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Exhibit 10.6
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
THIS CHANGE-IN-CONTROL SEVERANCE AGREEMENT (the "Agreement") is
made as of December 18, 2008, by and between KINDRED
HEALTHCARE OPERATING, INC., a Delaware corporation (the
"Company") and RICHARD A. LECHLEITER (the "Employee").
RECITALS :
A. The Employee is employed by the Company, a wholly owned
subsidiary of Kindred Healthcare, Inc. (the "Parent").
B. The Company recognizes that the Employee’s
contribution to the Company’s growth and success has been and
continues to be significant.
C. The Company wishes to encourage the Employee to remain
with and devote full time and attention to the business affairs of
the Company and wishes to provide income protection to the Employee
for a period of time in the event of a Change in Control.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
AGREEMENT :
1. Definitions .
a. " Base Salary " shall mean the
Employee’s regular annual rate of base pay in gross as of the
date in question as elected under Paragraph 3(a).
b. " Cause " shall mean the
Employee’s (i) conviction of or plea of nolo
contendere to a crime involving moral turpitude; or
(ii) willful and material breach by Employee of his duties and
responsibilities, which is committed in bad faith or without
reasonable belief that such breaching conduct is in the best
interests of the Company, but with respect to (ii) only if the
Board of Directors of Parent (the "Board") adopts a resolution by a
vote of at least 75% of its members so finding after giving the
Employee and his attorney an opportunity to be heard by the
Board.
c. " Change in Control " The term "Change
in Control" shall mean any one of the following events occurring
after the date of this Agreement:
(i) An acquisition (other than directly from
Parent) of any voting securities of Parent (the "Voting
Securities") by any "Person" (as defined in Paragraph 1(f) hereof)
immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 under the 1934 Act) of 20% or
more of the combined voting power of Parent’s then
outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in an acquisition by (i) Parent
or any of its subsidiaries, (ii) an employee benefit plan (or
a trust forming a part thereof) maintained by Parent or any of its
subsidiaries or (iii) any Person in connection with an
acquisition referred to in the immediately preceding clauses
(i) and (ii) shall not constitute an acquisition which
would cause a Change in Control.
(ii) The individuals who, as of December 18, 2008,
constituted the Board of Directors of Parent (the "Incumbent
Board") cease for any reason to constitute over 50% of the Board;
provided, however, that if the election, or nomination for election
by Parent’s stockholders, of any new director was approved by
a vote of over 50% of the Incumbent Board, such new director shall,
for purposes of this Section 1(c)(ii), be considered as though
such person were a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a member
of the Incumbent Board if such individual initially assumed office
as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the 1934 Act) or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors of
Parent (a "Proxy Contest"), including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy
Contest.
(iii) Consummation of a merger, consolidation or reorganization
involving Parent, unless each of the following events occurs in
connection with such merger, consolidation or reorganization:
(A) the stockholders of Parent, immediately before such merger,
consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization,
over 50% of the combined voting power of all voting securities of
the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Company") over which any Person has
Beneficial Ownership in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute over 50% of
the members of the board of directors of the Surviving Company;
and
(C) no Person (other than Parent, any of its subsidiaries, any
employee benefit plan (or any trust forming a part thereof)
maintained by Parent, the Surviving Company or any Person who,
immediately prior to such merger, consolidation or reorganization
had
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Beneficial Ownership of 20% or more of the then
outstanding Voting Securities) has Beneficial Ownership of 20% or
more of the combined voting power of the Surviving Company’s
then outstanding voting securities.
(iv) Approval by Parent’s stockholders of a complete
liquidation or dissolution of Parent.
(v) Approval by Parent’s stockholders of an agreement for
the sale or other disposition of all or substantially all of the
assets of Parent to any Person (other than a transfer to a
subsidiary of Parent).
(vi) Any other event that the Board shall determine constitutes
an effective Change in Control of Parent.
(vii) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the permitted
amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by Parent which, by reducing the
number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person; provided
that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities
by Parent, and after such share acquisition by Parent, the Subject
Person becomes the Beneficial Owner of any additional Voting
Securities which increases the percentage of the then outstanding
Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
d. " Change-in-Control Date " shall mean
the date immediately prior to the effectiveness of the Change in
Control.
e. " Good Reason " The Employee shall have
good reason to terminate employment with the Company if
(i) the Employee’s title, duties, responsibilities or
authority is reduced or diminished from those in effect on the
Change-in-Control Date without the Employee’s written
consent; (ii) the Employee’s compensation is reduced;
(iii) the Employee’s benefits are reduced, other than
pursuant to a uniform reduction applicable to all managers of the
Company; or (iv) the Employee is asked to relocate his office
to a place more than 30 miles from his business office on the
Change-in-Control Date.
f. " Person " shall have the meaning
ascribed to such term in Section 3(a)(9) of the Securities
Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
g. " Target Bonus " shall mean the
Employee’s target annual short-term incentive bonus for the
calendar year in which the date in question occurs.
h. " Termination of Employment " shall mean
(i) the termination of the Employee’s employment by the
Company other than such a termination in connection with an
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offer of immediate reemployment by a successor or
assign of the Company or a purchaser of the Company or its assets
under terms and conditions which would not permit the Employee to
terminate his employment for Good Reason or otherwise during any
Window Period; or (ii) the Employee’s termination of
employment with the Company for Good Reason or during any Window
Period.
i. " Window Period " shall mean either of
two 30-day periods of time commencing 30 days after (i) a
Change in Control and (ii) one year after a Change in
Control.
2. Term . The initial term of this Agreement shall
be for a three-year period commencing on December 18, 2008
(the "Effective Date") (the "Term"). The Term shall be
automatically extended by one additional day for each day beyond
the Effective Date that the Employee remains employed by the
Company until such time as the Company elects to cease such
extension by giving written notice of such election to the
Employee. In such event, the Agreement shall terminate on the third
anniversary of the effective date of such election notice.
Notwithstanding the foregoing, this Agreement shall automatically
terminate if and when the Employee terminates his employment with
the Company or two years after the Change-in-Control Date,
whichever first occurs.
3. Severance Benefits . If at any time following a
Change in Control and continuing for two years thereafter, the
Company terminates the Employee without Cause, or the Employee
terminates employment with the Company either for Good Reason or
during any Window Period, then as compensation for services
previously rendered the Employee shall be entitled to the following
benefits:
a. Cash Payment . The Employee shall be paid a
cash severance payment equal to three times the greater of:
(i) the sum of the Employee’s Base Salary and Target Bonus
as of the Termination of Employment, or
(ii) the sum of the Employee’s Base Salary and Target
Bonus as of the Change-in-Control Date.
Payment shall be made in a single lump sum upon the effective
date of Employee’s Termination of Employment. For purposes of
clarification, the Employee shall not be entitled to payment of an
annual bonus (or pro-rated portion thereof) pursuant to the
applicable short-term incentive plan of the Company for the year in
which the Employee’s Termination of Employment occurs.
Notwithstanding anything herein to the contrary, if at the time of
Employee’s separation from service Employee is a "specified
employee" as defined in Section 409A of the Internal Revenue
Code of 1986, as amended and the regulations promulgated thereunder
(the "Code") and the deferral of the payment payable pursuant to
this Section 3(a) is necessary in order to prevent any
accelerated or additional tax under Section 409A of the Code,
then the payment to which Employee would otherwise be entitled
during the first six months following his separation from service
shall be deferred and accumulated (without any reduction in such
payment ultimately paid to Employee) for a period of six months
from the date of separation from service and paid in
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a lump sum on the first day of the seventh month
following such separation from service (or, if earlier, the date of
Employee’s death), together with interest during such period
at a rate computed by adding 2.00% to the Prime Rate as published
in the Money Rates section of the Wall Street Journal, or other
equivalent publication if the Wall Street Journal no longer
publishes such information, on the first publication date of the
Wall Street Journal or equivalent publication after the date of
Employee’s separation from service (provided that if more
than one such Prime Rate is published on any given day, the highest
of such published rates shall be used).
b. Con
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