EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") originally dated as of
November 26, 2003, by and between NeighborCare, Inc. (formerly known as Genesis
Health Ventures, Inc.), a Pennsylvania corporation (the "Company") with a place
of business at 7 Lee Street, Baltimore, MD 21202 (the "Company"), and Robert A.
Smith (the "Executive"), which shall be effective as of December 1, 2003 (the
"Effective Date") is amended and restated as of December 9, 2003.
WITNESSETH
WHEREAS, the Company desires to employ the Executive as an employee of
the Company, and the Executive desires to provide services to the Company, all
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Executive currently is employed by the Company pursuant to
an employment agreement dated July 1, 2001 ("Current Employment Agreement")
amended October 2, 2001; and
WHEREAS, the Company is contemplating a spin-off (the "Spin-Off") of
Genesis HealthCare Corporation; and
WHEREAS, the consummation of the Spin-Off and potential changes to the
Executive's employment may trigger the right of the Executive under Section 5 of
the Current Employment Agreement to a lump-sum payment equal to two times the
sum of the Executive's Average Base Salary (as defined in the Current Employment
Agreement) plus the Executive's Average Assumed Cash Incentive Compensation (as
defined in the Current Employment Agreement); and
WHEREAS, in consideration of the cash payments and the award of stock
options and/or restricted stock as set forth in the proposal letter dated
November 20, 2003 and which is attached hereto as Exhibit A (which the Executive
acknowledges is good and valuable consideration), the Executive, after due
consideration, has agreed to waive any rights the Executive may have under the
Current Employment Agreement; and
WHEREAS, upon due consideration, the Executive acknowledges that the
consideration set forth herein is reasonable and adequate, including the terms
of employment and covenants contained herein; and
WHEREAS, it is the intent of the parties that upon the Effective Date
the Current Employment Agreement shall be superseded by this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to employ the
Executive as Chief Operating Officer of its NeighborCare Division, and
Executive's principal place of business shall be located at the Company's
headquarters currently located in Baltimore, Md.. The Executive accepts such
employment and agrees to perform the customary responsibilities of such position
during the term of this Agreement. The Executive will perform such other duties
as may from time to time be reasonably assigned to the Executive by the Board of
Directors of the Company (the "Board") or the Company's Chief Executive Officer,
provided such duties are consistent with and do not interfere with the
performance of the duties described herein and are of a type customarily
performed by persons of similar titles with similar corporations. Nothing in
this Agreement shall preclude the Executive from serving as a director, trustee,
officer of, or partner in, any other firm, trust, corporation or partnership, as
long as such activities do not interfere with the Executive's performance of the
Executive's duties hereunder or violate the terms of Section 8 hereof, and so
long as the Executive has received written approval by the Chief Executive
Officer of the Company. Furthermore, nothing in this Agreement shall preclude
the Executive from pursuing personal investments, as long as such activities do
not interfere with the Executive's performance of the Executive's duties
hereunder or violate the terms of Section 8 hereof.
2. Period of Employment.
(a) Period of Employment. The period of the Executive's employment
under this Agreement shall commence on the Effective Date and shall, unless
sooner terminated pursuant to Section 4, terminate on the second anniversary of
the Effective Date (such period, as extended from time to time, herein referred
to as the "Term"). Subject to Section 2(b), and if the Term has not been
terminated pursuant to Section 4, on such second anniversary, and on each
anniversary of such date thereafter (each such anniversary, an "Automatic
Extension Date"), the Term shall be extended for an additional period of one
year.
(b) Termination of Automatic Extension by Notice. The Company or the
Executive may elect to terminate the automatic extension of the Term set forth
in Section 2(a) ("Automatic Extension") by giving written notice of such
election. Any notice given hereunder must be given at least 60 days prior to the
applicable Automatic Extension Date.
3. Compensation and Benefits.
(a) Base Salary. As long as the Executive remains an employee of the
Company, the Executive will be paid an annual base salary of $350,000 which
shall continue at this rate, subject to adjustment as hereinafter provided. The
Executive's annual base salary shall be reviewed periodically and the Company
may increase such annual base salary, by an amount, if any, it determines to be
appropriate. Any such increase shall not reduce or limit any other obligation of
the Company hereunder. The Executive's annual base salary payable hereunder, as
it may be increased from time to time and without reduction for any amounts
deferred as described below, is referred to herein as "Base Salary". The
Executive's Base Salary, as in effect from time to time, may not be reduced by
the Company without the Executive's consent, provided that the Base Salary
payable under this paragraph shall be reduced to the extent the Executive elects
to defer or reduce such salary under the terms of any deferred compensation or
savings plan or other employee benefit arrangement maintained or established by
the Company. The Company shall pay the Executive the portion of the Executive's
Base Salary not deferred in accordance with its customary periodic payroll
practices.
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(b) Incentive Compensation. The Executive shall be eligible to
participate in stock option, incentive compensation and other plans at a level
consistent with the Executive's position with the Company and the Company's then
current policies and practices.
(c) Stock Options/Restricted Stock. The Company shall, subject to
approval by the compensation committee of the Board, pursuant to the terms of
its stock option plan or any similar plan, grant to the Executive the stock
options and/or restricted stock set forth in Exhibit A. The exercise price of
the shares subject to the stock options shall be established by the compensation
committee of the Board at the time of the grant and shall be equal to the fair
market value of the Company Stock (as determined under the Company stock option
plan or similar plan) on the effective date of grant. The Options shall vest
over a three year period with the exact frequency of the vesting to be set by
the Compensation Committee of the Board. The Executive must be employed with the
Company on each vesting date in order for those stock options which vest on
those respective option dates to vest except as provided in Section 5(c). The
stock options shall have a ten (10) year term subject to earlier termination of
such options on account of the Executive's termination of employment for any
reason, at which point the exercisability of the vested options will be, except
as provided in Section 5(c), as set forth in the applicable plan or agreement.
Any restricted stock granted will be in accordance with the terms of the
Company's restricted stock plan, when adopted, and the terms for Executive shall
be the same as the terms for other executives with similar levels of
responsibility as determined by the board of directors.
(d) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, the Executive shall be eligible
to participate in (1) each welfare benefit plan sponsored or maintained by the
Company, including, without limitation, each life, hospitalization, medical,
dental, health, accident or disability insurance or similar plan or program of
the Company, and (2) each pension, profit sharing, retirement, deferred
compensation or savings plan sponsored or maintained by the Company, in each
case, whether now existing or established hereafter, to the extent that the
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. With respect to the pension or retirement
benefits payable to the Executive, the Executive's service credited for purposes
of determining the Executive's benefits and vesting shall be determined in
accordance with the terms of the applicable plan or program. Nothing in this
Section 3(d), in and of itself, shall be construed to limit the ability of the
Company to amend or terminate any particular plan, program or arrangement.
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(ii) Vacation. During the Term, the Executive shall be
entitled to the number of paid vacation days in each anniversary year determined
by the Company from time to time for its senior executive officers, but not less
than four (4) weeks in any anniversary year. The Executive shall also be
entitled to all paid holidays given by the Company to its senior officers.
Vacation days which are not used during any calendar year may not be accrued,
nor shall the Executive be entitled to compensation for unused vacation days,
during the Term or upon termination of employment.
(iii) Executive Benefits. During the Term, the Executive shall
be entitled to receive such perquisites (e.g., fringe benefits), plans and other
benefits as are generally provided to other senior officers of the Company in
accordance with the then current policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company shall pay
or reimburse the Executive for all reasonable expenses incurred or paid by the
Executive in the performance of the Executive's duties hereunder, upon
presentation of expense statements or vouchers and such other information as the
Company may reasonably require and in accordance with the generally applicable
policies and practices of the Company.
4. Employment Termination.
The Term of employment under this Agreement may be earlier terminated
only as follows:
(a) Cause. The Company shall have the right to terminate the
Executive's employment for Cause. For purposes hereof, a termination by the
Company for "Cause" shall mean termination by action of a majority of the
non-management membership of the Board at a meeting duly called and held upon at
least fifteen (15) days prior written notice to the Executive specifying the
particulars of the action or inaction alleged to constitute "Cause" because of
(i) the Executive's conviction of, or plea of guilty or nolo contendere to, (A)
any felony (whether or not involving the Company or any of its subsidiaries) or
(B) any other crime involving moral turpitude which subjects, or if generally
known, would subject, the Company or any of its subsidiaries to public ridicule
or embarrassment, (ii) habitual intoxication, the use of illegal drugs, or the
abuse of chemical substances by the Executive, (iii) fraud or other willful
misconduct by the Executive in respect of the Executive's obligations under this
Agreement, (iv) willful and continued failure of the Executive to perform
substantially the Executive's duties (as contemplated by Section 1 of this
Agreement) with the Company (other than any such failure resulting from
incapacity due to physical or mental illness or following the Executive's
delivery of a Notice of Termination (as defined in Section 4(f)) for Good
Reason), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company that
specifically identifies the manner in which the Board or the Chief Executive
Officer of the Company believes that the Executive has not substantially
performed the Executives duties, (v) the willful engaging by the Executive in
gross misconduct or a material violation of the Company's code of conduct or
corporate policies, or (vi) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board following thirty days prior written notice to the
Executive of the Executive's refusal to perform, or failure to attempt to
perform such duties and which during such thirty day period such refusal or
failure to attempt is not cured by the Executive. "Cause" shall not include a
bona fide disagreement over a corporate policy, so long as the Executive does
not willfully violate specific written directions from the Board, which
directions are consistent with the provisions of this Agreement. Action or
inaction by the Executive shall not be considered "willful" unless done or
omitted by the Executive intentionally and without the Executive's reasonable
belief that the Executive's action or inaction was in the best interests of the
Company, and shall not include failure to act by reason of total or partial
incapacity due to physical or mental illness.
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(b) Without Cause. Notwithstanding anything to the contrary contained
in this Agreement, the Company may, at any time after at least thirty (30) days
prior written notice in accordance with Section 4(f) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
(c) Death or Disability. If the Executive dies, the Executive's
employment shall terminate as of the date of death. If the Executive develops a
disability, the Company may terminate the Executive's employment for Disability.
As used in this Agreement, the term "Disability" shall mean incapacity due to
physical or mental illness which has caused the Executive to be unable to
substantially perform the essential functions of the Executive's duties with or
without a reasonable accommodation with the Company on a full time basis for (i)
a period of six (6) consecutive months, or (ii) for shorter periods aggregating
more than six (6) months in any twelve (12) month period. During any period of
Disability, the Executive agrees to submit to reasonable medical examinations
upon the reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's employment
for Good Reason at any time during the term of this Agreement. For purposes of
this Agreement, "Good Reason" shall mean any of the following, without the
Executive's written consent, provided, that (x) the Executive shall provide the
Company with written notice thereof within thirty (30) days after the Executive
has knowledge of the occurrence of any of the events or circumstances set forth
in clauses (i) through (v) below, which notice shall specifically identify the
event or circumstance that the Executive believes constitutes Good Reason, (y)
the Company fails to correct the circumstance or event so identified within
thirty (30) days after the date of delivery of the notice referred to in clause
(x) above, and (z) the Executive resigns his employment for Good Reason within
ninety (90) days after the date of delivery of the notice referred to in (x)
above:
(i) a reduction by the Company in the Executive's Base Salary
as in effect on the date hereof or as the same may be increased from time to
time during the term of this Agreement;
(ii) any material failure by the Company to comply with any of
the material provisions of this Agreement including the failure by the Company
to award the stock options set forth in Section 3(c);
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(iii) the Company's termination of the Automatic Extension
pursuant to Section 2(b) of this Agreement;
(iv) following a Change of Control, the assignment to the
Executive by the Company of any duties that constitute a material reduction in
the Executive's status with the Company or a substantial reduction in the nature
or status of the Executive's responsibilities from those in effect immediately
prior to the Change of Control, or a reduction in the Executive's titles or
offices as in effect immediately prior to the Change of Control, or any removal
of the Executive from, or any failure to reelect the Executive to, any of such
positions, except in connection with the termination of the Executive's
employment for Disability or Cause or as a result of the Executive's death or by
the Executive other than for Good Reason; and
(v) following a Change of Control, any relocation of the
Executive's principal place of employment to a location more than forty-five
(45) miles beyond the location at which the Executive was employed immediately
prior to the Change of Control.
(e) Executive's Voluntary Termination. Notwithstanding anything to the
contrary contained in this Agreement, the Executive may, at any time after at
least sixty (60) days but no more than ninety (90) days prior written notice in
accordance with Section 4(f) hereof to the Company, terminate voluntarily the
Executive's employment hereunder.
(f) Notice of Termination. Any termination, except for death, pursuant
to this Section 4 shall be communicated by a Notice of Termination. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) Date of Termination. "Date of Termination" shall mean (i) if this
Agreement is terminated by the Company for Disability, thirty (30) days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period), (ii) if the Executive's employment
is terminated due to the Executive's death, on the date of death; (iii) if the
Executive's employment is terminated due to the Executive's voluntary
resignation pursuant to Section 4(e), the date specified in the notice (which
shall not be less than sixty (60) days nor more than ninety (90) days from the
date such Notice of Termination is given); or (iii) if the Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which shall not be less than thirty (30) days from the date such
Notice of Termination is given).
(h) Resignation from All Positions. Notwithstanding any other provision
of this Agreement, upon the termination of the Executive's employment for any
reason, unless otherwise requested by the Board, the Executive shall immediately
resign from all positions that the Executive holds or has ever held with the
Company and any other affiliate of the Company (and with any other entities with
respect to which the Company has requested the Executive to perform services).
The Executive hereby agrees to execute any and all documentation to effectuate
such resignations upon request by the Company, but he shall be treated for all
purposes as having so resigned upon termination of his employment, regardless of
when or whether he executes any such documentation.
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5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the Executive's death
or the termination of the Executive's employment by reason of the Disability of
the Executive, to the extent not theretofore paid or provided, (i) the Company
shall pay to the Executive's estate or the Executive, as applicable, within
thirty (30) days after the Date of Termination (1) the Executive's full Base
Salary and other accrued benefits earned up to the last day of the month of the
Executive's death or termination of employment by reason of the Executive's
Disability, (2) all deferred compensation of any kind, including, without
limitation, any amounts earned under any bonus plan, and (3) if any bonus, under
any bonus plan of the Company, shall be payable in respect of the year in which
the Executive's death or termination of employment by reason of the Executive's
Disability occurs, such bonus(es) prorated up to the last day of the month of
the Executive's death or termination of employment by reason of the Executive's
Disability and (ii) all restricted stock, stock option and performance share
awards made to the Executive and outstanding as of the Date of Termination shall
automatically become fully vested as of the Date of Termination.
(b) Termination for Cause. If the Executive's employment shall be
terminated for Cause, the Company shall pay the Executive, within thirty (30)
days after the Date of Termination: the Executive's full Base Salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given. The Company shall have no further obligations to the Executive under this
Agreement.
(c) Termination by the Executive for Good Reason or by the Company for
Reasons other than for Cause, Disability or Death.
(i) In the event that after December 31, 2004, (1) the Company
terminates the Executive's employment during the Term other than for Cause,
death or Disability or (2) the Executive resigns during the Term for Good
Reason, then the Executive shall receive:
Benefit Continuation;
Pro Rata Bonus;
Severance Benefit; and
Full Equity Vesting.
(ii) In the event that before January 1, 2005, (1) the Company
terminates the Executive's employment during the Term other than for Cause,
death or Disability or the Executive resigns for Good Reason for the limited
reasons defined in Section 4 (d)(i), 4 (d)(ii) or 4 (d)(iii), then the Executive
shall receive:
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Benefit Continuation;
Pro Rata Bonus;
Severance Benefit; and
Two Quarter Equity Vesting.
(iii) In the event that before January 1, 2005, the Executive
resigns for Good Reason for the limited reasons defined in Section 4 (d) (iv) or
4 (d) (v) (Change of Control provisions), then the Executive shall receive:
Benefit Continuation;
Pro Rata Bonus;
Severance Benefit; and
Full Equity Vesting.
As used in this section,
"Benefit Continuation" means that the Company shall maintain in full
force and effect, for the continued benefit of the Executive and his dependents
for a period equal to the greater of (x) the remaining period of the then
current Term without giving effect to such termination or (y) two (2) years, all
employee insurance benefit plans and programs to which the Executive was
entitled prior to the Date of Termination (including, without limitation, the
health, dental, vision, life and other voluntary insurance programs, but
specifically excluding any company paid disability plan or program provided by
the Company) if the Executive's continued participation is permissible under the
general terms and provisions of such plans and programs and the Executive
continues to pay all applicable premiums. In the event that the Executive's
participation in any health, medical or life insurance plan or program is
barred, the Company shall obtain and pay for, on the Executive's behalf,
individual insurance plans, policies or programs which provide to the Executive
health, medical, and life insurance coverage which is equivalent to the
insurance coverage to which the Executive was entitled prior to the Date of
Termination.
"Executive's Average Base Salary" means the Executive's Base Salary for
the most recent two years (including the year in which the Date of Termination
occurs) divided by two.
"Executive's Average Assumed Cash Incentive Compensation" means all
annual bonuses earned under the Company's annual incentive compensation plan
(which is intended to be a cash plan as of the Effective Date) in consideration
of services for the two (2) most recent completed fiscal years prior to the Date
of Termination, divided by two (2), or the average annual bonuses earned in such
shorter number of fiscal years during which an annual bonus incentive plan
existed or the Executive was employed.
"Full Equity Vesting" means that the previously granted and outstanding
stock options and restricted stock shall fully and immediately vest and, in the
case of stock options, shall remain exercisable for a period of at least ninety
(90) days following the Date of Termination (or, if sooner, the end of the
scheduled award term).
"Pro Rata Bonus" means a pro rata bonus for the portion of the year in
which the date of termination occurs preceding the date of termination based
upon the amount that would have been earned based on the Company's actual
performance for the portion of the year ending on the date of termination, using
performance goals that are pro-rated to reflect the portion of the year prior to
the date of termination (which amount will be paid as soon as practicable
following the date of termination).
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"Severance Benefit" means a lump-sum cash payment to the Executive,
within thirty (30) days after the Date of Termination, equal to the sum of (x)
the Executive's Average Base Salary (as defined below) and (y) the Executive's
Average Assumed Cash Incentive Compensation (as defined below).
"Two Quarter Equity Vesting" means that the number of option shares,
restricted stock, and similar equity rights previously granted and outstanding
that would have vested on the first day of each of the next two calendar
quarters following the date of such termination, had the Executive's employment
with the Company not been terminated, shall immediately vest and, in the case of
stock options, shall remain exercisable for a period of at least ninety (90)
days following the Date of Termination (or, if sooner, the end of the scheduled
award term).
(iv) The payments under this Section are subject to, and
conditional upon, the Executive executing and not revoking a general release of
all statutory and common law claims relating to employment and termination from
employment in a form provided by the Company.
(v) The Executive recognizes and accepts that the Company
shall not, in any case, be responsible for any additional amount, severance pay,
termination pay, severance obligation, incentive compensation payments, costs,
attorneys fees or other damages whatsoever arising from termination of the
Executive's employment, above and beyond those specifically provided for herein.
Notwithstanding anything herein to the contrary, the Executive shall maintain
his/her rights under any Company sponsored qualified or nonqualified retirement
plan.
6. Change of Control.
For purposes of this Agreement, the term "Change of Control" shall mean
the occurrence of any of the following:
(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 13d-3 promulgated under the Exchange Act) of forty
percent (40%) or more of either (A) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B) 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 Section 6(a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any of its affiliates, (iv) any acquisition by
any corporation pursuant to a transaction that complies with Sections 6(c)(i),
6(c)(ii) and 6(c)(iii), (v) any acquisition by any underwriter temporarily
holding securities pursuant to an offering of such securities, (vi) any
acquisition by Goldman Sachs Capital Partners or Highland Capital, (vii) any
acquisition by the Executive or any group of persons including the Executive (or
any entity controlled by the Executive or any group of persons including the
Executive) or (viii) a beneficial owner of less than forty percent (40%) of the
Outstanding Company Voting Securities that becomes a beneficial owner of forty
percent (40%) or more of the Outstanding Company Voting Securities solely by
reason of redemption or repurchase of such securities by the Company so long as
such beneficial owner takes immediate action to reduce its beneficial ownership
of Company Voting Securities below forty percent (40%);
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(b) Any time at which individuals who, as of the date hereof,
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 date hereof whose election, or nomination
for election by the Company's shareholders, 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; provided, further, that any individual becoming a director subsequent to
the date hereof who was elected by, or on the recommendation of any person
described in clause (vi) of Section 6(a) above pursuant to contractual rights as
of the Effective Date with respect to Outstanding Company Voting Securities
owned by such person shall be treated as a member of the Incumbent Board;
(c) Consummation of a merger, statutory share exchange or
consolidation or similar corporate transaction involving the Company or any of
its subsidiaries, a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock of another entity
by the Company or any of its subsidiaries (each, a "Business Combination"), in
each case unless, following such Business Combination, (i) all or substantially
all of the individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of 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 that, 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 the 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, forty percent (40%) or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or 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; provided, however, that a spinoff of
subsidiaries or divisions of the Company to an entity which is owned by the
shareholders of the Company in substantially the same proportion as their
ownership of the Company shall not constitute a Change of Control; or
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(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
7 Certain Tax Matters.
(d) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any Payment would be subject to the Excise
Tax, then the Executive shall be entitled to receive an additional payment (the
"Gross-Up Payment") in an amount such that, after payment by the Executive of
all taxes (and 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,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. The Company's obligation to make Gross-Up Payments
under this Section 7 shall not be conditioned upon the Executive's termination
of employment.
(e) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment and the assumptions to
be utilized in arriving at such determination, shall be made, to the extent
permitted by applicable law, by the Company's auditors as of immediately prior
to the Change of Control, or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm").
The Accounting Firm shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the receipt of notice from
the Executive that there has been a Payment or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of Control,
the Executive may appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within 5 days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
the 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 that will not have been made by
the Company should have been made (the "Underpayment"), consistent with the
calculations required to be made hereunder. In the event the Company exhausts
its remedies pursuant to Section 7(c) and the 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 the Executive.
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(f) The 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 10 business days after the Executive is informed
in writing of such claim. The Executive shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive 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 the Executive in writing prior to
the expiration of such period that the Company desires to contest such claim,
the 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 the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 7(c),
the Company shall control all proceedings taken in connection with such contest,
and, at its sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the applicable taxing
authority in respect of such claim and may, at its sole discretion, either pay
the tax claimed to the appropriate taxing authority on behalf of the Executive
and direct the Executive to sue for a refund or contest the claim in any
permissible manner, and the 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 pays such claim and directs
the Executive to sue for a refund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties) imposed with respect to such payment or with
respect to any imputed income in connection with such payment; and provided,
further, that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the 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 the Gross-Up Payment would be payable hereunder, and the
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.
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(g) If, after the receipt by the Executive of a Gross-Up Payment or
payment by the Company of an amount on the Executive's behalf pursuant to
Section 7(c), the Executive becomes entitled to receive any refund with respect
to the Excise Tax to which such Gross-Up Payment relates or with respect to such
claim, the Executive shall (subject to the Company's complying with the
requirements of Section 7(c), if applicable) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after payment by the Company of an amount on the
Executive's behalf pursuant to Section 7(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then the amount of such payment shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
(h) Notwithstanding any other provision of this Section 7, the Company
may, in its sole discretion, withhold and pay over to the Internal Revenue
Service or any other applicable taxing authority, for the benefit of the
Executive, all or any portion of any Gross-Up Payment, and the Executive hereby
consents to such withholding.
(i) Definitions. The following terms shall have the following meanings
for purposes of this Section 7.
"Excise Tax" shall mean the excise tax imposed by Section 4999
of the Code, together with any interest or penalties imposed with respect to
such excise tax.
A "Payment" shall mean any payment or distribution in the
nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to
or for the benefit of the Executive, whether paid or payable pursuant to this
Agreement or otherwise.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term, the
Executive shall keep confidential and shall not, except with the Company's
express prior written consent, or except in the proper course of the Executive's
employment with the Company, directly or indirectly, communicate, disclose,
divulge, publish, or otherwise express, to any Person, or use for the
Executive's own benefit or the benefit of any Person, any trade secrets,
confidential or proprietary knowledge or information, no matter when or how
acquired concerning the conduct and details of the Company's business, including
without limitation, names of customers and suppliers, marketing methods, trade
secrets, policies, prospects and financial condition. For purposes of this
Section 8, confidential information shall not include any information which is
now known by or readily available to the general public or which becomes known
by or readily available to the general public other than as a result of any
improper act or omission of the Executive.
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(b) Non-Competition. During the Term hereof and for a period of two (2)
years following the Executive's termination of employment for any reason, the
Executive shall not, except with the Company's express prior written consent,
directly or indirectly, in any capacity, for the benefit of any Person:
(i) Solicit any Person with whom Executive had substantial
contact or about whom Executive acquired confidential information during
Executive's employment with the Company in any manner which interferes or might
interfere with such Person's relationship with the Company, or in an effort to
obtain such Person as a customer, supplier, salesman, agent, or representative
of any business in competition with the Company.
(ii) Solicit the employment of or hire, whether as an
employee, officer, director, agent, consultant or independent contractor, any
person who is, or was at any time during the twelve (12) month period preceding
the termination of the Executive's employment through the expiration of this
covenant, an employee, consultant, officer or director of the Company or any of
its subsidiaries and affiliates (except for such employment by the Company or
any of its subsidiaries and affiliates);
(iii) Establish, engage, own, manage, operate, join or
control, or participate in the establishment, ownership (other than as the owner
of less than one percent (1%) of the stock of a corporation whose shares are
publicly traded), management, operation or control of, or be a director,
officer, employee, salesman, agent or representative of, or be a consultant to,
any Person in any business in competition with the Company anywhere in the
United States or act or conduct himself in any manner which the Executive would
have reason to believe inimical or contrary to the best interests of the
Company. Executive acknowledges that this nationwide restriction is reasonable
and necessary because Executive's responsibilities include strategies for
geographic expansion throughout the United States. Executive acknowledges that
the provisions contained in this section will not impair Executive's ability to
earn a livelihood because Executive has the ability to engage in other
professional activities that will not breach these provisions.
(c) Enforcement. The Executive acknowledges that any breach by the
Executive of any of the covenants and agreements of this Section 8 ("Covenants")
will result in irreparable injury to the Company for which money damages could
not adequately compensate the Company, and therefore, in the event of any such
breach, the Company shall be entitled, in addition to all other rights and
remedies which the Company may have at law or in equity, to have an injunction
issued by any competent court enjoining and restraining the Executive and/or all
other Persons involved therein from continuing such breach. The existence of any
claim or cause of action which the Executive or any such other Person may have
against the Company shall not constitute a defense or bar to the enforcement of
any of the Covenants. If the Company is obliged to resort to litigation to
enforce any of the Covenants which has a fixed term, then such term shall be
extended for a period of time equal to the period during which a material breach
of such Covenant was occurring, beginning on the date of a final court order
(without further right of appeal) holding that such a material breach occurred,
or, if later, the last day of the original fixed term of such Covenant.
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(d) Consideration. The Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by the Company
and, without the agreement of the Executive to be bound by the Covenants, the
Company would not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application is
construed to be invalid, illegal or unenforceable, then the other portions and
their application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights.
The Executive shall not be required to mitigate damages or the amount
of any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of payment provided for under this Agreement be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination, or otherwise. The amounts
payable to the Executive under Section 5 hereof shall not be treated as damages
but as severance compensation to which the Executive is entitled by reason of
termination of the Executive's employment in the circumstances contemplated by
this Agreement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to the Company, to:
NeighborCare, Inc.
Seven East Lee Street
Baltimore, MD 21202
Attention: Chairman and Chief Executive Officer
with a copy at the same address:
Attention: General Counsel
If to the Executive, to:
Robert A. Smith
1718 Oakdale Drive
Cooksville, Md. 21723
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(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended, modified,
supplemented or terminated except in writing signed by both parties. No action
taken by the Company hereunder, including without limitation any waiver, consent
or approval, shall be effective unless approved by a majority of the Board.
(d) Termination of Prior Employment Agreements. All prior employment
agreements between the Executive and the Company and/or any of its affiliates
(and any of their predecessors) are hereby terminated as of the Effective Date,
including without limitation the Current Employment Agreement, and the Executive
shall not be entitled to any payments or benefits under the Current Employment
Agreement as of and following the Effective Date.
(e) Assignability and Binding Effect. This Agreement (including the
covenants set forth in Section 8) shall inure to the benefit of and shall be
binding upon the Company and its successors (including successors to all or
substantially all of the Company's assets) and permitted assigns and upon the
Executive and the Executive's heirs, executors, legal representatives,
successors and permitted assigns. This Agreement, including but not limited to
the covenants contained in Section 8 above, may be assigned or otherwise
transferred by the Company to any of its subsidiaries or other affiliates and by
such transferees to its subsidiaries or other affiliates, provided that, in any
assignment or transfer the assignee or transferee agrees to be bound by the
terms and conditions hereof. Upon assignment or transfer, the "Company" herein
shall mean the buyer, assignee or transferee of this Agreement. This Agreement
may not, however, be assigned by the Executive to a third party, nor may the
Executive delegate his duties under this Agreement.
(f) Severability. If any provision of this Agreement is construed to be
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
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(h) Section Headings. Section and subsection headings in this Agreement
are inserted for convenience of reference only, and shall neither constitute a
part of this Agreement nor affect its construction, interpretation, meaning or
effect.
(i) References. All words used in this Agreement shall be construed to
be of such number and gender as the context requires or permits.
(j) Controlling Law. This Agreement is made under, and shall be
governed by, construed and enforced in accordance with, the substantive laws of
the State of Maryland applicable to agreements made and to be performed entirely
therein.
(k) Settlement of Disputes. Except with respect to injunctive relief
under Section 8 or otherwise, the Executive and the Company will attempt in good
faith to resolve any and all controversies, claims, and disputes of every kind
and nature, including both common law and statutory, between the parties to this
Agreement, arising out of or in connection with the Executive's employment
relationship, terms and conditions of employment, or separation of employment
with the Company for whatever reason, (including without limitation, any such
claim, dispute or controversy arising under any federal, state or local law,
statute, regulation or ordinance or arising under the Company's employee benefit
plans, policies or programs), including the existence, construction, validity,
interpretation or meaning, performance, non-performance, enforcement, operation,
breach, continuance, or termination of this Agreement (each, a "Dispute")
promptly by discussions between the parties to this Agreement. If the Dispute
cannot be resolved through such discussions, the Dispute shall be submitted to
arbitration in accordance with the National Rules for the Resolution of
Employment Disputes ("the Rules") of the American Arbitration Association
("AAA") then in effect, except as otherwise agreed to herein. The time
limitation for submitting a Dispute to arbitration pursuant to this Agreement is
sixty (60) days from the date of the occurrence giving rise to the Dispute,
unless the Dispute is based on statutory rights, in which case the applicable
statute of limitations governs the time period in which a Dispute must be
submitted to arbitration. By submitting a Dispute to arbitration pursuant to
this Agreement, the Executive and the Company acknowledge and agree to waive
their respective rights to seek relief in a judicial forum and before a jury.
The arbitration shall be conducted by a single arbitrator, selected by
alternately striking from a list of five (5) arbitrators supplied by the AAA.
The arbitrator's fees shall be borne by the Company. The Executive and the
Company are separately responsible for their costs, transcript fees, expenses,
witness fees, attorney's fees and other costs associated with the arbitration.
The parties agree that any arbitration conducted pursuant to this section shall
be held in the county in which the Company's corporate headquarters is located
(or at such other location as shall be mutually agreed to by the parties). The
decision of the arbitrator shall be final and binding upon the parties. In
rendering a decision, the arbitrator shall apply all legal principles and
standards that would govern if the Dispute were being brought in a judicial
forum, including all statute of limitations and defenses. Discovery shall be
allowed pursuant to the Rules then in effect as the arbitrator determines
appropriate under the circumstances. The arbitrator may grant injunctions or
provide other relief available in a court of law or equity. Any action to
enforce or vacate the arbitrator's award shall be governed by the Federal
Arbitration Act, if applicable, and otherwise by applicable state law. If either
the Company or the Executive pursues any claim, dispute or controversy against
the other in a proceeding other than the arbitration provided for herein, the
responding party shall be entitled to dismissal or injunctive relief regarding
such action and recovery of all costs, losses and attorney's fees related to
such action. Nothing herein shall preclude the Company from seeking, in any
court of competent jurisdiction in Pennsylvania, damages, specific performance,
or other equitable or legal remedies in the case of any breach or threatened
breach by the Executive of this Agreement. The arbitrator shall be required to
apply the contractual provisions hereof or the Company's policies and procedures
in deciding any matter submitted to him and shall not have any authority, by
reason of this Agreement or otherwise, to render a decision that is contrary to
the mutual intent of the parties as set forth in this Agreement or the Company's
intent as set forth in the Company's policies and procedures. Any of the
parties, before or during the arbitration contemplated by this section, may
apply to a court for a temporary restraining order or preliminary injunction or
similar equitable relief to protect its interests pending completion of such
arbitration proceedings and, in particular, to enforce the provisions of this
section and to aid the arbitration contemplated thereby.
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(l) Approval and Authorizations. The execution and the implementation
of the terms and conditions of this Agreement have been fully authorized by the
Board.
(m) Indulgences, Etc. Neither the failure nor delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall the single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or any other right, remedy, power or privilege, nor shall
any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(n) Legal Expenses. In the event that the Executive institutes any
legal action to enforce the Executive's rights under, or to recover damages for
breach of this Agreement, the Executive, if the Executive is the prevailing
party, shall be entitled to recover from the Company any reasonable expenses for
attorney's fees and disbursements incurred by the Executive.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
By: /s/ John J. Arlotta
------------------------------------------
Name: John J. Arlotta
------------------------------------------
Title: Chairman, President and Chief Executive
Officer
------------------------------------------
Witness: EXECUTIVE
By: /s/ Robert A. Smith
-----------------------------------------
/s/ Betty Phelps Name: Robert A. Smith
- ----------------------- ------------------------------------------
Title: Chief Operating Officer
------------------------------------------
------------------------------------------
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