April 6, 2000
Mr. John F. Heller
Executive Vice President
of Facility Operations
Integrated Health Services, Inc.
910 Ridgebrook Road
Sparks, MD 21152
Re: Amendment to Employment Agreement between Integrated Health Services,
Inc. and John F. Heller
Dear John:
This letter agreement amends and supplements the employment agreement
dated July 1, 1998 (the "Employment Agreement") between you and Integrated
Health Services, Inc. ("IHS"). Unless otherwise defined in this letter, all
capitalized terms used have the meaning given to them in the Employment
Agreement. To the extent of any inconsistency between your employment agreement
and this letter, the terms of this letter agreement will control.
1. SALARY & INITIAL BONUS
A. Base Salary
Effective October 1, 1999 your annual base salary is $400,000.
B. Initial Bonus
In recognition of your past contributions to IHS, your release of all
claims you may have against IHS through the date of this agreement, and to
induce you to enter into this agreement, upon execution of this letter, IHS will
pay you an initial bonus (the "Initial Bonus") of $250,000. This is a one-time
bonus that IHS will not include in any other calculation under your Employment
Agreement.
2. BONUS PROGRAMS
A. Retention Bonus
IHS intends to adopt a Retention Bonus Program. After the program is
adopted, you will participate in the Program until the earlier of: (i) the date
IHS cancels the Retention Bonus Program or (ii) you are no longer a full time
IHS employee. Pursuant to the Retention Bonus Program, IHS will pay you
quarterly retention bonuses in such amounts as shall be determined by the Chief
Executive Officer; provided, however, that, if the Retention Bonus Program is
adopted your Retention Bonus for the fiscal year beginning October 1, 1999 (on
an annualized basis) will be no less than $375,000, payable in equal quarterly
installments in arrears, beginning on January 1, 2000. The Retention Bonus is in
addition to the Performance Bonus referred to below.
B. Performance Bonus
IHS has cancelled to discretionary bonus referred to in Paragraph 2.2.
of the Employment Agreement. Instead of the discretionary bonus referred to in
Paragraph 2.2 of the Employment Agreement, IHS will pay you a non-discretionary
annual performance bonus (the "Annual Bonus") based on the achievement by your
division of the performance goals (the "Performance Goals") established by the
Chief Executive Officer for each year (or portion thereof), which will include
targets related to the earnings before interest, taxes, depreciation and
amortization ("EBITDA") of IHS. The Chief Executive Officer will establish
objective criteria to be used to determine the extent to which the Performance
Goals have been satisfied; provided, however, if your division meets or exceeds
the year 2000 Performance Goals your Annual Bonus will be no less than $200,000.
3. PARTICIPATION IN MANAGEMENT WELFARE PLANS
IHS has cancelled the SERP referred to in Paragraph 2.3(f) of the
Employment Agreement. In consideration of your release and waiver of any claims
you may have against IHS relating to IHS' failure to continue the SERP, IHS
promises that during your employment, you will be entitled to participate in all
benefit plans and programs established or maintained by IHS for the benefit of
its Executive Vice Presidents including, without limitation, all pension,
retirement, savings, stock option and other employee benefit plans and programs.
No similarly situated Executive Vice President will receive a greater benefit
under any benefit plans and programs established or maintained by IHS for the
benefit of its Executive Vice Presidents.
4. OPTIONS AND EQUITY OWNERSHIP
IHS has cancelled the Employee Loan Plan. Instead, provided (a) you are
still a full time IHS employee and (b) your division has met or exceeded the
Performance Goals for the calendar year 2000, IHS agrees that, on or before
March 1, 2001, it will review your equity ownership position in IHS and design
(or include you in) a plan that will, to the maximum extent allowed by Delaware
law, ameliorate, the dilutive effect of recent events on your ownership position
in IHS. Specifically, if you are still employed by IHS on March 1, 2001, IHS
will make a good faith effort to implement a
stock ownership program (e.g., a stock option program or a stock-loan purchase
program) that will permit you to acquire an equity position in IHS consistent
with that of similarly experienced and similarly situated senior management in
the nursing home industry. No similarly situated Executive Vice President will
receive a greater benefit under any stock ownership plan established or
maintained by IHS for the benefit of its Executive Vice Presidents.
5. TERMINATION FOR GOOD REASON
The definition of "Good Reason" set forth in Paragraph 3.2 of your
Employment Agreement shall be supplemented as follows:
"Good Reason" shall also include the occurrence of any of the following
without your express written consent:
(1) the assignment to you of any duties materially inconsistent
with your current position, duties, responsibilities or status with
IHS;
(2) a material change in your reporting responsibilities (i.e.,
reporting to anyone other than Dr. Robert Elkins);
(3) the failure by IHS to include you in any compensation plan or
benefit plan provided by IHS to any of its Executive Vice Presidents;
(4) the occurrence of any event which would constitute a "Good
Reason" or a "Change of Control" under the employment agreement of
IHS's Chief Executive Officer or President; or
(5) the failure of the IHS to obtain (and deliver to you) promptly
after any Change in Control an agreement to assume and agree to perform
this Agreement; provided, further, that in addition to any rights
accruing because of the successor's failure to assume your employment
agreement, a successor's failure to assume this Agreement after a
Change of Control shall release you from all obligations related to
your employment by IHS including but not limited to all covenants
against competition contained in any agreement between you and IHS.
6. SEVERANCE
Paragraphs 3.4 (a), (b) and (c) of your Employment Agreement are
deleted. Instead, if you resign for Good Reason or are terminated without cause:
(i) You are released from all obligations related to your employment. This
release includes but is not limited to your obligation to repay those
advances made to you conditioned on your acquiring or maintaining an
equity position in IHS pursuant to the 1999 Employee Loan Program or
any successor program established referred to in Paragraph 4 hereof.
(2) Within fifteen days of your termination, IHS will make a one-time lump
sum severance payment equal to your preceding twelve (12) months'
compensation.
Your severance is deemed "earned" on the day after you resign for Good Reason or
you receive a notice of termination. All payments hereunder will be subject to
any required withholding of Federal, state and local taxes pursuant to any
applicable law or regulation.
7. DEFINITION OF "CAUSE"
The definition of "Cause" in Paragraph 3.2 shall be supplemented by
adding as "(v)":
Executive will, at any time after the date of this Agreement, disparage
IHS, any of its subsidiaries, or any of their shareholders, directors
or officers.
IHS appreciates your continued loyalty and dedication. Please memorialize your
acceptance of these changes to the Employment Agreement by signing and returning
one copy of this letter to me.
Sincerely,
Robert N. Elkins
President & CEO
I have reviewed and understand this letter and have had the opportunity to
review this letter with my attorneys. I accept the changes to the terms and
conditions of my employment contained in this letter.
- - -------------------------
John F. Heller