Exhibit A hereto; provided, however, that
this Agreement may not be construed or interpreted to restrict New Hillhaven's
right or authority to amend or terminate the New Hillhaven Deferred Savings Plan
effective as of a date following the Distribution Date.
2.2. Old Hillhaven Annuity Plan. New Hillhaven has assumed the Old
--------------------------
Hillhaven Annuity Plan; provided, however, that this Agreement may not be
construed or interpreted to restrict New Hillhaven's right or authority to amend
or terminate such Plan effective as of a date following the Distribution Date.
2.3. NME Retirement Plan and NME ESOP. NME shall cause the NME
--------------------------------
Retirement Plan to be amended effective as of the Distribution Date to provide
for the continued coverage under the NME Retirement Plan of each of the Old
Hillhaven facilities covered under the NME Retirement Plan identified in Exhibit
K hereto immediately prior to the Distribution Date; provided, however, that no
individual employed in any such facility shall be entitled to participate in the
NME Retirement Plan during any period that such individual is
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employed as a Category I employee.
ARTICLE III
Executive and Incentive Compensation Plans of New Hillhaven.
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3.1. New Hillhaven AIP.
-----------------
(a) New Hillhaven has adopted the New Hillhaven AIP, which shall be
effective as of the Distribution Date. The New Hillhaven AIP is in substantially
the form provided in Exhibit B hereto; provided, however, that this Agreement
may not be construed or interpreted to restrict New Hillhaven's right or
authority to amend or terminate the New Hillhaven AIP effective as of a date
following the Distribution Date.
(b) The New Hillhaven AIP has been approved by NME, as the
beneficial owner of all of the outstanding capital stock of New Hillhaven.
3.2. New Hillhaven LTIP.
------------------
(a) New Hillhaven has adopted the New Hillhaven LTIP, which shall be
effective as of the Distribution Date. The New Hillhaven LTIP is in
substantially the form provided in Exhibit C hereto; provided, however, that
this Agreement may not be construed or interpreted to restrict New Hillhaven's
right or authority to amend or terminate the New Hillhaven LTIP effective as of
a date following the Distribution Date.
(b) The New Hillhaven LTIP has been approved by NME, as the
beneficial owner of all of the outstanding capital stock of New Hillhaven.
3.3. New Hillhaven Stock Incentive Plan.
----------------------------------
(a) New Hillhaven has adopted the New Hillhaven Stock Incentive Plan,
which shall be effective as of the Distribution Date. The New Hillhaven Stock
Incentive Plan is in substantially the form provided in Exhibit D hereto;
provided, however, that this Agreement may not be construed or interpreted to
restrict New Hillhaven's right or authority to amend or terminate the New
Hillhaven Stock Incentive Plan effective as of a date following the Distribution
Date.
(b) The New Hillhaven Stock Incentive Plan has been approved by NME,
as the beneficial owner of all of the outstanding capital stock of New
Hillhaven.
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3.4. New Hillhaven SERP.
------------------
(a) New Hillhaven has adopted the New Hillhaven SERP, which shall be
effective as of the Distribution Date. The New Hillhaven SERP is in
substantially the form provided in Exhibit E hereto; provided, however, that
this Agreement may not be construed or interpreted to restrict New Hillhaven's
right or authority to amend or terminate the New Hillhaven SERP effective as of
a date following the Distribution Date.
(b) The New Hillhaven SERP has been approved by NME, as the
beneficial owner of all of the outstanding capital stock of New Hillhaven.
3.5. New Hillhaven DCMP.
------------------
(a) New Hillhaven has adopted the New Hillhaven DCMP, which shall be
effective as soon as practicable after the Distribution Date but in no event
later than 60 days after the Distribution Date. The New Hillhaven DCMP is in
substantially the form provided in Exhibit F hereto; provided, however, that
this Agreement may not be construed or interpreted to restrict New Hillhaven's
right or authority to amend or terminate the New Hillhaven DCMP effective as of
a date following the Distribution Date.
(b) The New Hillhaven DCMP has been approved by NME, as the
beneficial owner of all of the outstanding capital stock of New Hillhaven.
3.6. New Hillhaven Senior DCP.
------------------------
(a) New Hillhaven has adopted the New Hillhaven Senior DCP, which
shall be effective as soon as practicable after the Distribution Date but in no
event later than 60 days after the Distribution Date. The New Hillhaven Senior
DCP is in substantially the form provided in Exhibit G hereto; provided,
however, that this Agreement may not be construed or interpreted to restrict New
Hillhaven's right or authority to amend or terminate the New Hillhaven Senior
DCP effective as of a date following the Distribution Date.
(b) The New Hillhaven Senior DCP, has been approved by NME, as the
beneficial owner of all of the outstanding capital stock of New Hillhaven.
3.7. New Hillhaven Directors' Option Plan.
------------------------------------
(a) New Hillhaven has adopted the New Hillhaven Directors' Option
Plan, which shall be effective as of the Distribution Date. The New Hillhaven
Directors' Option Plan
6
is in substantially the form provided in Exhibit H hereto; provided, however,
that this Agreement may not be construed or interpreted to restrict New
Hillhaven's right or authority to amend or terminate the New Hillhaven
Directors' Option Plan effective as of a date following the Distribution Date.
(b) The New Hillhaven Directors' Option Plan has been approved by
NME, as the beneficial owner of all of the outstanding capital stock of New
Hillhaven.
ARTICLE IV
Executive and Incentive Compensation Plans of NME and Old Hillhaven.
-------------------------------------------------------------------
4.1. NME AIP. NME shall take all action necessary (including
-------
amending the NME AIP, if required) to provide that with respect to any New
Hillhaven Employee who was a participant in the NME AIP on the Distribution
Date, no forfeiture of the right of such Employee to receive any NME AIP award
for the fiscal year ending May 31, 1990 shall occur by virtue of the transfer of
such Employee's employment with NME, Old Hillhaven or any Old Hillhaven
Subsidiary as effected by the Distribution, and such awards shall be paid to
such Employees by New Hillhaven after the end of such fiscal year. As of the
Distribution Date, NME shall (a) estimate prorated AIP awards for such New
Hillhaven Employees based upon the financial performance of Old Hillhaven and
its subsidiaries for the period beginning June 1, 1989 and ending on the
Distribution Date and (b) accrue an amount equal to such estimated prorated NME
AIP awards as a liability to be assumed by New Hillhaven in connection with the
Distribution.
4.2. NME LTIP. NME shall take all action necessary (including
--------
amending the NME LTIP, if required) to provide that (a) with respect to any New
Hillhaven Employee who was a participant on May 31, 1989 in Cycle V beginning
June 1, 1987 or Cycle VI beginning June 1, 1988 of the NME LTIP, (i) awards to
any such New Hillhaven Employee for such Performance Cycle (as such term is
defined in the NME LTIP) shall entail a cash award opportunity that is
equivalent to the cash award opportunity that would have been applicable to such
Employee for such Performance Cycle had the Distribution not occurred; (ii) with
respect to the cash award opportunities of New Hillhaven Employees for Cycle V
and Cycle VI, New Hillhaven shall establish a single transitional Performance
Cycle beginning on the Distribution Date and ending on May 31, 1991, which
transitional Performance Cycle shall provide for an interim pay-out following
May 31, 1990 based on cash award opportunities that are equivalent to
participants' cash award
7
opportunities for Cycle V and a final pay-out following May 31, 1991 based on
cash award opportunities that are equivalent to participants' cash award
opportunities for Cycle VI and (iii) with respect to the pay-out Corresponding
to Cycle V following May 31, 1990, NME shall accrue, as a liability to be
assumed by New Hillhaven in connection with the Distribution, an amount
estimated by NME to be equal to the prorated awards that would have been earned
by New Hillhaven Employees who were participants in Cycle V of the NME LTIP
during the period beginning June 1, 1987 and ending on the Distribution Date and
(b) with respect to any New Hillhaven Employee who was a participant in Cycle
VII beginning June 1, 1989 of the NME LTIP as of the Distribution Date (i)
awards to any such New Hillhaven Employee for Cycle VII shall entail a cash
award opportunity that is equivalent to the cash award opportunity that would
have been applicable to such Employee for such Performance Cycle had the
Distribution not occurred and (ii) the pay-out under Cycle VII shall occur
following May 31, 1992. New Hillhaven shall assume the payment of the awards
specified in Sections 4.2(a) and (b) as of the Distribution Date, and, except as
provided in Section 4.2(a)(iii), the amounts payable under such awards shall be
based on New Hillhaven performance after the Distribution Date.
4.3. NME Stock Incentive Plan. NME shall take all action necessary
------------------------
(including obtaining the consent of holders of restricted share grants and stock
options and amending the NME Stock Incentive Plan, if required) to provide that
(a) any stock options issued to New Hillhaven Employees under the NME Stock
Incentive Plan which vest on or before the Distribution Date are exercisable
during the two-year period beginning on the Distribution Date, unless by their
terms they would expire sooner for reasons other than termination of employment,
in which case such period of exercisability shall extend only to such expiration
dates; (b) to the extent that restricted shares and stock options issued under
the NME Stock Incentive Plan and held by New Hillhaven Employees are scheduled
to vest after the Distribution Date, such restricted shares and stock options
shall be replaced as of the Distribution Date by New Hillhaven restricted shares
and New Hillhaven stock options, the fair market value of such New Hillhaven
restricted shares and New Hillhaven stock options being equal to the fair market
value of the restricted shares and stock options being replaced, with the
replacement restricted shares and the replacement stock options having
equivalent vesting schedules to the vesting schedules for the restricted stock
and the stock options being replaced and (c) with respect to the dividends
payable to holders of unvested NME restricted shares that are foregone by New
Hillhaven Employees as a result of the replacement of NME restricted shares with
New Hillhaven restricted shares, (i) NME will estimate the
8
dollar amount of dividends foregone by each such New Hillhaven Employee based on
a consideration of NME's projected quarterly dividend rates and the number of
unvested NME restricted shares each such Employee would have held on each future
dividend payment date following the distribution Date were it not far the
replacement of unvested NME restricted shares with New Hillhaven restricted
shares and (ii) New Hillhaven restricted shares will be granted to each such
employee as of the Distribution Date, such that the aggregate fair market value
of each such Employee's grant will equal the estimated dollar amount of
dividends foregone as determined in Section 4.3(c)(i) and the vesting schedule
of each such Employee's grant will replicate the Vesting schedule of the
unvested NME restricted shares which would have been a basis for a dividend
payment to the Employee. The purchase price of New Hillhaven Common Stock under
the replacement stock options shall be equal to 50% of the fair market value of
the shares of New Hillhaven Common Stock Purchasable under such stock options.
For purposes of this Section 4.3, "fair market value" shall mean (i) for New
Hillhaven Common Stock, the fair Market value per share on the Distribution Date
as determined by the Board of Directors of NME or a committee thereof for
Purposes of adjusting the exercise price of outstanding NME Stock options or
convertible securities, as conclusively set forth in a certificate of the
Secretary or an Assistant Secretary of NME delivered to New Hillhaven as soon as
practicable after the Distribution Date, provided that if such fair market value
is less than $2 on such date, the fair market value shall be deemed to be $2 on
such date, and (ii) for NME Common Stock, the average of the reported last per
share sales price reguLar way on the Composite Tape of the New York Stock
Exchange for the ten consecutive trading days immediately preceding the record
date for the Distribution, provided that if such fair Market value exceeds $40,
the fair market value stall be deemed to be $40.
4.4. NME SERP. NME shall take all action necessary (including
--------
amending the NME SERP, if required) to provide that (a) all Nev Hillhaven
employees shall be terminated as participants in the NME SERP as at the
Distribution Date without any vesting of such Employees' benefits with respect
to the NME SERP and (b) all New Hillhaven Employees who are participants in the
NME SERP on the Distribution Date shall become participants in the New Hillhaven
SERP as of the Distribution Date, shall be provided with benefits identical to
their NME SERP benefits as of the Distribution Date and shall receive full
credit under the New Hillhaven SERP for years of credited service and vesting
earned under the NME SERP.
4.5. Old Hillhaven Deferred Compensation Plan. NME shall have
----------------------------------------
caused Old Hillhaven to take all action necessary (including amending the Old
Hillhaven Deferred
9
Compensation Plan, if required) to provide that (a) such Plan shall have been
terminated effective no less than 30 calendar days prior to the Distribution
Date and (b) all vested and unvested balances under the Old Hillhaven Deferred
Compensation Plan shall have been paid to the participants under the Plan in
lump-sum cash payments no later than 22 calendar days after the Old Hillhaven
Deferred Compensation Plan was terminated.
4.6 Old Hillhaven Short Term DCP. NME shall have caused Old
----------------------------
Hillhaven to take all action necessary (including amending the Old Hillhaven
Short Term DCP, if required) to provide that (a) such Plan shall have been
terminated prior to the Distribution Date and (b) all balances under such Plan
shall be paid to the participants under the Plan in lump-sum cash payments on or
prior to the Distribution Date.
4.7 NME Deferred Compensation Plan. NME shall take all action
------------------------------
necessary to provide that all New Hillhaven Employees shall be terminated as
participants in the NME Deferred Compensation Plan as of the Distribution Date
and that all Participants' account balances, which consist of employee deferrals
under the Plan and accrued interest thereon, shall be paid out under the terms
of the Plan as soon as practicable following the Distribution Date.
4.8 Excluded Employees. Notwithstanding any other section of this
------------------
Agreement, the term "New Hillhaven Employee" shall be deemed not to include the
persons identified in Exhibit J hereto for the purposes of this Article IV.
ARTICLE V
Employee Welfare Benefit Plans
------------------------------
5.1 New Hillhaven Welfare Plans.
---------------------------
(a) New Hillhaven has adopted the New Hillhaven Welfare Plans, which
shall be effective as of the Distribution Date and which in material respects
are the same as the employee welfare benefit plans maintained by Old Hillhaven
for the benefit of Old Hillhaven employees as of the Distribution Date (the "Old
Hillhaven Welfare Plans"); provided, however, that this Agreement may not be
construed or interpreted to restrict New Hillhaven's right or authority to amend
or terminate the New Hillhaven Welfare Plans effective as of a date following
the Distribution Date.
(b) In the case of any New Hillhaven Employee or any dependent of
such person who was covered under a
10
corresponding Old Hillhaven Welfare Plan immediately prior to the date on which
the New Hillhaven Employee became a New Hillhaven Employee, the New Hillhaven
Welfare Plans shall not deny or restrict coverage or benefits based on length of
service, pre-existing conditions or other provisions which would not have
restricted or denied coverage or benefits for such individual had such
individual continued to participate in the Old Hillhaven Welfare Plans.
5.2. Welfare Benefits and Liabilities. New Hillhaven shall assume
--------------------------------
and shall be solely responsible for all claims incurred before, on or after the
Distribution Date in connection with the New Hillhaven Welfare Plans by
individuals who are New Hillhaven Employees, including dependents thereof.
Neither NME or Old Hillhaven nor any affiliate of NME or Old Hillhaven shall
have any liability in connection with the New Hillhaven Welfare Plans arising
out of any such claims on or after the Distribution Date.
ARTICLE VI
Indemnification
---------------
6.1. In General. Each party hereto or any of the Subsidiaries of
----------
each such party to whom certain responsibilities and liabilities have been
allocated hereunder (the "Indemnifying Party") shall indemnify, defend and hold
harmless each other party and any such Subsidiary of such party (the
"Indemnitee"), including the Indemnitee's respective directors, officers,
employees, agents and Affiliates (and the heirs, executors, successors and
assigns of any of the foregoing) from and against any and all losses,
liabilities, claims, damages, obligations, payments, costs and expenses, matured
or unmatured, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, known or unknown (including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions) arising out of or
due to the failure or alleged failure of the Indemnifying Party to pay, perform
or otherwise discharge in due course any of its responsibilities or liabilities.
6.2. Procedures for Indemnification. The procedures for
------------------------------
indemnification set forth in the Distribution Agreement are incorporated herein
by reference.
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ARTICLE VII
Assumption of Liability
-----------------------
New Hillhaven shall, effective as of the Distribution Date, assume and
be solely responsible for all liabilities, obligations, claims and payments,
matured or unmatured, known or unknown, absolute or contingent, accrued or
unaccrued, arising out of this Agreement and the transactions contemplated
thereby, including without limitation all liabilities, obligations, claims and
payments, matured or unmatured, known or unknown, absolute or contingent,
accrued or unaccrued, in respect of claims made by or on behalf of New Hillhaven
Employees and any employees, past or present, of Old Hillhaven or a Subsidiary
of Old Hillhaven, excluding the persons or entities identified in Exhibit I
hereto who are not New Hillhaven Employees and excluding the persons identified
in Exhibit J hereto with respect to claims made in connection with the
employment of any such person with NME, relating to acts or omissions arising
before, on or after the Distribution Date, including but not limited to claims,
grievances or disputes concerning wrongful termination, Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the Consolidated
Omnibus Budget Reconciliation Act, ERISA, the Fair Labor Standards Act or any
other similar federal or state employee-related statute which could give rise
to an employer liability.
ARTICLE VIII
No Acceleration of Benefit Entitlement or Payment.
-------------------------------------------------
Any person who is an employee of Old Hillhaven or any Old Hillhaven
Subsidiary (excluding the persons or entities identified in Exhibit I hereto)
immediately prior to the Distribution shall be an employee of New Hillhaven or a
Subsidiary of New Hillhaven immediately after the Distribution, and, except as
provided in Sections 4.5, 4.6 and 4.7 with respect to the Old Hillhaven Deferred
Compensation Plan, the Old Hillhaven Short Term DCP and the NME Deferred
Compensation Plan, and except as provided by the terms of the NME Retirement
Plan and the NME ESOP, to the extent permitted by law, each of the pension and
welfare and other plans and benefit arrangements, policies and practices of NME
or Old Hillhaven shall be amended to provide that a transfer of any such
employee's employment with Old Hillhaven or any Old Hillhaven Subsidiary to New
Hillhaven or a Subsidiary of New Hillhaven as effected by the Distribution shall
not be deemed to be a termination of employment or separation from service or
other event giving
12
rise to an entitlement or payment under any such plan, arrangement, policy or
practice.
ARTICLE IX
Dispute Resolution Procedures
-----------------------------
All disputes arising out of or relating to this Agreement shall be
resolved pursuant to the reference procedure set forth in California Code of
Civil Procedure Sections 638 et seq. The parties hereby agree to submit to the
-- ---
jurisdiction of the Superior Court of the County of Los Angeles, State of
California (the "Superior Court") for such purpose. Either party may initiate
the procedure set forth in this Article by providing the other party with notice
setting forth the nature of the dispute (the "Reference Notice"). The parties
shall designate to the Superior Court a referee who is an active attorney or
retired judge living in the County of Los Angeles who shall resolve the dispute.
If the parties are unable to designate a referee within 20 days after the
receipt of the Reference Notice, the parties shall request that the Superior
Court appoint a referee. In connection with any proceeding pursuant to this
Article, the parties shall have all discovery rights which would have been
available had the matters which are the subject of the dispute been decided by
the Superior Court. Discovery proceedings may be noticed and commenced
immediately after delivery of the Reference Notice. The hearing before the
referee shall begin no later than 60 days after the receipt of the Reference
Notice. All discovery in connection with the reference proceeding shall be
concluded no later than 15 days prior to the commencement of the hearing.
Judgment upon the award rendered by the referee shall be entered in the Superior
Court. Nothing in this Article shall be construed to impair the right of either
party to appeal from such judgment.
ARTICLE X
Miscellaneous
-------------
10.1. Entire Agreement; Amendment. This Agreement and the other
---------------------------
agreements referred to herein or therein or entered into in connection herewith
or therewith set forth the entire agreement and understanding of the parties
with respect to the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by either party hereto which is not embodied in this Agreement or such
other agreements, the
13
Annexes, Schedules or Exhibits hereto or thereto, or the written statements or
other documents delivered pursuant hereto or thereto, and neither party hereto
shall be bound by or liable for any alleged representation, promise, inducement
or statement of intention not so set forth. This Agreement may be amended or
modified only by a written instrument executed by both parties hereto or by
their successors and permitted assigns.
10.2. Access to Information. NME and New Hillhaven shall each
---------------------
cooperate with the other and each agree to provide the other with such
information as may be reasonably requested and necessary in order effectively to
administer and maintain the NME Employee Plans and the New Hillhaven Employee
Plans and the undertakings contemplated herein.
10.3. No Right to Continued Employment. Nothing herein shall be
--------------------------------
construed to confer upon any New Hillhaven Employee any right to be retained in
the employ of New Hillhaven or any Subsidiary of New Hillhaven.
10.4. No Third Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties hereto and their respective Subsidiaries and Affiliates
and should not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement.
10.5. Successors and Assigns. This Agreement and all of the
----------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereof and their respective successors and permitted assigns.
10.6. Notices. All notices, consents, requests, instructions,
-------
approvals and other communications hereunder shall be in writing and shall be
deemed to have been duly given, if delivered in person or by courier,
telegraphed, telexed or sent by facsimile transmission or mailed, by certified
or registered mail, postage prepaid at the following address (or at such other
address provided by one party to the other in writing):
If to NME:
National Medical Enterprises, Inc.
2700 Colorado Avenue
Santa Monica, California 90904
Telecopy no.: (213) 315-6567
Attention: Senior Vice President,
Human Resources
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with a copy to:
National Medical Enterprises, Inc.
2700 Colorado Avenue
Santa Monica, California 90904
Telecopy no.: (213) 315-6688
Attention: General Counsel
If to New Hillhaven:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98401-2264
Telecopy no.: (206) 756-4714
Attention: President
with a copy to:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98401-2264
Telecopy no.: (206) 756-4714
Attention: General Counsel
10.7. Termination. This Agreement may be terminated in the event
-----------
that the Distribution Agreement is terminated and the Distribution abandoned
prior to the Distribution Date. In the event of such termination, no party shall
have any liability of any kind to the other party.
10.8. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement.
10.9. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
10.10. Construction. In this Agreement,
------------
(i) unless the context otherwise requires, the terms "herein,"
"hereof," "hereto," and "hereunder" refer to this Agreement; and
(ii) the headings of the sections and subsections hereof and the
table of contents hereof are inserted for convenience only and do not
constitute a part of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
NATIONAL MEDICAL ENTERPRISES,
INC.
By: /s/ Marcus E. Powers
-----------------------------
Name: MARCUS E. POWERS
Title: SENIOR VICE PRESIDENT
THE HILLHAVEN CORPORATION
By: /s/ Christopher J. Marken
-----------------------------
Name: CHRISTOPHER J. MARKEN
Title: PRESIDENT
EXHIBIT I
EXCLUDED PERSONS
AND ENTITIES
----------------
Persons:
Daniel P. Baty*
Martin Bradford
Deborah L. Carlson
Patrick Carter
Laura A. Ficke
David R. Mayeux
Timothy M. McCoy
Timothy L. Pullen
Marvin Wilensky*
Employees of the Following Entities:
Medical Ambulatory Care, Inc.
AK, Inc.
________________________
*Notwithstanding the provisions of this Agreement, liabilities with respect to
these employees will be assumed by New Hillhaven to the extent described in
Exhibit B of the Assignment and Assumption Agreement, dated as of January 31,
1990, between the subsidiaries of NME signatories thereto, on the one hand, and
New Hillhaven, on the other hand.
EXHIBIT J
EXCLUDED EMPLOYEES
------------------
Mr. Richard K. Eamer
Mr. Leonard Cohen
EXHIBIT K
COVERED OLD HILLHAVEN FACILITIES
--------------------------------
1. Alvarado Convalescent and Rehabilitation Hospital
San Diego, California
2. Hillhaven Health Care Center
Monterey Park, California
3. Fifth Avenue Convalescent Hospital
San Rafael, California
4. Hillside Manor Convalescent Hospital
San Rafael, California
5. Pine Towers Convalescent Hospital
San Francisco, California
6. Hillhaven Victorian
San Francisco, California
7. Pasatiempo Development
Tacoma, Washington