Exhibit 10.26
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 M. SUZANNE
RIEDMAN (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 her 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 her 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 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.
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(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 her office to a place more than 30 miles from her
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 offer of immediate reemployment by a successor
or assign of the Company or a
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purchaser of the Company or its assets under
terms and conditions which would not permit the Employee to
terminate her 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 her 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 her 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 a lump
sum on the first day of the
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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. Continuation of
Benefits .
(i) For a period of three years
following the Termination of Employment (the “Benefit
Continuation Period”), the Employee shall be treated as if
Employee had continued to be an execut
