EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 21st day of October, 1997,
by and between ROTECH MEDICAL CORPORATION, a Florida corporation (the "Company")
and wholly owned subsidiary of INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation ("IHS"), and STEPHEN P. GRIGGS (hereinafter referred to as the
"Employee").
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of July 6,
1997, among the Company, IHS, and IHS Acquisition XXIV, Inc. (the "Merger
Agreement"), the Company and IHS have agreed to a merger; and
WHEREAS, as a condition to the Merger Agreement, IHS requires that the
Employee terminate his existing employment arrangement and enter into this
Employment Agreement with the Company; and
WHEREAS, through his past association with the Company and in the course of
his employment by the Company, and as a necessary consequence thereof, Employee
has received and will receive information and has acquired and will acquire
knowledge of special procedures, processes, business conduct, and knowledge that
is private, proprietary, and secret to the Company and IHS in their respective
businesses; and
WHEREAS, the business, as well as the success and profits of the Company
and IHS, depend in large part upon the maintenance of secrecy as to such
information, processes, procedures and knowledge as to the conduct of the
Company's and IHS's businesses generally.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements herein contained, as well as the agreement to employ the Employee or
to continue to employ the
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Employee under the terms and conditions contained herein, and intending to be
legally bound hereby, it is agreed between the parties hereto as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 Termination of Prior Employment Arrangement. The existing employment
arrangement between the Company and Employee (whether written, verbal, or
otherwise), is hereby terminated in all respects (including with respect to any
provisions which otherwise by their terms would survive any termination of such
agreement), effective as of the date hereof.
1.2 Employment. The Company hereby employs the Employee in the position of
President of the Company, with such responsibilities, consistent with his
position as President, as may be assigned to Employee from time to time by the
President or Chief Operating Officer of IHS. Employee shall report to and be
responsible to said President or Chief Operating Officer for the period
hereinafter set forth, and the Employee hereby accepts such employment.
1.3 Exclusive Employment. During the continuation of the Employee's
employment by the Company hereunder, the Employee will faithfully and diligently
carry out his duties, and will, unless the Employee has first received the prior
written consent of the Company, devote the Employee's reasonable full time, and
his best efforts, energy, attention, and skill to the services of the Company
and to the promotion of its interests, and, without limiting the foregoing,
Employee covenants that during such time the Employee will neither: (a) engage
in, be employed by, be a director of or be otherwise directly or indirectly
interested in (i) any business or activity competing with or of a nature similar
to any of the businesses of the Company or IHS, or (ii) any
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business or activity engaged in the owning, operation or management of any
business or activity competing with or of a nature similar to any of the
businesses of the Company or IHS, nor (b) take any part in any activities
detrimental to the best interests of the Company or IHS. Notwithstanding the
foregoing, Employee has represented to the Company, and the Company
acknowledges, that Employee is the principal owner of the companies listed on
Exhibit A to this Agreement and that Employee presently devotes an insubstantial
portion of his business time and energy to these businesses. Company agrees that
Employee may continue to serve the companies listed on Exhibit A in the same
capacity as he has in the past, provided that said companies, and the Employee's
rendition of services in connection therewith, are not competitive with or of a
similar nature to any of the businesses of the Company or IHS and otherwise do
not interfere with the performance by Employee of his obligations under this
Agreement.
ARTICLE II
PERIOD OF EMPLOYMENT
2.1 Term. The term of employment under this Agreement (the "Term") shall
begin as of the date hereof, and shall end five (5) years following the date
hereof, unless sooner terminated pursuant to the terms of this Agreement.
2.2 Termination For Cause By Company. Company may terminate Employee's
employment under this Agreement with cause and without any obligation to pay
Employee further compensation (except through the date of any such termination)
upon the occurrence of any one or more of the following events:
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(a) Employee fails to perform any of his duties of employment in any
material respect or ceases to perform his professional responsibilities or
assignments in any material respect or breaches any material term of this
Agreement, which failure, non-performance or breach is not corrected
within thirty (30) days after notice is delivered by the Company to the
Employee specifying said failure, non-performance or breach, or Employee
breaches any of his representations or warranties under this Agreement in
any material respect;
(b) Employee dies;
(c) Employee becomes disabled or is unable to perform his normal
duties, which condition persists for a period of ninety (90) days or more,
and Company has provided Employee with disability insurance which shall
begin to pay after said ninety (90) day period expires;
(d) Employee is convicted of a felony, or commits an act of theft,
embezzlement, obtaining funds or property under false pretenses, or
similar act of material misconduct with respect to the property of the
Company, IHS or their subsidiaries or any of their respective employees;
or
(e) Employee commits a material act of malfeasance, dishonesty or
breach of trust with respect to the Company, IHS or any of their
subsidiaries. Upon any such termination as set forth in this Subsection,
the Company shall have no obligation to pay Employee further compensation
or to provide further benefits to Employee (except through the date of
such termination), and the Company shall be entitled to pursue any
remedies that it may have against Employee.
2.3 Termination Without Cause by Company. If this Agreement is terminated
by Company without cause, the balance of Employee's unpaid base salary and the
pro-rated portion of the performance- based bonus, if any, earned under Section
3.2(b) will become payable in a lump sum and all unvested stock options will
become fully vested upon Employee's termination.
2.4. Termination for Cause by Employee. This Agreement may be terminated by
Employee if (i) Company fails to perform any of its duties set forth in this
Agreement in any material respect, (ii) Company fails to provide Employee with a
work environment (i.e., office space, secretarial support, etc.) that is
reasonably similar to Employee's past work environment with the Company, or
(iii) Company substantially changes Employee's job responsibilities, and, with
respect to each of the foregoing, such failure or action is not corrected by
Company within
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fifteen (15) days after notice is delivered to Company by Employee specifying
said failure or action. In the event of a termination for cause under this
Section 2.4, the balance of Employee's unpaid base salary and the pro-rated
portion of the performance-based bonus, if any, earned under Section 3.2(b) will
become payable in a lump sum and all unvested options will become fully vested
upon such termination.
ARTICLE III
COMPENSATION
3.1 Base Salary. For all services rendered by Employee under this
Agreement, during the Term, the Employee shall receive a base salary at an
annual rate of $500,000 per year, payable in accordance with the pay period
policy established by the Company from time to time.
3.2 Bonuses.
(a) Employee shall receive a one-time cash sign-on bonus of
$3,500,000, payable upon execution of this Agreement; and
(b) Within ninety (90) days of the close of each calendar year
during which this Agreement is or was in effect, the Company shall pay to
Employee a cash bonus in the amount of $500,000, provided that the Company
shall have achieved the performance goals specified on Exhibit B hereto
with respect to such year, and provided further that said bonus will be
reduced pro rata for any year during which this Agreement was in effect
for less than the entire year.
3.3 Stock Options. Employee will be granted warrants to purchase 750,000
shares of IHS common stock at an exercise price equal to the average closing
sales price per share of IHS Common Stock quoted on the NYSE for the fifteen
(15) business days immediately preceding the effective date of the Merger of a
wholly-owned subsidiary of IHS with and into the Company, which warrants will
become vested at a rate of 20% annually (subject to acceleration in the sole
discretion of Employer) commencing on the first anniversary of the closing of
the Merger. The agreement
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pursuant to which such warrants are granted shall provide that the warrants will
become fully vested if Employee shall die during the Term or upon a change of
control of the Company (as defined in said warrant agreement). IHS shall cause
the offering of the warrants to Employee to be included in the registration
statement to be filed pursuant to Section 7.14 of the Merger Agreement or to be
registered pursuant to an S-3 registration statement.
3.4 Additional Benefits. Separate and apart from the Employee's cash
compensation as set forth above, during the Term the Company shall provide for:
(a) Employee's coverage under the Company's standard life, health
and long-term disability insurance package;
(b) an automobile allowance, at the rate of $800 per month;
(c) participation in the Company's standard HR (Human Resources)
package;
(d) four (4) weeks of non-cumulative paid vacation (in addition to
normal paid holidays and sick leave); and
(e) participation in any other employee benefits made available
generally from and after the date hereof to executives of the Company and
IHS, on the same basis as shall be available to such other executives.
ARTICLE IV
COVENANTS OF THE EMPLOYEE
4.1 Ownership and Return of Documents. The Employee agrees that all
memoranda, notes, records, papers or other documents and all copies thereof
relating to the Company's operations or businesses, regardless of whether
prepared by the Employee, and all objects associated therewith in any way
obtained by the Employee shall be the Company's property. Except as required to
satisfy his obligations under this Agreement, the Employee shall not copy
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or duplicate any of the aforementioned documents or objects, nor remove them
from the Company's facilities nor use any information concerning them either
during the Employee's employment or thereafter. The Employee agrees that the
Employee will deliver all of the aforementioned documents and objects that may
be in his possession to the Company on termination of the Employee's employment,
or at any other time on the Company's request, together with the Employee's
written certification of compliance with the provision of this paragraph.
4.2 Confidential Information. In connection with his association with the
Company and in connection with his employment at the Company, Employee has had,
and will have, access to confidential information ("Trade Secrets"), including,
without limitation, with respect to some or all of the following categories of
information:
(a) Financial Information, including but not limited to information
relating to the Company's earnings, assets, debts, prices, pricing
structure, reimbursement matters, volume of purchases or sales or other
financial data whether related to the Company generally, or to particular
products, services, geographic areas, or time periods;
(b) Supply and Service Information, including but not limited to
information relating to goods and services, suppliers' names or addresses,
terms of supply or service contracts or of particular transactions, or
related information about potential suppliers to the extent that such
information is not generally known to the public, and to the extent that
the combination of suppliers or use of a particular supplier, though
generally known or available, yields advantages to the Company details of
which are not generally known;
(c) Marketing Information, including but not limited to information
relating to details about ongoing or proposed marketing programs or
agreements by or on behalf of the Company, sales forecasts, advertising
formats and methods or results of marketing efforts or information about
impending transactions;
(d) Personnel Information, including but not limited to information
relating to employees' personal or medical histories, compensation or
other terms of employment, actual or proposed promotions, hirings,
resignations, disciplinary actions, terminations or reasons therefor,
training methods, performance, or other employee information;
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(e) Customer and Patient Information, including but not limited to
information relating to past, existing or prospective customers' or
patients' names, addresses or backgrounds, patients' medical histories,
records of agreements and prices, proposals or agreements between
customers and the Company, status of customers' accounts or credit, or
related information about actual or prospective customers as well as
customer lists; and
(f) Inventions and Technological Information, including but not
limited to information related to proprietary technology, trade secrets,
research and development data, processes, formulae, data and know-how,
improvements, inventions, techniques, and information that has been
created, discovered or developed, or has otherwise become known to the
Company (including, without limitation, any information created,
discovered, developed or made known by or to the Employee during the
period of or arising out of Employee's employment by the Company), and/or
in which property rights have been assigned or otherwise conveyed to the
Company, which information has commercial value in the business in which
the Company is engaged.
Company and Employee consider their relation one of confidence with respect
to Trade Secrets. During and after Employee's employment by the Company,
regardless of the reasons that such employment ends, Employee agrees:
(aa) To hold all Trade Secrets in confidence and to not discuss,
communicate or transmit to others, or make any unauthorized copy of or use
the Trade Secrets in any capacity, position or business except as it
directly relates to Employee's employment by the Company;
(bb) To use the Trade Secrets only in furtherance of proper
employment related reasons of the Company to further the interests of the
Company;
(cc) To take all actions that Company reasonably requests to prevent
unauthorized use or disclosure of or to protect the Company's interest in
the Trade Secrets; and
(dd) That any of the Trade Secrets, whether or not prepared by
Employee and whether or not coming into Employee's possession during
Employee's employment hereunder or by reason of his prior association with
the Company, are and shall remain the property of the Company, and all
such Trade Secrets, including copies thereof, together with all other
property belonging to the Company, or used in any of its businesses, shall
be delivered to or left with the Company upon termination of Employee's
employment with the Company.
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This Agreement does not apply to information that (i) becomes generally
known to the public other than as a result of a disclosure by Employee, (ii) was
known to Employee on a non-confidential basis prior to the disclosure of such
information to Employee by the Company, provided that the source of such
information was not believed by Employee to be bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the Company with respect to such material, (iii) becomes
known to Employee on a non-confidential basis from a source other than the
Company or its agents, advisors or representatives provided that the source of
such information was not believed by Employee to be bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the Company with respect to such material, or (iv) is
required to be disclosed by judicial or administrative proceedings after
Employee notifies the Company of any such required disclosure so as to afford
the Company the opportunity to obtain assurance that compelled disclosures will
receive confidential treatment.
To the maximum extent permitted by applicable law, the Employee
specifically waives any rights to customer names, customer lists, customer files
or parts thereof as well as test results or information Employee might otherwise
be entitled to by virtue of any applicable state or federal law or regulation.
4.3 Non-Solicitation and Non-Pirating. Employee hereby agrees that, without
the express written consent of the Company, the Employee will not, at any time
during the Term, or for a period of three (3) years following the termination or
natural expiration of this Agreement, directly or indirectly, for the Employee
or on behalf of any other person, firm, entity or other enterprise:
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(a) solicit any client or customer of the Company with the intent of
diverting such client or customer away from Company or in any way divert
or take away any client or customer of the Company who was a client or
customer of the Company while the Employee was an employee of the Company
under this Agreement (such period being hereinafter referred to as the
"Employment Period"); and
(b) hire, entice away or in any other manner persuade any employee
of the Company who was an employee of the Company during the Employment
Period, to alter, modify or terminate its relationship with the Company as
an employee as the case may be.
4.4 Non-Competition. In consideration of the Employee's employment
hereunder, and as an inducement to the execution and performance of the Merger
Agreement by IHS, the Employee hereby agrees that, for a period of three (3)
years following the termination or the natural expiration of this Agreement the
Employee will not, without the express written consent of the Company, directly
or indirectly, for the Employee or on behalf of any other person, firm, entity
or other enterprise, own, be employed by, be a director or manager of, act as a
consultant for, be a partner in, have a proprietary interest in, give advice to,
loan money to or otherwise associate with, any person, enterprise, sole
proprietorship partnership, association, corporation, joint venture or other
entity which is directly or indirectly in the business of owning, operating or
managing any entity of any type, licensed or unlicensed, which is engaged in or
provides home health services or home medical equipment, or in any way competes
with Company or its subsidiaries anywhere within the Continental United States.
This provision shall not be construed to prohibit the Employee (i) from owning
up to 2% of the issued shares of any company whose common stock is listed for
trading on any national securities exchange or on the NASDAQ National Market
System, or (ii) from engaging in conduct which would, as the result of
Employee's association with a particular company, otherwise violate this Section
4.4, if (x) such company's competitive activity represents only an incidental
and immaterial part of such company's overall business enterprise (but in any
event does not account for more than
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$2,000,000 in aggregate gross revenues), and (y) Employee's association with
such company does not relate to such company's competitive business segment.
4.5 Necessary Restrictions. The parties acknowledge that the restrictions
contained in this Article IV are reasonable and necessary to protect the
legitimate business interests of the Company and that any violation thereof by
Employee could result in irreparable harm to the Company; and further, the
Employee represents and warrants that the restrictions set forth in this Article
IV are enforceable against him in accordance with their terms. Accordingly, the
Employee agrees that upon the violation by him of any of the restrictions
contained in Paragraphs 4.3 and 4.4, the Company shall be entitled to apply to
any court of competent jurisdiction for a preliminary and permanent injunction
as well as any other relief provided at law, equity, under this Agreement or
otherwise, without the necessity of posting any bond or providing any security.
In the event any of the foregoing restrictions are adjudged unreasonable in any
proceeding, then the parties agree that the period of time or the scope of such
restrictions (or both) shall be adjusted to such a manner or for such a time (or
both) as is adjudged to be reasonable.
4.6 Prior Companies. The Employee agrees to indemnify and hold harmless the
Company, its officers, directors, and employees from and against any liabilities
and expenses, including attorney's fees and amounts paid in settlement, incurred
by any of them in connection with any claim that the termination of his
employment with any prior employer, his employment with the Company, or that the
use of any skills or knowledge by the Company is a violation of contract or law.
Employee shall be entitled to participate in the defense of any claim pursuant
to which indemnity is sought under this Section 4.6. If at any time Employee
acknowledges in writing that the claim is fully indemnifiable under this
Agreement, Employee shall have the right to assume total control of such claim
at his own expense. Employee hereby represents, warrants,
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and covenants to the Company that (a) he is not bound by any agreement with any
prior employer or other party to refrain from using or disclosing any
confidential information or from competing with the business of such employer or
other party, (b) his performance under this Agreement will not breach any other
agreement by which he is bound, and (c) he has not brought with him to the
Company, nor will he bring or use in the performance of his responsibilities at
the Company, any materials or documents of a former employer which are not
generally available to the public.
4.7 Remedies For Breach. The Employee acknowledges that the covenants
contained in Article IV of this Agreement are independent covenants and that any
failure by the Company to perform its obligations under this Agreement (other
than the act of nonpayment which is not cured by the Company within thirty (30)
days of the receipt of written notice of said condition from the Employee) shall
not be a defense to enforcement of the covenants contained in Article IV,
including but not limited to a temporary or permanent injunction. Employee
agrees to reimburse Company for all costs and expenses, including reasonable
attorney's fees, incurred by Company because of any breach of this Article.
4.8 Affiliates. For purposes of this Article IV, the term "Company" shall
be deemed to include IHS and all of the Company's and IHS's subsidiaries and
affiliates now existing or hereafter becoming subsidiaries or affiliates.
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ARTICLE V
ASSIGNMENT
5.1 Prohibition of Employee Assignment. The Employee agrees on behalf of
the Employee and the Employee's heirs and executors, personal representatives,
and any other person or persons claiming any benefit under the Employee by
virtue of this Agreement, that this Agreement and the rights, interests, and
benefits hereunder shall not be assigned, transferred, pledged or hypothecated
in any way by the Employee or the Employee's heirs, executors and personal
representatives. Any attempt to assign, transfer, pledge, hypothecate or
otherwise dispose of this Agreement or any such rights, interests and benefits
thereunder contrary to the foregoing provision, shall be null and void and
without effect and shall relieve the Company of any and all liability hereunder,
except for Company's obligation to pay earned salary and bonus.
5.2 Right of Company to Assign. This Agreement shall be assignable and
transferable by the Company to Company's transferee, assignee or any
successor-in-interest, parent, subsidiary or affiliate of Company (provided that
no such assignment shall relieve Company of its obligations to Employee
hereunder absent a written release signed by Employee), and shall inure to the
benefit of and be binding upon the Employee, the Employee's heirs and personal
representatives, and the Company and its successors and assigns. Employee agrees
to execute all documents necessary to ratify and effectuate such assignment.
5.3 Binding Effect If Transferred. In the event this Agreement is
transferred by Company, the term "Company" used herein shall refer to and be
binding upon the Company's transferee or assignee.
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ARTICLE VI
GENERAL
6.1 Prior Employment Agreements. Employee represents and warrants that any
employment agreement or arrangement with the Company or any other party has been
terminated as of the date hereof.
6.2 Governing Law. This Agreement shall be subject to and governed by the
laws of the State of Maryland.
6.3 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.
6.4 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and contains all of the agreements between the parties with
respect to the subject matter hereof, and this Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the subject hereof. No change or modification of this Agreement shall
be valid unless the same be in writing and signed by both parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing and
signed by the person or party to be charged.
6.5 Severability. If any portion of this Agreement shall be for any reason,
invalid or unenforceable, the remaining portion or portions shall nevertheless
be valid, enforceable and carried into effect, unless to do so would clearly
violate the present legal and valid intention of the parties hereto.
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6.6 Notices. All notices, demands, requests, consents, approvals or other
communications required or permitted hereunder shall be in writing and shall be
delivered by hand, registered or certified mail with return receipt requested or
by a nationally recognized overnight delivery service, in each case with all
postage or other delivery charges prepaid, and to the address of the party to
whom it is directed as indicated below, or to such other address as such party
may specify by giving notice to the other in accordance with the terms hereof.
Any such notice shall be deemed to be received (i) when delivered, if by hand,
(ii) on the next business day following timely deposit with a nationally
recognized overnight delivery service, or (iii) on the date shown on the return
receipt as received or refused or on the date the postal authorities state that
delivery cannot be accomplished, if sent by registered or certified mail, return
receipt requested.
If to the Company: Rotech Medical Corporation
c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: General Counsel
If to the Employee: Stephen P. Griggs
------------------------------------
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6.7 Independent Legal Counsel. Employee represents and warrants that he has
had the opportunity to seek the advice of independent legal counsel prior to
signing this Agreement, and that the Company has recommended to him that he
obtain such counsel.
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6.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of which shall together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officers, and the Employee has hereunto set Employee's hand
on the day and year first above written.
ROTECH MEDICAL CORPORATION EMPLOYEE
By: /s/ William P. Kennedy /s/ Stephen P. Griggs
------------------------------- -------------------------------
William P. Kennedy, Stephen P. Griggs
Chief Executive Officer
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EXHIBIT A
Permitted Businesses
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EXHIBIT B
Bonus: $500,000 or a pro rata portion thereof for partial
years. Bonus to be paid if the net income target
(indicated below) is achieved or exceeded.
Target: Rotech and its subsidiaries shall be deemed to generate
a net income contribution to IHS equal to 15,800,000
(the "Share Factor") multiplied by IHS's budgeted GAAP
earnings per share ("EPS") for the bonus period. IHS's
budgeted EPS shall be as follows:
Fiscal period ending:
December 31, 1997: 0.68
December 31, 1998: 3.00
December 31, 1999: 3.51
December 31, 2000: 4.11
December 31, 2001: 4.81
December 31, 2002: 5.63
The Share Factor will be subject to increase if
additional shares of IHS common stock are issued in
connection with post-merger acquisitions by Rotech.
Example: IHS 1998 budgeted EPS is $3.00 per share;
therefore, Rotech's net income target for 1998 is
$47,400,000 (i.e., 15,800,000 x $3.00). Net income is
calculated in accordance with GAAP based on IHS lives
for goodwill amortization and depreciation. Rotech
goodwill includes all purchase accounting goodwill.
Income taxes will be calculated on the income generated
by Rotech and its subsidiaries.
Additional Bonus: An additional bonus, to be determined by IHS, will be
paid if Rotech exceeds the net income target.
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