EXECUTIVE SEVERANCE AGREEMENT
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THIS AGREEMENT is made as of the 11th day of March, 1996 between Renal
Treatment Centers, Inc. (the "Company"), a Delaware corporation, and Thomas J.
Karl (the "Executive").
RECITALS:
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The Company considers the employment and maintenance of continuity in its
key management personnel to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In this connection the Company
recognizes that the possibility of a change of control may exist and that such
possibility, and the uncertainty and questions that it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage employment of the Executive and the
Executive's continued attention and dedication to his assigned duties without
distraction in the face of the potentially disturbing circumstances arising from
the possibility of a change of control of the Company.
In order to induce the Executive to accept employment and to thereafter
remain in the employ of the Company notwithstanding the occurrence of a Change
of Control of the Company (as defined in Section 7 of this Agreement), the
Company is willing to employ the Executive in accordance with the terms of that
certain Employment Agreement dated as of March 11, 1996 between the Company and
the Executive (the "Employment Agreement") and thereafter in accordance with
such terms as may be agreed upon by the Executive and the Company and, if a
Change of Control shall occur during such employment period, the Company is
willing to continue to employ the Executive for a period equal to the remaining
term under the Employment Agreement or 12 months immediately following the date
of Change of Control, whichever is greater, on the terms and conditions set
forth in this Agreement.
In consideration of the undertakings of the Company in this Agreement, and
intending to be legally bound hereby, the Executive is willing to continue to
serve the Company in a management capacity in accordance with the terms of the
Employment Agreement and, if a Change of Control shall occur during such
employment period, the Executive is willing to serve the Company for a period
equal to the remaining term under the Employment Agreement or 12 months
immediately following the date of Change of Control, whichever is greater, on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein, and intending to be legally bound hereby, it is agreed as follows:
1. Employment.
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(a) The Company hereby affirms, confirms and reaffirms its agreement to
employ the Executive and the Executive hereby affirms, confirms and reaffirms
his agreement to be employed by the Company in accordance with the terms of the
Employment Agreement, the term of which shall be subject to extension as
provided in Section 1(b) hereof.
(b) If the Executive is employed by the Company on the date on which a
Change of Control of the Company occurs, then, except as otherwise provided in
Sections 4 and 5(a), the Company agrees to employ the Executive, and the
Executive agrees to serve the Company, in a management capacity for a period of
(i) the remaining term under the Employment Agreement or (ii) twelve (12)
months, whichever is greater, commencing on the date on which the Change of
Control occurs.
(c) The period following a Change of Control during which the Executive
shall be employed pursuant to this Agreement is hereinafter referred to as the
"Post Change of Control Employment Period."
2. Duties.
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(a) During the Post Change of Control Employment Period, the
Executive's duties on behalf of the Company shall be in the same area of
operations and the same corporate capacity and of the same general nature as
those performed by him prior to the Post Change of Control Employment Period.
(b) During the Post Change of Control Employment Period, the Executive
shall devote such amount of his time, energy and skills to the endeavors of the
Company and the promotion of its interests as prior to the Post Change of
Control Employment Period.
(c) The Executive agrees that during the Post Change of Control
Employment Period he shall be subject to the non-competition provisions of the
Employment Agreement or any non-competition agreement between the Executive and
the Company entered into prior to the Post Change of Control Employment Period.
3. Compensation.
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(a) As consideration for the undertakings of the Executive in this
Agreement, and as compensation for the Executive's services during the Post
Change of Control Employment Period, the Company shall pay the Executive a
salary at least equal to the base salary
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that the Executive is being paid by the Company on the date on which the Change
of Control occurs.
(b) During the Post Change of Control Employment Period, the Executive
shall be entitled to employee benefits (including, but not limited to,
retirement benefits, medical insurance, disability insurance, other insurance
programs and vacations) no less favorable than those to which he is entitled on
the date on which the Change of Control occurs.
(c) In addition to all other compensation to be paid to the Executive
by the Company hereunder, upon the occurrence of a Change of Control, the
Company shall cause the options as to 30,000 shares (60,000 subsequent to the
post split to be effective close of business March 14, 1996) of the Company's
common stock (upon a Change of Control prior to September 1, 1996) and all
options (upon a Change of Control on or after September 1, 1996) ("Options")
granted to the Executive under the Company's stock option plans to automatically
become fully vested and exercisable immediately upon a Change of Control. In
addition, the Executive shall have the right exercisable by written notice to
the Company to elect to receive, in lieu of shares of common stock of the
Company (the "Company Shares") issuable upon the exercise of Options (which
Options shall be cancelled upon the making of the payment referred to below), an
amount in cash equal to the aggregate spread between the exercise prices of all
Options held by the Executive, whether or not then fully vested or exercisable,
and the higher of (A) the closing price of Company Shares as reported on the
principal securities exchange on which the Company's common stock is traded or
if the principal trading market for the Company's common stock is the Nasdaq
National Market then such market on the date of Change of Control (or the last
trading date prior thereto), or (B) the highest price per Company Share actually
paid in connection with the Change of Control of the Company (the higher price
being referred to as the "Termination Price"), but excluding from such
calculation all Options the exercise price of which is in excess of the
Termination Price. Nothing contained herein shall affect the Employee's right
to have all options held by him to become immediately exercisable pursuant to
the terms of the Employment Agreement and/or the Stock Option Agreement, dated
as of March 11,1996 between Company and Executive.
4. Death or Disability.
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(a) If the Executive shall die during the Post Change of Control
Employment Period, the Company's remaining obligations under this Agreement
shall terminate.
(b) If, during the Post Change of Control Employment Period, the
Executive shall, in the reasonable opinion of the Board, become totally disabled
or incapacitated for a period of at least six consecutive months, the Company
shall so notify the Executive in writing and, upon the expiration of such six-
month
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period or such later time as shall be specified in the Company's notice, the
Post Change of Control Employment Period shall terminate.
5. Termination.
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(a) If, during the Post Change of Control Employment Period, the
Executive shall terminate his employment other than for Good Reason (as defined
in Section 7 of this Agreement) or other than for Constructive Discharge (as
defined in the Employment Agreement) or shall violate the provisions of Section
2(c) hereof, the Company's remaining obligations under this Agreement shall
terminate.
(b) The Company shall have the right to terminate the Post Change of
Control Employment Period of the Executive under this Agreement for Material
Cause (as defined in the Employment Agreement), and for no other reason. Upon
such termination, the Company's remaining obligations under this Agreement shall
terminate. For purposes of this Section 5(b), the Executive shall not be deemed
to have been terminated for Material Cause unless,in addition to the
requirements set forth in the definition of Material Cause in the Employment
Agreement, the Executive lacked good faith and a reasonable belief that his
conduct was in the best interest of the Company. Moreover, any conduct of the
Executive in connection with a Change of Control (including his opposition to or
support of a Change of Control) shall not under any circumstances be deemed to
constitute Material Cause for purposes of this Agreement.
(c) If the Executive shall terminate his employment for Good Reason or
by reason of Constructive Discharge prior to the end of the Post Change of
Control Employment Period, the Executive shall receive the same payments that
would have been provided to the Executive under Sections 5(e) and 5(f) hereof.
(d) If the Company shall terminate the employment of the Executive
prior to the end of the Post Change of Control Employment Period for any reason
other than Material Cause as provided in Section 5(b) of this Agreement or total
disability or incapacity for a period of at least six consecutive months as
provided in Section 4(b) of this Agreement, or if the Executive shall terminate
his employment for Good Reason or by reason of Constructive Discharge prior to
the end of the Post Change of Control Employment Period, the Executive shall be
entitled to receive such payments and benefits as are specifically provided by
this Agreement for a period equal to the balance of the Post Change of Control
Employment Period as if such termination had not occurred.
(e) Except as provided in Sections 4(a), 4(b) and 5(b) hereof, if the
Executive's employment is terminated by the Company prior to the end of the Post
Change of Control Employment Period, the Executive shall receive his base salary
in effect immediately
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prior to the date on which the Change of Control occurs until the expiration of
the Post Change of Control Employment Period as if such termination had not
occurred.
(f) If the Executive is entitled to continue to receive salary pursuant
to Section 5(d) of this Agreement after the termination of his employment, he
shall also be entitled to receive employee fringe and welfare benefits
(including, but not limited to, medical insurance, disability insurance and
other insurance programs) at least comparable to those to which he was entitled
immediately prior to the date on which such termination occurs. If the terms of
any of the Company's welfare benefit plans do not permit continued participation
by the Executive, the Company shall arrange to provide to the Executive a
benefit substantially similar to, and no less favorable than, the benefit he was
entitled to receive under such plan at the end of the period of coverage.
(g) In addition to all other amounts payable to the Executive under
this Section 5, upon the termination of his employment, the Executive shall be
entitled to receive all benefits (as if he were employed until the end of the
Change of Control Post Employment Period) payable to the Executive under the
Company's tax-qualified retirement plan and any other plan or agreement relating
to retirement benefits.
(h) Any purported termination of the Executive's employment by the
Company or by the Executive shall be communicated by a Notice of Termination to
the other party hereto in accordance with Section 12 hereof. A "Notice of
Termination" shall mean a written notice that indicates the specific termination
provision in this Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment.
(i) Notwithstanding anything to the contrary set forth herein, upon the
termination of this Agreement, the Employee shall be entitled to receive any
payments or benefits under any benefit or retirement plans or other arrangements
that would, by their terms, apply.
6. Expense Reimbursement. In the event that any person asserts the
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invalidity of all or any part of this Agreement and the Executive incurs legal
fees or out-of-pocket expenses in connection with defending the validity of all
or a portion of this Agreement, the Company shall reimburse the Executive for
all legal fees and out-of-pocket expenses the Executive so incurs.
7. Definitions.
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(a) For purposes of this Agreement, "Change of Control" shall be deemed
to have occurred if, during the term of this Agreement:
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(i) the beneficial ownership of at least 50% of the Company's
voting securities or all or substantially all of the assets of the Company shall
have been acquired, directly or indirectly, by a single person or a group of
affiliated persons, other than the Executive or a group in which the Executive
is a member, in any transaction or series of transactions; or
(ii) as the result of or in connection with any cash tender offer,
exchange offer, sale of assets, merger, consolidation or other business
combination of the Company with another corporation or entity or contested
election of directors, the persons who were directors of the Company immediately
prior to such occurrence shall cease to constitute a majority of the Board of
Directors of the Company or the surviving, new or combined entity and any
corporation or entity that shall control the Company or the surviving, new or
combined entity.
(b) For purposes of this Agreement, the date of Change of Control shall
mean the earlier to occur of:
(i) the first date on which a single person or group of affiliated
persons acquires the beneficial ownership of 50% or more of the Company's voting
securities or all or substantially all of the Company's assets in any
transaction or series of transactions; or
(ii) the date on which a cash tender offer, exchange offer, sale of
assets, merger, consolidation, other business combination or contested election
of directors resulting in the change in the Board of Directors contemplated by
Section 7(a)(ii) hereof is consummated.
(c) For purposes of this Agreement, the term "Good Reason" shall mean
the occurrence of any of the following events after the date of Change of
Control without the Executive's express written consent:
(i) the assignment to the Executive of any duties that are not in
the same corporate capacity or area of operations or are not of the same general
nature as the Executive's duties with the Company immediately prior to a Change
of Control or the failure by the Company to provide the Executive office
accommodations and assistance substantially equivalent to the accommodations and
assistance provided to the Executive immediately prior to the Change of Control;
(ii) a reduction in the Executive's compensation as in effect on the
date of the Change of Control or as the same may be increased thereafter; or
(iii) the Company's assigning the Executive to a facility situated
beyond the radius of 30 miles from the facility to which he was assigned
immediately prior to a Change of Control.
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8. Excess Parachute Payment. In the event that any payment or benefit
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received or to be received by the Executive in connection with a Change of
Control (whether payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any successor to the Company or
any corporation ("Affiliate") affiliated with the Company or which becomes so
affiliated pursuant to the transactions resulting in a Change of Control, both
within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), (collectively all such payments are hereinafter referred
to as the "Total Payments")) is deemed to be an "excess parachute payment" (in
whole or part) to the Executive as a result of Section 280G and/or 4999 of the
Code, no change shall be made to the Total Payments to be made in connection
with the Change of Control except that, in addition to any other payment,
coverage or benefit due and owing hereunder, the Company shall pay to Executive
on the date on which a Change of Control occurs a cash payment equal to an
amount determined by multiplying the rate of excise tax then imposed by Section
4999 by the amount of the "excess parachute payment" received by the Executive
(determined without regard to any payments made to the Executive pursuant to
this Section) and dividing the product so obtained by the amount obtained by
subtracting the aggregate local, state and Federal income tax rate applicable to
the receipt by Executive of the "excess parachute payment" (taking into account
the deductibility for Federal income tax purposes of the payment of state and
local income taxes thereon) from the amount obtained by subtracting from 1.00
the rate of excise tax then imposed by Section 4999 of the Code, it being the
Company's intention that the Executive's net after tax position be identical to
that which would have obtained had Sections 280G and 4999 not been part of the
Code.
For purposes of implementing this Section 8, the following provisions shall
apply: (i) no portion, if any, of the Total Payments, the receipt or enjoyment
of which the Executive shall have effectively waived in writing prior to the
date of payment of the Total Payments, shall be taken into account; and (ii) the
value of any non-cash benefit or any deferred cash payment included in the Total
Payments shall be determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
9. Binding Effect. This Agreement shall be binding upon and inure to the
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benefit of any successor to the Company including without limitation any
successor to all or substantially all of the business or assets of the Company,
and such successor shall also be responsible for the discharge and performance
of all obligations of the Company hereunder.
10. Successors. The Company will require any successor (whether direct or
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indirect, by purchase, merger, consolidation or
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otherwise) to all or substantially all of the business or assets of the Company
to expressly assume 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. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as the Executive would be
entitled hereunder if the Executive terminated his employment for Good Reason or
for Constructive Discharge.
11. Notice. Notices and all other communications provided for in this
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Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the Company at its principal office and to the
Executive at his principal residence as shown in the Company's personnel
records, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
12. Conflict with Other Agreements. In the event of any conflict between
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the provisions of this Agreement and the Employment Agreement, the provisions of
this Agreement shall control.
13. Effective Date. This Agreement shall become effective on the date
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Executive's employment with Company commences pursuant to the terms of the
Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Attest: RENAL TREATMENT CENTERS, INC.
/s/ Frederick C. Jansen By:/s/ Robert L. Mayer, Jr.
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President
Witness:
/s/ Frederick C. Jansen /s/ Thomas J. Karl
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Thomas J. Karl
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