Document:

EXHIBIT 10.5

 

REHABCARE GROUP, INC.

CHANGE IN CONTROL TERMINATION AGREEMENT

 

This agreement (“Agreement”) has been entered into as of the 10th day of March, 2006, by and between RehabCare Group, Inc., a Delaware corporation (the “Company”), and, ____________________________ an individual (the “Executive”).

 

RECITALS

The Board of Directors of the Company has determined that it is in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of the Executive to the Company as the Company’s ____________________________ and to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility or occurrence of a Change in Control (as defined below). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a potential or pending Change in Control and to encourage the Executive’s full attention and dedication to the Company in the event of any potential or pending Change in Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

 

IT IS AGREED AS FOLLOWS:

	
            Section 1:
 	
            Definitions and Construction.
 

1.1          Definitions. For purposes of this Agreement, the following words and phrases, whether or not capitalized, shall have the meanings specified below, unless the context plainly requires a different meaning.

	
             
 	
            1.1(a)
 	
            “Board” means the Board of Directors of the Company.
 

1.1(b)     “Cause” means termination based upon: (i) the Executive’s willful and continued failure to substantially perform his duties with the Company (other than as a result of incapacity due to physical or mental condition), after a written demand for substantial performance is delivered to the Executive by the Company, which specifically identifies the manner in which the Executive has not substantially performed his duties, (ii) the Executive’s commission of an act constituting a criminal offense that would be classified as a felony under the applicable criminal code or involving moral turpitude, dishonesty, or breach of trust, or (iii) the Executive’s material breach of any provision of this Agreement. For purposes of this Section, no act or failure to act on the
Executive’s part shall be considered “willful” unless done, or omitted to be done, without good faith and without reasonable belief that the act or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until (i) he receives a Notice of Termination from the Company, (ii) he is given the opportunity, with counsel, to be heard before the Board, and (iii) the Board finds, in its good faith opinion, that the Executive was guilty of the conduct set forth in the Notice of Termination.

	
             
 	
            1.1(c)
 	
            “Change in Control” means:
 

(i)            The acquisition by any individual, entity or group, or a Person (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of ownership of thirty percent (30%) 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”); or

 

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(ii)          Individuals who, as 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 stockholders 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, as a member of the Incumbent Board, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)         Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation;

(iv)         Approval by the stockholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (1) more than forty percent (40%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company.

1.1(d)     “Change in Control Date” means the date that the Change in Control first occurs.

 

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1.1(e)     “Company” has the meaning set forth in the first paragraph of this Agreement and, with regard to successors, in Section 4.2 of this Agreement.

	
             
 	
            1.1(f)
 	
            “Code” shall mean the Internal Revenue Code of 1986, as amended.
 

1.1(g)     “Date of Termination” means the date, on or after a Change in Control Date, that Executive’s employment with the Company terminates due to the termination of Executive’s employment by the Company without Cause or Executive’s termination of employment with the Company for Good Reason. In all cases, a “Date of Termination” shall only occur upon separation from service from the Company and all of its affiliates, as defined in Treasury regulations under Section 409A of the Code.

1.1(h)     “Effective Date” means the date of this Agreement specified in the first paragraph of this Agreement.

	
             
 	
            1.1(i)
 	
            “Exchange Act” means the Securities Exchange Act of 1934, as amended.
 

1.1(j)      “Good Reason” means termination based upon: (i) the assignment to the Executive of any duties inconsistent in any respect with the position (including status, offices, titles and reporting requirements), authority, duties and responsibilities held by the Executive as of the date of this Agreement or any other action by the Company which results in a material diminution in such position, authority, duties and responsibilities; (ii) the Company’s requiring the Executive to have any office arrangements for performing his duties which are different than the arrangements in effect as of the date of this Agreement; (iii) any reduction in Executive’s annual base salary; (iv) any reduction in Executive’s Target Bonus, as defined in Section 2.1(b); or (v) a material
breach by the Company of any provision of this Agreement. Any termination of the Executive’s employment based upon a good faith determination of “Good Reason” made by the Executive shall be subject to a delivery of a Notice of Termination by the Executive to the Company in the manner prescribed in Section 1.1(k) and subject further to the ability of the Company to remedy promptly any action not taken in bad faith by the Company that may otherwise constitute Good Reason under this Section 1.1(j).

1.1(k)     “Notice of Termination” means a written notice, given in accordance with Section 5.2, which (i) indicates the specific termination provision in this Agreement relied upon; (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to be a basis for termination of the Executive’s employment under the provision so indicated; and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than fifteen (15) days after the giving of such notice).

1.1(l)      “Person” means any “person” within the meaning of Sections 13(d) and 14(d) of the Exchange Act.

1.1(m)    “Term” means the period that begins on the Effective Date and ends on the earlier of:

(i)            the date of Executive’s termination of employment from the Company for any reason prior to the Change in Control Date;

(ii)          the date of Executive’s termination of employment after a Change in Control Date for any reason other than the involuntary termination of Executive’s employment without Cause or the termination of employment with the Company by the Executive for Good Reason;

	
             
 	
            (iii)
 	
            the Date of Termination; or
 

 

 

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(iv)         the close of business on the later of December 31, 2006 or December 31st of any renewal term. This Agreement will automatically renew for annual one-year periods unless the Company gives written notice to Executive, by September 30, 2006, or September 30th of any succeeding year, of the Company’s intent not to renew this Agreement.

1.2          Gender and Number. When appropriate, pronouns in this Agreement used in the masculine gender include the feminine gender, words in the singular include the plural, and words in the plural include the singular.

1.3          Headings. All headings in this Agreement are included solely for ease of reference and do not bear on the interpretation of the text.

1.4          Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Missouri, without reference to its conflict of law principles.

	
            Section 2:
 	
            Change in Control Severance Benefits
 

2.1          Benefits Upon a Change in Control. Subject to the provisions of Section 2.5, if a Change in Control occurs during the Term and within two (2) years after the Change in Control Date (a) the Company terminates the Executive’s employment without Cause, or (b) the Executive terminates employment with the Company for Good Reason, then the Executive shall become entitled to the payment of the benefits as provided below:

2.1(a)     Accrued Obligations. Within thirty (30) days after the Date of Termination, the Company shall pay to the Executive the sum of the Executive’s accrued salary through the Date of Termination and any accrued and unused vacation days, in each case to the extent not previously paid, and the “Prorated Target Bonus.”  For purposes of this Agreement, the term “Prorated Target Bonus” means an amount determined by multiplying the actual percentage of the Executive’s base salary that was to be paid to the Executive as his Target Bonus in the year in which the Change in Control Date occurs by the Executive’s then-current Annual Base Salary as of the Date of Termination and prorating this amount by multiplying it by a fraction, the numerator of which is the number of
days during the then-current calendar year that the Executive was employed by the Company up to and including the Date of Termination and the denominator of which is 365. Payment under any long-term cash incentive plan or other incentive compensation plan shall be determined and governed solely by the terms of the applicable plan.

2.1(b)     Severance Amount. Within thirty (30) days after the Date of Termination, the Company shall pay to the Executive as severance pay in a lump sum, in cash, an amount equal to one (1) times the sum of the Executive’s then-current annual base salary plus Target Bonus for the year in which the Change in Control Date occurs. Payments under any long term cash incentive plan are not part of or included in this calculation. For purposes of this Agreement, Target Bonus means the designated percentage of Executive’s target annual incentive award, expressed as a designated percentage of Executive’s annual base salary, as established by the Board of Directors or the Compensation and Nomination/Corporate Governance Committee at the beginning of the year in which the Change of Control Date occurs.

2.1(c)     Stock-Based Awards. All stock-based awards held by the Executive that have not expired in accordance with their respective terms shall vest and/or become exercisable, expire or terminate in accordance with the terms of their respective grant agreements.

2.1(d)     Health Benefit Continuation. For twelve (12) months following the Date of Termination, the Executive and his spouse and other dependents shall continue to be covered by the medical, dental, vision, and prescription drug plan(s) maintained by the Company in which the Executive and his spouse or other dependents were participating immediately prior to the Date of 

 

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Termination; provided that to the extent such continued coverage is not permitted under the Company’s plan(s), for each of twelve (12) months beginning in the month the Date of Termination occurs, the Company will provide substantially similar benefits or, at the Company’s option, will pay to the Executive an amount, grossed up for income and employment taxes thereon, equal to the dollar amount that would have been paid by the Company for medical, dental, vision, and prescription drug coverage for the Executive and the Executive’s family under the Company’s plan(s) during such period; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive such benefits under another employer-provided plan, program, practice or policy the health benefits described herein shall be immediately terminated
upon the commencement of coverage under the new employer’s plan, program, practice or policy.

2.1(e)     Outplacement. During the one-year period beginning on the Date of Termination, the Company shall provide to Executive executive-level outplacement services by a vendor selected by the Company.

	
             
 	
            2.1(f)
 	
            Gross-up Payments.
 

(i)            Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 2.1(f)) (a “Payment”) would be subject to the excise tax imposed by Code Section 4999 (or any successor provision) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional
payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest or penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment on an after-tax basis equal to the Excise Tax imposed upon the Payment. Any Gross-Up Payment required under this Section 2.1(f) shall be made on the April 1 of each of the three years immediately following the year in which the Date of Termination occurred. The intent of the parties is that the Company shall be responsible in full for, and shall pay, any and all Excise Tax on any Payments and Gross-up Payment(s) and any income and all excise and employment taxes (including, without limitation, penalties and interest) imposed on any Gross-up Payment(s) as well as any loss of deduction caused by
or related to the Gross-up Payment(s).

(ii)          Subject to the provisions of Section 2.1(f)(iii), all determinations required to be made under this Section 2.1(f), including whether and when a Gross-up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determinations, shall be made by the outside accounting firm that then audits the Company’s financial statements  (the “Accounting Firm”), which Accounting Firm shall provide detailed supporting calculations both to the Company and to the Executive within fifteen (15) business days of receipt of notice from the Company or the Executive that there has been or will be a Payment. In the event that the Accounting Firm is serving as the accountant or auditor for the Person effecting the Change in Control, the
Executive shall 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 paid solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and 

 

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the Executive in the absence of a material mathematical or legal error. 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 the Gross-Up Payments will not have been made by the Company that should have been made or that the Gross-Up Payments will have been made that should not have been made, in each case consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 2.1(f)(iii) below and a payment of any Excise Tax or any interest, penalty or addition to tax related thereto is determined to be due, the Accounting Firm shall determine the amount of the underpayment of Excise Taxes that has occurred and such underpayment and interest, penalty or addition to tax shall be promptly paid by the Company to the Internal
Revenue Service in satisfaction of the Company’s original withholding obligations. In the event that the Accounting Firm determines that an overpayment of Gross-Up Payment(s) has occurred, the Executive shall be responsible for the immediate repayment to the Company of such overpayment with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that the Executive shall have no duty or obligation whatsoever to repay such overpayment if Executive’s receipt of the overpayment, or any portion thereof, is included in the Executive’s income and the Executive’s repayment of the same is not deductible by the Executive for federal or state income tax purposes.

(iii)         The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment of the Excise Tax. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim by the Internal Revenue Service and the notification shall apprise the Company of the nature of the claim and the date on which such claim is required to be paid. The Executive shall not pay such claim prior to the expiration of a 30-day period following the date on which the Executive has given such notification to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is required). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

(A)          give the Company any information reasonably requested by the Company relating to such claim;

(B)          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;

(C)          cooperate with the Company in good faith in order to effectively contest such claim; and

(D)          permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay 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 to the Executive, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such contest. Without limitation on the foregoing provisions of this Section 2.1(f), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such 

 

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contest to a determination before any administrative tribunal, in a court of initial jurisdiction or in one or more appellate courts, as the Company shall determine.

2.2          Non-Exclusivity of Rights. Except as provided in Sections 2.1(d) or 2.1(e), nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify. Amounts which are vested benefits of which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any other contract or agreement with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such plan, policy, practice or program or contract or agreement.

2.3          Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 2.1(d), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Code Section 7872(f)(2)(A).

2.4           Conditions To Payments. To be eligible to receive (and continue to receive) and retain the payments and benefits described in Section 2, the Executive must comply with the terms of Section 3, and must execute and deliver to the Company an agreement, in form and substance satisfactory to the Company, effectively releasing and giving up all claims the Executive may have against the Company and its subsidiaries, shareholders, successors and affiliates (and each of their respective employees, officers, plans and agents) arising out of or based upon any facts or conduct occurring prior to that date, and reaffirming and agreeing to comply with the terms of this Agreement and any other agreement signed by the Executive in favor of the Company or any of its
subsidiaries or affiliates. The agreement will be prepared by the Company and provided to the Executive at the time the Executive’s employment is terminated or as soon as administratively practicable thereafter. The Company will have no obligations to make the payments and/or provide the benefits specified in Section 2, unless and until the Executive signs and delivers the agreement described in this Section 2.4 and all conditions to the effectiveness of the release and waiver (including but not limited to the expiration of any applicable time period to consider signing the agreement or to revoke acceptance without any action being taken to revoke acceptance or otherwise invalidate the agreement) have been satisfied.

2.5          Key Employee Six Month Deferral. Notwithstanding anything to the contrary in this Section 2, a “Specified Employee” may not receive a payment of nonqualified deferred compensation, as defined in Code Section 409A and the regulations thereunder, until at least six months after a Date of Termination. Any payment of nonqualified deferred compensation otherwise due in such six month period shall be suspended and become payable at the end of such six month period.

A “Specified Employee,” for each calendar year, means an employee who is a key employee, as defined by the Company in accordance with Section 409A and the regulations thereunder.

	
            Section 3:
 	
            Non-Competition.
 

 

 

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The provisions of this Section 3 and any related provisions shall survive termination of this Agreement and/or Executive’s employment with the Company and do not supersede, but are in addition to and not in lieu of, any other agreements signed by Executive concerning non competition, confidentiality, solicitation of employees, or trade secrets (whether included in a stock option agreement or otherwise), and are included in consideration for the Company entering into this Agreement. Executive’s right to receive and retain the benefits specified in Section 2 are conditioned upon Executive’s compliance with the terms of this Section 3:

	
             
 	
            3.1
 	
            Non-Compete Agreement.
 

3.1(a)     During the Executive’s employment with the Company and during the period beginning on the date the Executive’s employment with the Company terminates and ending one (1) year thereafter, the Executive shall not, without prior written approval of the Company’s Chief Executive Officer, become an officer, employee, agent, partner, or director of, or provide any services or advice to or for, any business enterprise in substantial direct competition (as defined in Section 3.1(b)) with the Company. The above constraint shall not prevent the Executive from making passive investments, not to exceed five percent (5%), in any enterprise where Executive’s services or advice is not required or provided.

3.1(b)     For purposes of Section 3.1(a), a business enterprise with which the Executive becomes associated as an officer, employee, agent, partner, or director shall be considered in substantial direct competition, if such entity competes with the Company in any business in which the Company or any of its direct or indirect subsidiaries is engaged or provides services or products of a type which is marketed, sold or provided by the Company or any of its subsidiaries or affiliates (including but not limited to any product or service which the Company or any such other entity is developing) within any State or country where the Company or any such affiliate or subsidiary then provides or markets (or plans to provide or market) any service or product as of the date the Executive’s Company employment terminates.

3.1(c)     During the Executive’s employment with the Company and during the period beginning on the date the Executive’s employment with the Company terminates and ending one (1) year thereafter (i.e., on the anniversary of the date the Executive’s employment terminates), the Executive shall not, without prior written approval of the Company’s Chief Executive Officer, directly or indirectly, solicit, provide to, take away, or attempt to take away or provide to any customer or solicited prospect of the Company or any of its subsidiaries any business of a type which the Company or such subsidiary provides or markets or which is competitive with any business then engaged in (or product or services marketed or planned to be marketed) by the Company or any of its subsidiaries; or induce or attempt to induce any
such customer to reduce such customer’s business with that business entity, or divert any such customer’s business from the Company and its subsidiaries; or discuss that subject with any such customer.

3.1(d)     During the Executive’s employment with the Company and during the period beginning on the date the Executive’s employment with the Company terminates and ending one (1) year thereafter, the Executive shall not, without prior written approval of the Company’s Chief Executive Officer, directly or indirectly solicit the employment of, recruit, employ, hire, cause to be employed or hired, entice away, or establish a business with, any then current officer, office manager, staffing coordinator or other employee or agent of the Company or any of  its  subsidiaries or affiliates (other than non-supervisory or non-managerial personnel who are employed in a clerical or maintenance position) or any other such person who was employed by the Company or any of its subsidiaries or affiliates within the twelve (12)
months immediately prior to the date the Executive’s employment with the Company terminated; or suggest to or discuss with any such employee the discontinuation of that person’s status or employment with the Company or any of its subsidiaries and 

 

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affiliates, or such person’s employment or participation in any activity in competition with the Company or any of its subsidiaries or affiliates.

3.2          Confidential Information. The Executive has received (and will receive) under a relationship of trust and confidence, and shall hold in a fiduciary capacity for the benefit of the Company, all “Confidential Information” and secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies or direct or indirect subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Executive’s employment with the Company and after termination of the
Executive’s employment with the Company, the Executive shall never, without the prior written consent of the Company, or as may otherwise be required by law or legal process, use (other than during Executive’s employment with the Company for the benefit of the Company), or communicate, reveal, or divulge any such information, knowledge or data, to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 3.2 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. “Confidential Information” means confidential and/or proprietary information and trade secrets of or relating to the Company or any of its subsidiaries and affiliates (and includes information the disclosure of which might be injurious to those companies), including but not limited to information concerning personnel of the Company or any of its subsidiaries and affiliates,
confidential financial information, customer or customer prospect information, information concerning temporary staffing candidates, temporary employees, and personnel, temporary employee and customer lists and data, methods and formulas for estimating costs and setting prices, research results (such as marketing surveys, or trials), software, programming, and programming architecture, enhancements and developments, cost data (such as billing, equipment and programming cost projection models), compensation information and models, business or marketing plans or strategies, new products or marketing strategies, deal or business terms, budgets, vendor names, programming operations, information on proposed acquisitions or dispositions, actual performance compared to budgeted performance, long-range plans, results of internal analyses, computer programs and programming information, techniques and designs, business and marketing plans, acquisition plans and strategies, divestiture plans and
strategies, internal valuations of Company assets, and trade secrets, but does not include information generally known in the marketplace. In addition, Confidential Information includes information of another company given to the Company with the understanding that it will be kept information confidential. All Confidential Information described herein is and constitutes trade secret information (regardless of whether the same is legally determined to be a trade secret) and is not the property of the Executive.

3.3          Non Disparagement. The Executive will never criticize, denigrate, disparage, or make any derogatory statements about the Company or its respective business plans, policies and practices, or about any of the Company’s officers, employees or former officers or employees, to customers, competitors, suppliers, employees, former employees, members of the public, members of the media, or any other person; nor shall the Executive harm or in any way adversely affect the reputation and goodwill of the Company. Nothing in this paragraph shall preclude or prevent the Executive from giving truthful testimony or information to law enforcement entities, administrative agencies or courts or in any other legal proceedings as required by law.

3.4          Provisions Relating To Non Competition, Non Solicitation And Confidentiality. The provisions of this Section 3 survive the termination of Executive’s employment and this Agreement and shall not be affected by any subsequent changes in employment terms, positions, duties, responsibilities, authority, or employment termination, permitted or contemplated by this Agreement. To the extent that any covenant set forth in this Section 3 of this Agreement shall be determined to be invalid or unenforceable in any respect or to any extent, the covenant shall not be 

 

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void or rendered invalid, but instead shall be automatically amended for such lesser term, to such lesser extent, or in such other lesser degree, as will grant the Company the maximum protection and restrictions on the Executive’s activities permitted by applicable law in such circumstances. In cases where there is a dispute as to the right to terminate the Executive’s employment or the basis for such termination, the term of any covenant set forth in Section 3 shall commence as of the date specified in the Notice of Termination and shall not be deemed to be tolled or delayed by reason of the provisions of this Agreement. The Company shall have the right to injunctive relief to restrain any breach or threatened breach of any provisions in this Section 3 in addition to and not in lieu of any rights to recover damages or cease making payments under this Agreement. The Company shall have the right to
advise any prospective or then current employer of Executive of the provisions of this Agreement without liability. The Company’s right to enforce the provisions of this Agreement shall not be affected by the existence, or non-existence, of any other similar agreement for any other executive, or by the Company’s failure to exercise any of its rights under this Agreement or any other similar agreement or to have in effect a similar agreement for any other employee.

	
            Section 4:
 	
            Successors.
 

4.1          Successors of Executive. This Agreement is personal to the Executive and, without the prior written consent of the Company, the rights (but not the obligations) shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

4.2          Successors of Company. This Agreement is freely assignable by the Company and its successors/assignees. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the division in which the Executive is employed, as the case may be, to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate the Agreement at his option on or after
the Change in Control Date for Good Reason.

	
            Section 5:
 	
            Miscellaneous.
 

5.1          Other Agreements. This Agreement supersedes all prior dated agreements, letters and understandings concerning severance benefits payable to the Executive after a Change in Control. The Board may, from time to time in the future, provide other incentive programs and bonus arrangements to the Executive with respect to the occurrence of a Change in Control that will be in addition to the benefits required to be paid in the designated circumstances in connection with the occurrence of a Change in Control. Such additional incentive programs and/or bonus arrangements will affect or abrogate the benefits to be paid under this Agreement only in the manner and to the extent explicitly agreed to by the Executive in any such subsequent program or arrangement. This
Agreement does not supersede or affect in any way the validity of any agreement signed by Executive concerning confidentiality, stock options, post-employment competition, non solicitation of business, accounts or employees, or agreements of a similar type or nature; and any provisions of this Agreement shall be in addition to and not in lieu of (or replace) any such other agreements.

5.2          Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below; provided that all notices to the Company shall be directed to the attention of the Board of Directors, or to such other address as one party may 

 

- 10 -

 

EXHIBIT 10.5

 

 

have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

Notice to the Executive:

_____________________________

[Address of Notice]

 

Notice to the Company:

 

RehabCare Group, Inc.

7733 Forsyth Boulevard, Suite 2300

St. Louis, Missouri 63105

Attn: Board of Directors

5.3          Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

5.4          Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

5.5          Waiver. The Executive’s or the Company’s failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

5.6          Section 409A Compliance. The parties intend that all provisions of this Agreement comply with the requirements of Code Section 409A to the extent applicable. No provision of this Agreement shall be operative to the extent that it will result in the imposition of the additional tax described in Code Section 409A(a)(1)(B)(i)(II) and the parties agree to revise the Agreement as necessary to comply with Section 409A and fulfill the purpose of the voided provision. Nothing in this Agreement shall be interpreted to permit accelerated payment of nonqualified deferred compensation, as defined in Section 409A, or any other payment in violation of the requirements of such Code Section 409A.

IN WITNESS WHEREOF, the Executive and the Company, pursuant to the authorization from its Board, have caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

 

___________________________________

[Name of Executive]

 

REHABCARE GROUP, INC.

 

	
             
 	
            By:
 	
            ____________________________
 

Name:  John H. Short

Title:  President and CEO

 

 

 

- 11 -EXHIBIT 10.10

 

 

REHABCARE GROUP, INC.

                SECOND AMENDED AND RESTATED 1996 LONG-TERM PERFORMANCE PLAN    

	
             
 	
            NONQUALIFIED STOCK OPTION AGREEMENT
 

 

RehabCare Group, Inc., a Delaware corporation (the “Company”), and the person designated in Section 1 below (the “Optionee”) hereby agree as follows:

 

Section 1.  Basic Terms.

 

	
            Name of Optionee:
 	
             
 	
             
 	
             
 
	
            Social Security Number of Optionee:
 	
             
 	
             
 	
            (Please fill in)
 
	
            Number of Shares Subject to Option:
 	
             
 	
             
 	
             
 
	
            Option Price/Base Price Per Share:
 	
             
 	
             
 	
             
 
	
            Grant Date of Option:
 	
             
 	
             
 	
             
 
	
            Expiration Date of Option:
 	
             
 	
             
 	
             
 

 

Table Regarding Exercisability:

 

	
             
 	
            Number
 	
             
 	
            Date of First
 	
             
 
	
             
 	
            of Shares
 	
             
 	
            Exercisability
 	
             
 
	
             
 	
             
 	
             
 	
             
 	
             
 
	
            1
 	
             
 	
             
 	
             
 	
             
 
	
            2
 	
             
 	
             
 	
             
 	
             
 
	
            3
 	
             
 	
             
 	
             
 	
             
 
	
            4
 	
             
 	
             
 	
             
 	
             
 

     

The Optionee must be employed by the Company or in service as a director of the Company on the Date of First Exercisability set forth in the table for the applicable portion of the Option to become exercisable on that date.

 

Section 2.  Entire Agreement.  This Agreement consists of the provisions set forth on this cover page and the further provisions set forth on the following pages.  The Optionee represents that he or she has read and understood such further provisions, which are binding on the parties as if set forth on this cover page.

 

IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement in duplicate as of the Grant Date.

 

REHABCARE GROUP, INC.

	
            By
 	
             
 	
             
 	
             
 
	
             
 	
            President and Chief Executive Officer
 	
             
 	
            Optionee
 

 

CHECK ONE AND SIGN: 

o Optionee’s spouse acknowledges that he or she has read this Agreement and the Plan and, by his or her signature, agrees to be bound by the terms thereof. ___________________________ (Spouse’s Signature)

o Optionee certifies that he or she is not legally married at the date of this Agreement.

	
             
 	
            (Optionee’s Signature)
 

 

 

- 1 -

 

EXHIBIT 10.10

 

 

 

REHABCARE GROUP, INC.

 

TERMS AND CONDITIONS OF

NONQUALIFIED STOCK OPTION

 

	
            1.
 	
            GRANT OF OPTION.  The Company hereby grants to the Optionee the right, privilege and option (the "Option") to purchase up to the maximum number of shares of Common Stock of the Company (the "Option Shares"), at a price per share (the "Exercise Price"), each as reflected on the cover page of this Agreement, in the manner and subject to the conditions provided herein.
 

 

	
            2.
 	
            TIME OF EXERCISE OF OPTION.  The Option shall become exercisable as provided on the cover page.  The portion(s) of the Option designated on the cover page will become exercisable on the date(s) set forth thereon but only to the extent that the Optionee is employed by the Company or in service as a director of the Company on such date. Once exercisable, the Option shall remain exercisable until the Option terminates as provided in paragraph 3 or paragraph 4(b) herein.
 

 

	
            3.
 	
            COVENANT NOT TO COMPETE; REMEDY FOR BREACH OF COVENANT.  In consideration of the Option provided in this Agreement, if at any time (a) prior to the exercise of the Option, or (b) within the one year after the exercise of the Option or any part thereof, the Optionee within the geographical area of the United States participates, directly or indirectly, in the ownership, management, operation or control of, or is employed or retained (either as an employee or independent contractor) by any business competing with the Company in the physical medicine or rehabilitation business (including acute care hospitals, acute rehabilitation units, long-term care facilities, subacute units and outpatient programs) or any such other business as the Company may enter into or be in the process of developing after the date of this Agreement then:  (i)
this Option shall terminate to the extent not previously exercised, effective as of the date upon which the Optionee enters into such competing activity, unless the Option is terminated sooner by operation of another term or condition of this Option or the Plan, and (ii) the Company shall be entitled, upon written demand by the Company to the Optionee, to a payment from the Optionee in the amount computed in the manner set forth in the next sentence. The amount of such payment shall be equal to the product of (y) the number of Option Shares (including any Option Shares withheld from issuance by the Company in payment of any tax withholding required to be made by the Company with respect to income taxes of the Optionee with respect to the exercise of the Option) that were purchased during the 365 calendar days immediately preceding the date upon which the Optionee first entered into the competing activity or at any time after the Optionee first entered into the competing activity, and
(z) the difference between (A) the fair market value per share of the Company Common Stock on the date or dates upon which the Optionee exercised such Option, and (B) the Exercise Price per Option Share.  For purposes of this Agreement, the "fair market value" of a share of the Company Common Stock shall be the closing transaction price on the New York Stock Exchange for the designated trading date (or the last preceding trading date, if the date of determination is not a trading date) as reported in The Wall Street Journal.  All such payments by the Optionee to the Company shall be made by certified or cashier's check at the principal offices of the Company or by wire transfer into an account designated by the Company and shall be due and payable by the Optionee within 10 calendar days after the receipt by the Optionee of the written demand for payment by the Company pursuant to this paragraph 3.
 

 

The Optionee shall be permitted to purchase and hold an investment, not to exceed five percent of the shares of any corporation in which shares are regularly traded on a national securities 

 

- 2 -

 

EXHIBIT 10.10

 

 

exchange or in the over-the-counter market, without violating the noncompetition covenant referenced in this paragraph 3.

 

Notwithstanding the foregoing, nothing in this paragraph 3 shall apply to Optionees who are directors of the Company or to Options granted to directors of the Company.

 

	
            4.
 	
            INCORPORATION OF SECOND AMENDED AND RESTATED 1996 LONG-TERM PERFORMANCE PLAN.  This Agreement is entered into pursuant to the Second Amended and Restated 1996 Long-Term Performance Plan (the “Plan”), which Plan by this reference is incorporated herein and made a part hereof. The Option covered by this Agreement is not intended to be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and shall be governed by the terms of the Plan relating to Nonqualified Stock Options.  The material provisions applicable to this Option are as follows:
 

 

	
             
 	
            (a)
 	
            METHOD OF EXERCISE OF OPTION.  This Option shall be exercisable in whole or in part, to the extent then exercisable, by written notice delivered to the Secretary of the Company stating the number of Option Shares with respect to which the Option is being exercised.  Such written notice shall be accompanied by, in the discretion of the Committee:  (i) a check; (ii) a certificate fully endorsed in blank for transfer representing shares of Common Stock of the Company then owned by the Optionee for at least six months having an aggregate fair market value on the date of exercise at least equal to the purchase price for all shares of Common Stock subject to such exercise; (iii) by any combination of (i) through (ii) hereof.
 

 

	
             
 	
            (b)
 	
            TERMINATION OF OPTION.  This Option shall terminate in all events on the first to occur of:  (i) the Expiration Date specified on the cover page, (ii) three months following the date of termination of the Optionee's employment with the Company or termination of a director’s services as a board member for any reason other than death, retirement or disability; (iii) twenty-four months after termination of the Optionee's employment with the Company or termination of a director’s services as a board member because of death, retirement or disability; provided, however, that in the event of termination of the Optionee’s employment with the Company or termination of a director’s services as a board member for any reason, this Option shall remain in effect only with
respect to Option Shares as to which this Option has vested as of the date of termination of employment or termination of service as a director; provided, however, that if the Optionee dies within the twenty-four-month period following termination of employment or termination of service as a director due to disability or retirement, then the period of exercise following death shall be the remainder of such twenty-four-month period or three months, whichever is longer, and if the Optionee dies within three months after termination of employment or termination of service as a director for any other reason, then the period of exercise following death shall be three months.  For purposes hereof, leaves of absence granted by the Company for military service, illness and transfers of employment between the Company and any subsidiary thereof shall not constitute termination of employment.  
 

 

	
             
 	
            (c)
 	
            NONTRANSFERABILITY OF OPTION.  This Option is nontransferable by the Optionee except by will or by the applicable laws of descent and 
 

 

- 3 -

 

EXHIBIT 10.10

 

 

distribution, or without consideration to:  (i) one or more members of the Optionee's family (which, for purposes of this paragraph 4(c), includes only the Optionee's spouse, children and grandchildren); (ii) one or more trusts for the benefit of the Optionee and/or one or more members of the Optionee's family; or (iii) one or more partnerships (general or limited), corporations, limited liability companies or other entities in which the aggregate interests of the Optionee and the members of the Optionee's family exceed 80% of all interests (each, a "Permitted Transferee").  This Option shall be exercisable during the Optionee's lifetime only by the Optionee or a Permitted Transferee.  In the event of the Optionee's death, exercise or payment shall be made only by or to a Permitted Transferee, the executor or administrator of the estate of the deceased Optionee or the person or persons to
whom the deceased Optionee's rights under the benefit shall pass by will or the applicable laws of descent and distribution, and only to the extent that the deceased Optionee or the Permitted Transferee, as the case may be, was entitled thereto at the date of death; provided, however, that no Option may be exercised after the Expiration Date specified on the cover page of this Agreement.

 

	
             
 	
            (d)
 	
            ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.  In the event that the Company shall at any time change the number of issued shares of Common Stock without new consideration to the Company (such as by stock dividends or stock splits), then, to the extent the Option granted hereunder remains outstanding and unexercised (including, without limitation, Option Shares for which this Option may become exercisable in the future), there shall be a corresponding adjustment as to the number of Option Shares covered under this Option and the Exercise Price per Option Share, such that the aggregate consideration payable to the Company, if any, and the value of this Option shall not be changed. 
 

 

 

 

- 4 -

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