-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TkBwL9Jdgq9JjxBaI3wXd8E5NYm/GjYKpMdAviW2HUUVg7ybWP2fGAwW3rwX9J1B 2ahm+ba/A30xyQbRDJd8gQ== 0000950116-99-000110.txt : 19990129 0000950116-99-000110.hdr.sgml : 19990129 ACCESSION NUMBER: 0000950116-99-000110 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS HEALTH VENTURES INC /PA CENTRAL INDEX KEY: 0000874265 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 061132947 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-11666 FILM NUMBER: 99515392 BUSINESS ADDRESS: STREET 1: 101 EAST STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 101 EAST STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 10-K/A 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 1 |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-11666 GENESIS HEALTH VENTURES, INC. (Exact name of Registrant as specified in its charter)
101 East State Street Pennsylvania Kennett Square, PA 19348 06-1132947 (State or other jurisdiction of (Address of principal executive (I.R.S. Employer incorporation or organization) offices including zip code) Identification Number) (610) 444-6350 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock, par value $.02 per share New York Stock Exchange 9 3/4% Senior Subordinated Debentures due 2005 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (ii) has been subject to such filing requirements for the past 90 days. YES _X_ NO__ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of voting stock held by non-affiliates of the Registrant is $281,820,464 (1). As of December 14, 1998, 35,227,558 shares of Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE (Specific sections incorporated are identified under applicable items herein) Certain exhibits to the Company's Current Report on Form 8-K and 8-K/A dated October 10, 1997, July 11, 1996, May 3, 1996, November 30, 1995, August 18, 1995, November 30, 1993 and September 19, 1993, Registration Statement on Form S-1 (File No. 33-4007), Registration Statement on Form S-1 (File No. 33-51670), Registration Statement on Form S-3 (file No. 33-9350), Registration Statement on Form S-4 (File No. 333-15267), Registration Statement on Form S-4 (File No. 333-58221), Registration Statement on Form S-8 (File No. 333-53043), Annual Reports on Form 10-K for the fiscal years ended September 30, 1996, 1995, 1993 and 1992, and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998, March 31, 1997, March 31, 1996 and March 31, 1994, Registration Statement on Form 8-A dated May 11, 1995, Filing on Schedule 13D on May 6, 1998 and the Tender Offer Statement on Schedule 14D-1 filed by Genesis Eldercare Corp. on June 20, 1997 are incorporated by reference as Exhibits in Part IV of this Report. - ---------------------------- (1) The aggregate dollar amount of the voting stock set forth equals the number of shares of the Company's Common Stock outstanding, reduced by the amount of Common Stock held by officers, directors and shareholders owning in excess of 10% of the Company's Common Stock, multiplied by the last reported sale price for the Company's Common Stock on December 14, 1998. The information provided shall in no way be construed as an admission that any officer, director or 10% shareholder in the Company may or may not be deemed an affiliate of the Company or that he/it is the beneficial owner of the shares reported as being held by him/it, and any such inference is hereby disclaimed. The information provided herein is included solely for recordkeeping purposes of the Securities and Exchange Commission. 1 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information with respect to the Directors of the Company. Information concerning certain Executive Officers of the Company was set forth in Item 4.1 of this Form 10-K filed with Commission on December 28, 1998. Jack R. Anderson (age 73) has served as a director of the Company since November 1998. Since 1982, Mr. Anderson has been President of Calver Corporation, a Dallas based health care consulting and investing firm. From September 1981 until May 1982, Mr. Anderson served as President of Manor Care, Inc. From 1970 until 1981, Mr. Anderson served as President and later as Chairman of Hospital Affiliates International, Inc., a hospital management company in Nashville. Mr. Anderson is a member of the Board of Directors of Horizon Health Corporation and PacifiCare Health Systems, Inc. Richard R. Howard (age 49) has served as a director of the Company since its inception, as Vice President of Development from September 1985 to June 1986, as President and Chief Operating Officer from June 1986 to April 1997, as President from April 1997 to November 1998 and as Vice Chairman since November 1998. Mr. Howard's background in healthcare includes two years as the Chief Financial Officer of Health Group Care Centers ("HGCC"). Mr. Howard's experience also includes over ten years with Fidelity Bank, Philadelphia, Pennsylvania and one year with Equibank, Pittsburgh, Pennsylvania. Mr. Howard is a graduate of the Wharton School, University of Pennsylvania, where he received a Bachelor of Science degree in Economics in 1971. Mr. Howard is a member of the Board of Directors of The Multicare Companies, Inc. ("Multicare"). Samuel H. Howard (age 59) has served as a director of the Company since March 1988. He is the founder and chairman of Xantus Corporation and the founder and President of Phoenix Communications Group, Inc. and Phoenix Holdings, Inc. all of which are based in Nashville, Tennessee. Mr. Howard's past corporate and operations experience in the healthcare industry include having served as the Senior Vice President of Public Affairs for Hospital Corporation of America from August 1981 to January 1990, Vice President and Treasurer for Hospital Affiliates International Inc., and Vice President of Finance and Business for Meharry Medical College. In addition, Mr. Howard was a financial analyst for General Electric and a White House Fellow with U.S. Ambassador Arthur Goldberg. Mr. Howard is a member of the Board of Directors of O'Charley's Inc. Richard R. Howard and Samuel H. Howard are not related. Michael R. Walker (age 50) is the founder of the Company and has served as Chairman and Chief Executive Officer of the Company since its inception. In 1981, Mr. Walker co-founded HGCC. At HGCC, he served as Chief Financial Officer and, later, as President and Chief Operating Officer. Prior to its sale in 1985, HGCC operated nursing homes with 4,500 nursing beds in 12 states. From 1978 to 1981, Mr. Walker was the Vice President and Treasurer of AID Healthcare Centers, Inc. ("AID"). AID, which owned and operated 20 nursing centers, was co-founded in 1977 by Mr. Walker as the nursing home division of Hospital Affiliates International. Mr. Walker holds a Master of Business Administration degree from Temple University and a Bachelor of Arts in Business Administration from Franklin and Marshall College. Mr. Walker has served as Chairman of the Board of Trustees of ElderTrust since its inception in January 1998 and has served as Chairman of the Board of Directors of Multicare since October 1997. Roger Lipitz (age 56) has served as a director of the Company since March 1994. From January 1994 until January 1996, Mr. Lipitz served on a consulting basis as Director of Government Relations of the Company. From 1969 until its acquisition by the Company in 1993, Mr. Lipitz served as Chairman of the Board of Meridian Healthcare, Inc., a Maryland based long-term care company which operated over 5,000 beds and related businesses. Mr. Lipitz is a past president of the American Health Care Association, Health Facilities Association of Maryland and the National Council of Health Care Services. Mr. Lipitz is a member of the Board of Directors of Blue Cross and Blue Shield of Maryland. 2 Stephen E. Luongo (age 51) has served as a director of the Company since June 1985. He is a Partner in the law firm of Blank Rome Comisky & McCauley LLP. Blank Rome Comisky & McCauley LLP serves as outside legal counsel for the Company. Alan B. Miller (age 61) has served as a director of the Company since October 1993. Since 1978, he has been Chairman of the Board, President and Chief Executive Officer of Universal Health Services, Inc., a Pennsylvania based health services company. Prior thereto, Mr. Miller was Chairman of the Board, President and Chief Executive Officer of American Medicorp, Inc. Mr. Miller is Chairman of the Board of Trustees of Universal Health Realty Income Trust and a member of the Board of Directors of CDI Corp. and Penn Mutual Life Insurance Company. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% shareholders are required by the Commission regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended September 30, 1998, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with, except that Robert Reitz, Richard R. Howard, Barbara Hauswald, Fred Nazem and Vince Barnaba, each filed a late report on Form 4. 3 ITEM 11: EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth certain information regarding the compensation paid to the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company for services rendered in all capacities for fiscal 1998, fiscal 1997 and fiscal 1996.
Long Term Annual Compensation Compensation ------------------------------ ------------ Name and Position Fiscal Option With the Company Year Salary (2) Bonus (3) Awards (3)(4) All Other Compensation(1) ---------------- ---- ---------- --------- ------------- ------------------------- Michael R. Walker 1998 $626,931 $ 0 0 $11,997 Chairman and Chief 1997 521,621 0 200,000 23,673 Executive Officer 1996 450,329 0 0 7,844 Richard R. Howard 1998 $376,924 $ 0 67,900 $ 9,054 Vice Chairman and Director 1997 340,710 0 9,000 15,829 1996 307,035 0 67,000 6,875 David C. Barr 1998 $311,539 $ 0 0 $ 7,767 Vice Chairman 1997 273,333 0 18,500 8,662 1996 256,095 53,000 2,200 George V. Hager, Jr. 1998 $287,616 $ 0 0 $ 3,787 Senior Vice President and 1997 253,557 5,159 15,000 5,961 Chief Financial Officer 1996 224,994 4,143 45,000 3,247 Michael G. Bronfein 1998 $267,306 $ 0 10,000 $ 3,606 President, 1997 250,000 0 0 0 NeighborCare(SM) (5) 1996 65,032 0 75,000 0
- --------------- (1) Represents the Company's matching contribution under the 401(k), Profit Sharing Plan, Execuflex Plan and executive insurance policies. (2) Includes compensation deferred under the Company's 401(k), Profit Sharing Plan, Execuflex Plan and other arrangements with the Company; does not include other payments made by the Company under the Company's 401(k), Profit Sharing Plan and Execuflex Plan. (3) Under the Company's incentive compensation program, stock options issued under the Employee Stock Option Plan are the sole form of incentive compensation to most eligible employees, including the Company's executive officers. (4) Does not include 100,000, 42,500, 45,000 and 37,500 stock options Messrs. Walker, Howard, Barr and Hager forfeited, respectively. (5) Mr. Bronfein joined the Company on June 5, 1996. 4 Employment Agreements The Company entered into new employment agreements, effective August 12, 1998, with Michael R. Walker as its Chairman and Chief Executive Officer, Richard R. Howard and David C. Barr as its Vice Chairmen and George V. Hager, Jr., as its Senior Vice President and Chief Financial Officer. The agreement with Mr. Walker currently expires on August 12, 2003; the agreements with Messrs. Howard, Barr and Hager each currently expire on August 12, 2001. Unless notice of non-renewal is given by two-thirds of the entire Board of Directors, the current term of Mr. Walker's agreement shall automatically extend an additional year beginning on the anniversary thereof in 2001, and the agreements for Messrs. Barr, Howard and Hager extend an additional year beginning on the anniversary thereof in 1999. The annual base salaries of Messrs. Walker, Howard, Barr and Hager currently are $650,000, $400,000, $333,000 and $295,000, respectively, and are reviewable by the Company's Board of Directors at least annually. The agreements may be terminated by the Company at any time for Cause (as defined), upon the vote of not less than two-thirds of the entire membership of the Company's Board of Directors. Each Genesis Executive may terminate his employment agreement upon notice to the Company of the occurrence of certain events, including an election by the Company not to renew the term of the agreement, as described above. In the event that the Company terminates the Genesis Executive's employment agreement without Cause, or the Genesis Executive terminates his employment agreement as described in the preceding sentence, Mr. Walker is entitled to severance compensation equal to the greater of the remainder of the term of the agreement or three years average base salary plus the value of stock options (using a Black-Scholes valuation method) granted during such period and Messrs. Barr, Howard, and Hager are entitled to severance compensation equal to three years base salary plus the value of stock options (using a Black-Scholes valuation method) and cash bonus granted during such period. In each case, the value of such stock options and cash bonus may not exceed 100% of such base salary. Messrs. Walker, Barr and Howard are entitled to certain insurance benefits. If a Genesis Executive becomes disabled, he will continue to receive all of his compensation and benefits so long as such period of disability does not exceed 12 consecutive months or shorter period aggregating 12 months in any 24 month period. Each employment agreement also contains provisions which are intended to limit the Genesis Executive from competing with the Company throughout the term of the agreement and for a period of two years thereafter. In addition, under the Senior Executive Employee Stock Ownership Program, the Company may make loans to the Genesis Executives to maintain a predetermined stock ownership position in the Company. The Company entered into an employment agreement, effective November 11, 1998, with Michael G. Bronfein as President and Chief Executive Officer of Neighborcare pharmacies, a wholly-owned subsidiary of the Company. The Company has consolidated its pharmacy, medical supply and infusion business under the brand name "NeighborCare," and Mr. Bronfein is the president of all subsidiaries of the Company which do business as NeighborCare. The agreement with Mr. Bronfein currently expires on November 11, 2001. The annual base salary of Mr. Bronfein is $350,000, and is reviewable by the Company's Board of Directors at least annually. The agreement may be terminated by the Company at any time for Cause (as defined), upon the vote of not less than two-thirds of the entire membership of the Company's Board of Directors. In the event that the Company terminates Mr. Bronfein's employment agreement without Cause, or Mr. Bronfein terminates his employment agreement as described in the preceding sentence, Mr. Bronfein is entitled to severance compensation equal to three years base salary plus the value of stock options (using a Black-Scholes valuation method) and cash bonus granted during such period, which value may not exceed 60% of his base salary. If Mr. Bronfein becomes disabled, he will continue to receive all of his compensation and benefits so long as such period of disability does not exceed 12 consecutive months or shorter period aggregating 12 months in any 24 month period. Mr. Bronfein's agreement also contains provisions which are intended to limit him from competing with the Company throughout the term of the agreement and for a period of two years thereafter. 5 Retirement Plan On January 1, 1989, the Company adopted an employee Retirement Plan which consists of a 401(k) component and a profit sharing component. The Retirement Plan, which is intended to be qualified under Sections 401(a) and (k) of the Code, is a cash deferred profit-sharing plan covering all of the employees of the Company (other than certain employees covered by a collective bargaining agreement) who have completed at least 1,000 hours of service and twelve months of employment. Under the 401(k) component, each employee may elect to contribute a portion of his or her current compensation up to the lesser of $10,000 (or the maximum then permitted by the Code) or 15% (or for more highly compensated employees 2%) of such employee's annual compensation. The Company may make a matching contribution each year as determined by the Board of Directors. The Board of Directors may establish this contribution at any level each year, or may omit such contribution entirely. The Company match since January, 1995 has been based on years of service. For an employee who has completed six years of service prior to the beginning of the calendar year, he receives a match of $0.75 per $1.00 of contribution up to 4% of his salary. Therefore, if this employee contributes 4% or more of his salary, the Company contributes 3% of his salary. If the employee contributes less than 4%, the Company contributes $0.75 per $1.00 of contribution. If an employee has not completed six years of service, he is matched $0.50 per $1.00 of contribution up to 2% of his salary. Therefore, if this employee contributes 2% or more of his salary, the Company contributes 1% of his salary. If the employee contributes less than 2%, the Company contributes $0.50 per $1.00 of contribution. Highly Compensated Employees (as such term is defined in the Code) regardless of their years of service, are matched $0.50 per $1.00 of contribution up to 2% of salary. Under the profit sharing provisions of the Retirement Plan, the Company may make an additional employer contribution as determined by the Board of Directors each year. The Board of Directors may establish this contribution at any level each year, or may omit such contribution entirely. It is the Company's intent that employer contributions under the profit sharing provisions of the Retirement Plan are to be made 50% in the form of Common Stock and 50% in cash, and are to be made only if there are sufficient profits to do so. Profit sharing contributions are allocated among the accounts of participants in the proportion that their annual compensation bears to the aggregate annual compensation of all participants. All employee contributions to the Retirement Plan are 100% vested. Company contributions are vested in accordance with a schedule that generally provides for vesting after five years of service with the Company (any non-vested amounts that are forfeited by participants used to reduce the following year's contribution by the Company). Distribution of benefits normally will commence upon the participant's reaching age 65 (or, if earlier, upon the participant's death or disability). Payment of Retirement Plan benefits will generally be made in a lump sum unless an alternative equivalent form of benefit is elected. Certain special rules apply to the distribution of benefits to participants for whom the Retirement Plan has accepted a transfer of assets from another tax-qualified pension plan. Stock Option Plans Amended and Restated Employee Stock Option Plan. Pursuant to the Employee Stock Option Plan (the "Employee Stock Option Plan"), stock options may be granted which are intended to qualify as incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as stock options not intended to so qualify ("Non-Qualified Options"). The primary purpose of the Employee Stock Option Plan is to provide additional incentive to key employees and officers of the Company by encouraging them to invest in the Company's Common Stock and thereby acquire a proprietary interest in the Company and an increased personal interest in the Company's continued success and progress. All officers and key employees of, and consultants and advisors to, the Company or any current or future subsidiary ("Subsidiary") (currently in excess of 1300 people) are eligible to receive options under the Employee Stock Option Plan. The Employee Stock Option Plan is administered by the Stock Option Committee. Subject to the provisions of the Employee Stock Option Plan, the Stock Option Committee determines, among other things, which officers, key employees, consultants and advisors of the Company and any subsidiary will be granted options under the Employee Stock Option Plan, whether options granted will be Incentive Options or Non-Qualified Options, the number of shares subject to an option, the time at which an option is granted, the rate of option exercisability, the duration of an option and the exercise price of an option. The Stock Option Committee has the exclusive right to adopt or rescind rules for the administration of the Employee Stock Option Plan, correct defects and omissions in, reconcile inconsistencies in, and construe the Employee Stock Option Plan. The Stock Option Committee also has the right to modify, suspend or terminate the Employee Stock Option Plan, subject to certain conditions. 6 The aggregate number of shares which may be issued upon the exercise of options granted under the Employee Stock Option Plan currently is 6,250,000 shares of the Company's Common Stock. The aggregate number and kind of shares issuable under the Employee Stock Option Plan is subject to appropriate adjustment to reflect changes in the capitalization of the Company, such as by stock dividend, stock split or other circumstances deemed by the Stock Option Committee to be similar. Any shares of Common Stock subject to options that terminate unexercised will be available for future options granted under the Employee Stock Option Plan. The maximum number of shares for which options may be granted to any participant in any year is 750,000 shares of Common Stock, subject to certain adjustments in the event of any change in the outstanding shares of the Common Stock of the Company. The Company anticipates submitting certain amendments to the Employee Stock Option Plan to the shareholders of the Company at its 1999 Annual Meeting of Shareholders, including increasing the number of shares which may be issued under the plan to 6,750,000. 1998 Non-Qualified Employee Stock Option Plan. On November 11, 1998, the Company adopted the 1998 Non-Qualified Employee Stock Option Plan (the "Non-Officer Stock Option Plan") which authorizes the issuance of up to 1,500,000 shares of the Company's Common Stock. The Company uses the Non-Officer Stock Option Plan as a long-term incentive plan for non-officer employees of the Company. The objectives of the Non-Officer Stock Option Plan are to align the long-term interests of employees and shareholders by creating a direct link between compensation and shareholder return, and to enable employees to develop and maintain a significant long-term equity interest in the Company. The Employee Plan authorizes the Chief Executive Office to award Non-Qualified Stock Options to employees of the Company. Director Plan. In March 1992, the Company adopted, and in February 1993, the shareholders approved, the Company's 1992 Stock Option Plan for Non-Employee Directors (the "Director Plan"). The purpose of the Director Plan is to attract and retain non-employee directors and to provide additional incentive to them by encouraging them to invest in the Common Stock and acquire an increased personal interest in the Company's business. Payment of the exercise price for options granted under the Director Plan may be made in cash, shares of Common Stock or a combination of both. All options granted pursuant to the Director Plan are immediately exercisable and, except as indicated below, may not be exercised more than ten years from the date of grant. The Director Plan is administered by the Board of Directors of the Company, including non-employee directors, who may modify, amend, suspend or terminate the Director Plan, other than the number of shares with respect to which options are to be granted, the option exercise price, the class of persons eligible to participate, or options previously granted. Pursuant to the Director Plan, options may be granted for an aggregate of 225,000 shares of Common Stock. Options granted under the Director Plan are not incentive stock options under Section 422 of the Code. The Director Plan terminates ten years after its approval by shareholders. At each Annual Meeting of shareholders, each individual who is elected, re-elected or continues as a non-employee director automatically is granted an option to purchase 4,500 shares of Common Stock at the then fair market value of the Common Stock. On February 24, 1998, each non-employee director of the Company was granted an option to purchase 4,500 shares of Common Stock at an exercise price of $28.75 per share. 7 Option Grants The following table sets forth certain information concerning stock options granted and not forfeited under the Employee Stock Option Plan during fiscal 1998 to the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company: Option Grants in Last Fiscal Year
Potential Realizable Value at Assumed Annual Rates of Stock Price Individual Grants Appreciation for Option Term ----------------------------------------------------------- ---------------------------- Percent of Total Options Granted Option Options to Employees In Exercise Expiration Name Granted Fiscal Year Price Date 5% 10% ---- ------- ---------------- -------- ---------- ---------- ---------- Michael R. Walker 0 0% -- -- -- Richard R. Howard 67,900 6.32% $28.75 2/24/08 $1,186,758 $3,056,022 David C. Barr 0 0% -- -- -- -- George V. Hager, Jr. 0 0% -- -- -- -- Michael G. Bronfein 10,000 .93% $28.75 2/24/08 $ 174,780 $ 448,604
The following table sets forth certain information concerning the shares acquired upon exercise of options, the number of unexercised options and the value of unexercised options at the end of fiscal 1998 held by the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company: Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Value of Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End Year-End Shares Acquired Exercisable/ Exercisable/ Name on Exercise Value Realized Unexercisable Unexercisable(1) ---- --------------- -------------- --------------- ------------------- Michael R. Walker - - 417,501/150,000 $967,262/$0 Richard R. Howard - - 203,750/76,900 $237,231/$0 David C. Barr - - 213,270/18,500 $516,495/$0 George V. Hager, Jr. - - 111,500/21,000 $286,875/$0 Michael G. Bronfein - - 52,500/32,500 $0/$0
(1) Stock Price at close of business on September 30, 1998 was $12.25. Execuflex Plan In November 1991, the Company adopted the Execuflex Plan. All Company employees who achieve a certain salary grade and all employed physicians are entitled to participate in the Execuflex Plan. Pursuant to the terms of the Execuflex Plan, an eligible employee may authorize the Company to reduce his or her base compensation or bonuses and credit such amounts to a retirement account, education account or fixed period account. 8 The Company match since March 1, 1997 has been based on years of service. For an employee who has completed ten years of service prior to the beginning of the calendar year, he receives a match of $0.75 per $1.00 of contribution up to 3% of his salary. Therefore, if this employee contributes 4% or more of his salary, the Company contributes 3% of his salary. If the employee contributes less than 4%, the Company contributes $0.75 per $1.00 of contribution. If an employee has completed more than six and less than ten years of service, he is matched $0.50 per $1.00 of contribution up to 2% of his salary. Therefore, if this employee contributes 4% or more of his salary, the Company contributes 2% of his salary. If the employee contributes less than 4%, the Company contributes $0.50 per $1.00 of contribution. If an employee has not completed seven years of service, he is matched $0.25 per $1.00 of contribution up to 1% of his salary. Therefore, if this employee contributes 4% or more of his salary, the Company contributes 1% of his salary. If the employee contributes less than 4%, the Company contributes $0.25 per $1.00 of contribution. Benefits derived from employee deferral contributions are not subject to forfeiture for any reason. Benefits derived from matching contributions made by the Company are forfeited if a member of the Execuflex Plan separates from the Company's employ prior to completing five years of employment with the Company. 9 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT PRINCIPAL SHAREHOLDERS The following table sets forth at December 31, 1998, certain information with respect to the beneficial ownership of Common Stock (i) by each person who is known by the Company to be the beneficial owner of more than five percent of the Common Stock, (ii) by each director, (iii) by each of the Company's five most highly compensated executive officers and (iv) by all directors and executive officers as a group. Shares of Common Stock Percent of Beneficially Common Stock Owned (1) Owned ------------ ------------ Putnam Investments, Inc. (2) One Post Office Square Boston, Massachusetts 02109 3,289,151 9.0% HCR Manor Care, Inc. One Seagate Toledo, OH 43604-2616 (3) 7,879,570 18.3% Jack R. Anderson (4) 200,000 * Richard R. Howard (5) 306,450 * Samuel H. Howard (6) 18,000 * Roger C. Lipitz (7) 43,000 * Stephen E. Lungo(8) 52,018 * Alan B. Miller (9) 28,000 * Michael R. Walker (10) 926,400 * David C. Barr (11) 243,270 * George V. Hager, Jr. (12) 143,353 * Michael G. Bronfein (13) 271,911 * All executive officers and directors as a group (18 persons) 2,441,235 6.9% - ------------------- * Less than one percent. (1) The securities "beneficially owned" by a person are determined in accordance with the definition of "beneficial ownership" set forth in the regulations of the Securities and Exchange Commission (the "Commission") and accordingly, may include securities owned by or for, among others, the spouse, children or certain other relatives of such person as well as other securities as to which the person has or shares voting or investment power or has the right to acquire within 60 days after December 31, 1998. The same shares may be beneficially owned by more than one person. Beneficial ownership may be disclaimed as to certain of the securities. (2) Based upon a Schedule 13G, dated January 28, 1998. Consists of 2,984,152 shares beneficially owned by Putnam Investment Management, Inc. and 605,948 shares beneficially owned by The Putnam Advisory Company, Inc. which are registered investment advisors, and are wholly-owned by Putnam Investments, Inc. Putnam Investments, Inc. is a wholly-owned subsidiary of Marsh & McLennon Companies, Inc. (3) Consists of 586,240 shares of Preferred Stock, which are convertible into 7,874,570 shares of Common Stock. Does not include shares beneficially owned by Jack R. Anderson who is Manor's designee to the Board of Directors. (4) Does not include shares beneficially owned by Manor; Jack R. Anderson is Manor's designee to the Board of Directors. (5) Includes 203,750 shares of Common Stock which may be acquired upon the exercise of stock options. 10 (6) Consists of 18,000 shares of Common Stock which may be acquired upon the exercise of stock options. (7) Includes 18,000 shares of Common Stock which may be acquired upon the exercise of stock options. (8) Includes 30,000 shares of Common Stock which may be acquired upon the exercise of stock options. (9) Includes 22,500 shares of Common Stock which may be acquired upon the exercise of stock options. (10) Includes 467,500 shares of Common Stock which may be acquired upon the exercise of stock options. (11) Includes 213,270 shares of Common Stock which may be acquired upon the exercise of stock options. (12) Includes 111,500 shares of Common Stock which may be acquired upon the exercise of stock options. (13) Includes 55,000 shares of Common Stock which may be acquired upon the exercise of stock options. 11 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Fred F. Nazem is a former director of the Company. A limited partnership (the "Nazem Affiliate") affiliated with Mr. Nazem owns 1.4% of the outstanding Common Stock of Genesis ElderCare Corp., the parent corporation of Multicare. Multicare is owned 44% by the Company and is consolidated for financial accounting purposes. The Nazem Affiliate's stock ownership is subject to an agreement (the "Put/Call Agreement") pursuant to which, among other things, the Company will have the option, on the terms and conditions set forth in the Put/Call Agreement to purchase (the "Call") Genesis ElderCare Corp. Common Stock held by the Nazem Affiliate commencing on October 9, 2001 and for a period of 270 days thereafter, at a price determined pursuant to the terms of the Put/Call Agreement. The Nazem Affiliate will have the option, on the terms and conditions set forth in the Put/Call Agreement, to require the Company to purchase (the "Put") such Genesis ElderCare Corp. Common Stock commencing on October 9, 2002 and for a period of one year thereafter, at a price determined pursuant to the Put/Call Agreement. Upon exercise of the Call, the Nazem Affiliate will receive at a minimum its original investment plus a 25% compound annual return thereon. Upon exercise of the Put, there will be no minimum return to the Nazem Affiliate; any payment to the Nazem Affiliate will be based upon a formula set forth in the terms of the Put/Call Agreement which provides generally for the preferential return of the stockholders' capital contributions (subject to certain priorities), a 25% compound annual return on the Nazem Affiliate's capital contributions and additional amounts to be divided based upon the proportionate share of the capital contributions of the stockholders to Genesis ElderCare Corp. In connection with the Multicare acquisition, the Company entered into a management agreement (the "Management Agreement") pursuant to which the Company will manage Multicare's operations. The Management Agreement has a term of five years with automatic renewals for two years unless either party terminates the Management Agreement. The Company will be paid a fee of six percent of Multicare's net revenues for its services under the Management Agreement provided that payment of such fee in respect of any month in excess of the greater of (i) $1,991,666 and (ii) four percent of Multicare's consolidated net revenues for such month, shall be subordinate to the satisfaction of Multicare's senior and subordinate debt covenants; and provided, further, that payment of such fee shall be no less than $23,9000,000 in any given year. Under the Management Agreement, the Company is responsible for Multicare's non-extraordinary sales, general and administrative expenses (other than certain specified third party expenses), and all other expenses of Multicare will be paid by Multicare. The Company also entered into an asset purchase agreement with Multicare and certain of its subsidiaries pursuant to which the Company acquired all of the assets used in Multicare's outpatient and inpatient rehabilitation therapy business for $24,000,000 subject to adjustment and a stock purchase agreement with Multicare and certain subsidiaries pursuant to which the Company acquired all of the outstanding capital stock and limited partnership interests of certain subsidiaries of Multicare that are engaged in the business of providing institutional pharmacy services to third parties for $50,000,000, subject to adjustment. In 1998 the Company sponsored the formation of ElderTrustSM ("ETT"), a Maryland real estate investment trust. ETT completed an initial public offering (the "ETT Offering") on January 26, 1998. Substantially all of the ETT operations are conducted through ElderTrust Operating Limited Partnership (the "Operating Partnership"). In fiscal year 1997, Messrs. Walker, Howard, Barr, and Hager formed MGI Limited Partnership ("MGI"). Upon completion of ETT Offering, MGI received 95,454 units in the Operating Partnership ("Units"), having a total value of approximately $1.9 million based on the ETT Offering price of the Common Shares of ETT. Certain other executives of the Company, including Mr. Bronfein, are also a partners of MGI. In connection with the ETT Offering, Mr. Walker received cash distributions totaling approximately $358,000 from the sale of his interests in GHV Associates SMOPBGP to the Operating Partnership. Mr. Walker also received a direct or indirect interest in 88,110 Units in exchange for his ownership interests in GHV Associates, SMOBGP and two other limited partnerships. Such Units, together with Mr. Walker's interest in the Units distributed to MGI, have a total value of approximately $2.5 million based on the ETT Offering price of the Common Shares of ETT. In addition, Mr. Walker received approximately $1.9 million in cash from ETT as repayment of first mortgage indebtedness loaned by Mr. Walker to GHV Associates and SMOBGP. 12 Mr. Walker received $50,000 in cash (representing a return of his initial investment) indirectly from the Operating Partnership upon the dissolution of Elder Trust Realty Group, Inc. following the sale by Elder Trust Realty Group, Inc. of all its assets and liabilities to the Operating Partnership. ETT granted to Mr. Walker options to purchase 150,000 Common Shares under ETT's 1998 Share Option and Incentive Plan. These options vest over three years. Upon consummation of the ETT Offering, Mr. Howard received a cash distribution totaling approximately $91,000 from SMOBGP. In addition, Messrs. Howard, Barr and Hager received a direct or indirect interest in 24,139 Units in the aggregate in exchange for their ownership interests in certain limited partnerships. Such Units have a total value of approximately $483,000 based on the assumed ETT Offering price of the Common Shares of ETT. The Company leases the Windsor Office Building and the Windsor Clinic and Training Facility (the "Buildings") from GHV Associates. Payments under these leases approximate $191,000 per year and the current term expires on December 31, 2004. The Company believes that the terms of these leases are at least as favorable to the Company as those it would have obtained from an unaffiliated party. The Company rents space in Maryland which is used as a medical clinic and therapy clinic pursuant to two leases with SMOBGP. Payments under these leases approximate $169,000 per year. The leases expire on September 30, 1999. The Company believes that the terms of these leases are at least as favorable to the Company as those it would have obtained from an unaffiliated party. GHV Associates is a partnership which was owned prior to the ETT Offering by among others, Michael R. Walker, an officer and director of the Company. Salisbury Medical Office Building General Partnership ("SMOBGP") is a partnership which was owned prior to the ETT Offering by among others, Richard R. Howard and Michael R. Walker, officers and directors of the Company. The Company has made loans of approximately $7.8 million as of December 31, 1998 (the "Loan") for the benefit of HealthObjects Corporation and its subsidiaries (collectively, "HealthObjects"). HealthObjects is 82% beneficially owned by Michael G. Bronfein, an officer of the Company. Pursuant to a Participation Agreement between the Company and Mr. Bronfein and his wife, the Bronfeins participate in 50% of the Loan exceeding $5,000,000. In connection with the loan, HealthObjects has issued warrants for the purchase of 5% of all outstanding shares of HealthObjects to the Company. Stephen E. Luongo, a director and member of the Compensation Committee, is a partner in the law firm of Blank Rome Comisky & McCauley LLP which serves as outside legal counsel for the Company. On November 30, 1993, the Company paid approximately $205,000,000 to acquire substantially all of the assets and stock of Meridian Healthcare. Roger C. Lipitz, a director, is a former stockholder of Meridian Healthcare and served as Meridian's Chairman. As part of the Meridian Transaction, the Company entered into agreements to lease and operate, for ten years with a five year renewal option, at an aggregate cost of $6,000,000 per year, seven geriatric care facilities owned by seven different partnerships formed by certain former shareholders of Meridian, including Mr. Lipitz (the "Former Shareholders"). In March 1996, the Company acquired for total consideration approximately $31,900,000, including the payment of assumed debt, the remaining partnership interest owned by the Former Shareholders in five geriatric care facilities which were jointly owned by the Company and limited partnerships owned by the Former Shareholders. The Company also pays approximately $923,000 per year to Towson Building Associates, L.P., a limited partnership formed by the Former Shareholders, to lease the Company's regional headquarters located in Towson, Maryland. In addition, the Company manages a retirement center owned by Brendenwood MRC L.P., a limited partnership owned by the Former Shareholders. Mr. Lipitz beneficially owns between 20% to 26.5% of the partnership interests in the referenced partnerships formed and owned by the Former Shareholders. Pursuant to the Senior Executive Officer Stock Ownership Plan, the Company has loans outstanding to Messrs. Howard Barr, and Hager in the amounts of $646,889.00, $820,962.00, and $624,244.00, respectively. 13 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(3) Exhibits The following exhibits are hereby amended: No. Description --- ----------- +10.57 Employment Agreement between the Company and Michael R. Walker dated August 12, 1998, as amended. +10.58 Employment Agreement between the Company and George V. Hager dated August 12, 1998, as amended. +10.59 Employment Agreement between the Company and Richard R. Howard dated August 12, 1998, as amended. +10.60 Employment Agreement between the Company and David C. Barr dated August 12, 1998, as amended. +10.61 Employment Agreement between the Company and Michael G. Bronfein dated November 11, 1998, as amended. +10.62 Employment Agreement between the Company and Maryann Timon dated November 11, 1998, as amended. +10.63 Employment Agreement between the Company and Marc. D. Rubinger dated November 11, 1998, as amended. - ------------------------- + Management contract or compensatory plan or arrangement 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to its Report to be signed on its behalf on January 28, 1999 by the undersigned hereunto duly authorized. Genesis Health Ventures, Inc. /s/ James V. McKeon --------------------------------------- James V. McKeon Vice President and Corporate Controller 15 EX-10.57 2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and Michael R. Walker (the "Executive"). WITNESSETH The Company desires to continue to employ the Executive as an employee of the Company, and the Executive desires to continue to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as the Chairman and Chief Executive Officer of the Company. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder. 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, continue for a five year period ending on August 12, 2003 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on August 12, 2001 and on each August 12 thereafter (each such August 12, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. The Compensation Committee of the Board of Directors shall review Executive's base salary on an annual basis and make recommendations with respect to increases in base salary to the Board of Directors. Any increase in base salary shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to receive incentive compensation in the form of stock options in amounts determined from time to time by the Stock Option Subcommittee of the Compensation Committee of the Board of Directors, subject to the approval of the Board of Directors. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. Without in any way limiting the foregoing, Executive shall be provided with term life insurance providing a $6,000,000 death benefit to Executive's designated beneficiaries. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than five weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior officers. -2- Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. (iii) Perquisites. During the Term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. -3- (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability"shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of the Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania. (iv) any "Change of Control" (as defined in Section 6 hereof); (v) any material failure by the Company to comply with any of the provisions of this Agreement; (vi) any termination of the Executive's employment for reasons other than death, Disability or Cause. (vii) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement; (viii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent -4- jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. In addition, Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company and relating -5- specifically to Executive. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause, Death or Disability. (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to three times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means (x) the greater of (i) Executive's Base Salary for the most recent three years (including the current year) or (ii) Executive's Base Salary for the remainder of the then current term without giving effect to the termination giving rise to the payment divided by (y) three. "Executive's Average Assumed Cash Incentive Compensation" means (x) the sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the three most recent fiscal years plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the three most recent fiscal years divided by (y) three; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 100% of the Executive's Average Base Salary. (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years without giving effect to such termination, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. -6- 6. Change of Control. (a) Upon a Change of Control (as defined below), the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice (i) for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control, or (ii) at any time, within twenty-four (24) months following the date of a Change of Control, if any other event constituting Good Reason hereunder continues for more than ten (10) days after the Executive delivers notice thereof to the Company. The failure of Executive to exercise his rights hereunder following an event constituting a Change of Control shall not preclude Executive from exercising such rights following the occurrence of a subsequent Change of Control event, even if related to a prior Change of Control Event. (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change of Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested and exercisable in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) For purposes of this Agreement, the term "Change of Control" shall mean the happening of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; (ii) when, during any period of 24 consecutive months after the date of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority -7- thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 6(d)(ii); or (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise. 7. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 8. Executive's Covenants. (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the -8- general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company if such Person has any office or facility, at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 8 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. -9- (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. 9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 10. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department -10- with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E Luongo, Esquire If to Executive, to: Michael R. Walker 228 N. Garfield Street Kennett Square, PA 19348 (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and voice without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it -11- shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver -12- thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. COMPANY: Attest: ________________________ By: ________________________________ Secretary President (Corporate Seal) EXECUTIVE: ____________________________________ Chairman and Chief Executive Officer -13- EX-10.58 3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and George V. Hager, Jr. (the "Executive"). WITNESSETH The Company desires to continue to employ the Executive as an employee of the Company, and the Executive desires to continue to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as Senior Vice President and Chief Financial Officer of the Company. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder. 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, continue for a three year period ending on August 12, 2001 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on August 12, 1999 and on each August 12 thereafter (each such August 12, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. The Compensation Committee of the Board of Directors shall review Executive's base salary on an annual basis and make recommendations with respect to increases in base salary to the Board of Directors. Any increase in base salary shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to receive incentive compensation in the form of stock options in amounts determined from time to time by the Stock Option Subcommittee of the Compensation Committee of the Board of Directors, subject to the approval of the Board of Directors. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than five weeks in any calendar year. The -2- Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. (iii) Perquisites. During the Term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. -3- (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability"shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of the Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania. (iv) any "Change of Control" (as defined in Section 6 hereof); (v) any material failure by the Company to comply with any of the provisions of this Agreement; (vi) any termination of the Executive's employment for reasons other than death, Disability or Cause; (vii) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement; -4- (viii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause, Death or Disability. -5- (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to three times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means (x) Executive's Base Salary for the most recent three years (including the current year) divided by (y) three. "Executive's Average Assumed Cash Incentive Compensation" means (x) sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the three most recent fiscal years plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the three most recent fiscal years divided by (y) three; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 100% of the Executive's Average Base Salary. (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years without giving effect to such termination, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. 6. Change of Control. (a) Upon a Change of Control (as defined below), the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice (i) for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control, or (ii) at any time, within twenty-four (24) months following the date of a Change of Control, if any other event constituting Good Reason hereunder continues for more than ten (10) days after the Executive delivers notice thereof to the Company. The failure of Executive to exercise his rights hereunder following an event constituting a Change of Control shall not preclude Executive from exercising such rights following the occurrence of a subsequent Change of Control event, even if related to a prior Change of Control Event. -6- (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change of Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested and exercisable in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) For purposes of this Agreement, the term "Change of Control" shall mean the happening of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; (ii) when, during any period of 24 consecutive months after the date of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 6(d)(ii); or -7- (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise. 7. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 8. Executive's Covenants. (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: -8- (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company, if such Person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision, in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 8 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. -9- (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. 9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 10. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department Attention: Chairman and Chief Executive Officer with a copy to: -10- Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E Luongo, Esquire If to Executive, to: George V. Hager, Jr. 320 Bellevue Avenue Haddonfield, NJ 08033 (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and voice without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. -11- (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. -12- (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. COMPANY: Attest: By: - -------------------------- ------------------------------- Secretary President (Corporate Seal) EXECUTIVE: ------------------------------- Senior Vice President and Chief Financial Officer -13- EX-10.59 4 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and Richard R. Howard (the "Executive"). WITNESSETH The Company desires to continue to employ the Executive as an employee of the Company, and the Executive desires to continue to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as Vice Chairman of the Company. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder. 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, continue for a three year period ending on August 12, 2001 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on August 12, 1999 and on each August 12 thereafter (each such August 12, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. The Compensation Committee of the Board of Directors shall review Executive's base salary on an annual basis and make recommendations with respect to increases in base salary to the Board of Directors. Any increase in base salary shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to receive incentive compensation in the form of stock options in amounts determined from time to time by the Stock Option Subcommittee of the Compensation Committee of the Board of Directors, subject to the approval of the Board of Directors. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. Without in any way limiting the foregoing, Executive shall be provided with term life insurance providing a $3,000,000 death benefit to Executive's designated beneficiaries. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. -2- (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than five weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. (iii) Perquisites. During the Term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. -3- (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability"shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of the Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania. (iv) any "Change of Control" (as defined in Section 6 hereof); (v) any material failure by the Company to comply with any of the provisions of this Agreement; (vi) any termination of the Executive's employment for reasons other than death, Disability or Cause; (vii) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement; -4- (viii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. -5- (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. In addition, Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company and relating specifically to Executive. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause, Death or Disability. (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to three times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means the (x) Executive's Base Salary for the most recent three years (including the current year) divided by (y) three. "Executive's Average Assumed Cash Incentive Compensation" means (x) sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the three most recent fiscal years plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the three most recent fiscal years divided by (y) three; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 100% of the Executive's Average Base Salary. (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years without giving effect to such termination, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. -6- 6. Change of Control. (a) Upon a Change of Control (as defined below), the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice (i) for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control, or (ii) at any time, within twenty-four (24) months following the date of a Change of Control, if any other event constituting Good Reason hereunder continues for more than ten (10) days after the Executive delivers notice thereof to the Company. The failure of Executive to exercise his rights hereunder following an event constituting a Change of Control shall not preclude Executive from exercising such rights following the occurrence of a subsequent Change of Control event, even if related to a prior Change of Control Event. (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change of Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested and exercisable in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) For purposes of this Agreement, the term "Change of Control" shall mean the happening of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; -7- (ii) when, during any period of 24 consecutive months after the date of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 6(d)(ii); or (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise. 7. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 8. Executive's Covenants. -8- (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company, if such Person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision, in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 8 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. -9- (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. 9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 10. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department Attention: Chairman and Chief Executive Officer -10- with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E Luongo, Esquire If to Executive, to: Richard R. Howard 2280 S. Chester Springs Road Chester Springs, PA 19425 (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and voice without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. -11- (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. -12- (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. COMPANY: Attest: By: - ---------------------------------- ---------------------------------- Secretary President (Corporate Seal) EXECUTIVE: --------------------------------- Vice Chairman EX-10.60 5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and David C. Barr (the "Executive"). WITNESSETH The Company desires to continue to employ the Executive as an employee of the Company, and the Executive desires to continue to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as Vice Chairman of the Company. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder. 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, continue for a three year period ending on August 12, 2001 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on August 12, 1999 and on each August 12 thereafter (each such August 12, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. The Compensation Committee of the Board of Directors shall review Executive's base salary on an annual basis and make recommendations with respect to increases in base salary to the Board of Directors. Any increase in base salary shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to receive incentive compensation in the form of stock options in amounts determined from time to time by the Stock Option Subcommittee of the Compensation Committee of the Board of Directors, subject to the approval of the Board of Directors. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. Without in any way limiting the foregoing, Executive shall be provided with term life insurance providing a $3,000,000 death benefit to Executive's designated beneficiaries. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. -2- (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than five weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. (iii) Perquisites. During the Term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. -3- (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability"shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of the Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania. (iv) any "Change of Control" (as defined in Section 6 hereof); (v) any material failure by the Company to comply with any of the provisions of this Agreement; (vi) any termination of the Executive's employment for reasons other than death, Disability or Cause; (vii) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement; -4- (viii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. -5- (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. In addition, Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company and relating specifically to Executive. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause, Death or Disability. (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to three times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means the (x) Executive's Base Salary for the most recent three years (including the current year) divided by (y) three. "Executive's Average Assumed Cash Incentive Compensation" means (x) sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the three most recent fiscal years plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the three most recent fiscal years divided by (y) three; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 100% of the Executive's Average Base Salary. (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years without giving effect to such termination, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. -6- 6. Change of Control. (a) Upon a Change of Control (as defined below), the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice (i) for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control, or (ii) at any time, within twenty-four (24) months following the date of a Change of Control, if any other event constituting Good Reason hereunder continues for more than ten (10) days after the Executive delivers notice thereof to the Company. The failure of Executive to exercise his rights hereunder following an event constituting a Change of Control shall not preclude Executive from exercising such rights following the occurrence of a subsequent Change of Control event, even if related to a prior Change of Control Event. (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change of Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested and exercisable in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) For purposes of this Agreement, the term "Change of Control" shall mean the happening of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; -7- (ii) when, during any period of 24 consecutive months after the date of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 6(d)(ii); or (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise. 7. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 8. Executive's Covenants. -8- (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business.. (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company, if such Person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision, in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 8 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. -9- (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. 9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 10. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department Attention: Chairman and Chief Executive Officer -10- with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E Luongo, Esquire If to Executive, to: David C. Barr 45 Blue Stone Drive Chadds Ford, PA 19317 (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and voice without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. -11- (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. -12- (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. COMPANY: Attest: _________________________ By:______________________________ Secretary President (Corporate Seal) EXECUTIVE: _________________________________ Vice Chairman -13- EX-10.61 6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 11, 1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and Michael G. Bronfein (the "Executive"). WITNESSETH The Company desires to employ the Executive as an employee of the Company, and the Executive desires to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as President and Chief Executive Officer of NeighborCare pharmacies. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, continue for a two year period ending on November 11, 2000 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on November 11, 1999 and on each November 11 thereafter (each such November 11, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. Executive's base salary shall be reviewed on an annual basis and the Company shall increase such base salary, by an amount, if any, it determines to be appropriate. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to participate in stock option, incentive compensation and other plans at a level consistent with Executive's position with the Company and the Company's then current policies and practices. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than four (4) weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. -2- (iii) Perquisites. During the Term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. -3- (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability"shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of the Executive's principal place of employment to a location outside of Baltimore, Maryland following a Change of Control or the relocation of the Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania. (iv) any material failure by the Company to comply with any of the provisions of this Agreement; (v) any termination of the Executive's employment for reasons other than death, Disability or Cause; (vi) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement; (vii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. -4- (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause or Death. -5- (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to three times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means the (x) Executive's Base Salary for the most recent three years (including the current year)(1) divided by (y) three(1). "Executive's Average Assumed Cash Incentive Compensation" means (x) the sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the three most recent fiscal years1 plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the three most recent fiscal years1 divided by (y) three1; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 60% of the Executive's Average Base Salary. (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. 6. Change of Control. (a) Upon a Change of Control (as defined below), the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice if at any time, within twenty-four (24) months following the date of a Change of Control, any event constituting Good Reason hereunder continues for more than ten (10) days after the Executive delivers notice thereof to the Company. The failure of Executive to exercise his rights hereunder following an event constituting a Change of Control shall not preclude Executive from exercising such rights following the occurrence of a subsequent Change of Control event, even if related to a prior Change of Control Event. - --------- (1) Or such shorter period for which Executivehas been employed by the Company if Executive was not employed by the Company for all of such period. -6- (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change of Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested and exercisable in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) For purposes of this Agreement, the term "Change of Control" shall mean the happening of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; (ii) when, during any period of 24 consecutive months after the date of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 6(d)(ii); or -7- (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise; or (iv) the sale of all or substantially all of the Company's pharmacy operations. 7. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, independent tax counsel reasonably acceptable to the Company determines after consultation with counsel for the Company that there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 8. Executive's Covenants. (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. -8- (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company, if such Person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision, in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 8 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. -9- (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. 9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 10. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department Attention: Chairman and Chief Executive Officer with a copy to: -10- Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E Luongo, Esquire If to Executive, to: Michael G. Bronfein 4 Bell Chase Court Baltimore, MD 21208 (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and voice without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. -11- (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. -12- (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. COMPANY: Attest: By: - ---------------------------- ---------------------------------- Secretary President (Corporate Seal) EXECUTIVE: --------------------------------- President-NeighborCare -13- EX-10.62 7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 11, 1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and Maryann Timon (the "Executive"). WITNESSETH The Company desires to employ the Executive as an employee of the Company, and the Executive desires to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as Senior Vice President-Managed Care Group. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, continue for a two year period ending on November 11, 2000 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on November 11, 1999 and on each November 11 thereafter (each such November 11, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. Executive's base salary shall be reviewed on an annual basis and the Company shall increase such base salary, by an amount, if any, it determines to be appropriate. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to participate in stock option, incentive compensation and other plans at a level consistent with Executive's position with the Company and the Company's then current policies and practices. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than four (4) weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. -2- (iii) Perquisites. During the Term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. -3- (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability"shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of the Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania; (iv) any material failure by the Company to comply with any of the provisions of this Agreement; (v) any termination of the Executive's employment for reasons other than death, Disability or Cause; (vi) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement; (vii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. -4- (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause or Death. -5- (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive`s Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means the (x) Executive's Base Salary for the most recent two years (including the current year) divided by (y) two. "Executive's Average Assumed Cash Incentive Compensation" means (x) the sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the two most recent fiscal years plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the two most recent fiscal years divided by (y) two; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 60% of the Executive's Average Base Salary. (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. 6. Change of Control. (a) Upon a Change of Control (as defined below), the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice if at any time, within twenty-four (24) months following the date of a Change of Control, any event constituting Good Reason hereunder continues for more than ten (10) days after the Executive delivers notice thereof to the Company. The failure of Executive to exercise his rights hereunder following an event constituting a Change of Control shall not preclude Executive from exercising such rights following the occurrence of a subsequent Change of Control event, even if related to a prior Change of Control Event. -6- (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change of Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested and exercisable in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) For purposes of this Agreement, the term "Change of Control" shall mean the happening of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; (ii) when, during any period of 24 consecutive months after the date of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 6(d)(ii); or (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise. -7- 7. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, independent tax counsel reasonably acceptable to the Company determines after consultation with counsel for the Company that there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 8. Executive's Covenants. (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business. -8- (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company, if such Person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision, in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 8 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. 9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. -9- (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 10. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department Attention: Chairman and Chief Executive Officer with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E Luongo, Esquire If to Executive, to: Maryann Timon 201 Lafayette Street Havre de Grace, MD 21078 -10- (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and voice without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. -11- (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. COMPANY: Attest: By: - ------------------------------ ---------------------------------------- Secretary President (Corporate Seal) EXECUTIVE: ---------------------------------------- Senior Vice President-Managed Care Group -13- EX-10.63 8 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 11, 1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and Marc D. Rubinger (the "Executive"). WITNESSETH The Company desires to employ the Executive as an employee of the Company, and the Executive desires to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as Senior Vice President-Chief Information Officer of the Company. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, continue for a two year period ending on November 11, 2000 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on November 11, 1999 and on each November 11 thereafter (each such November 11, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. Executive's base salary shall be reviewed on an annual basis and the Company shall increase such base salary, by an amount, if any, it determines to be appropriate. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to participate in stock option, incentive compensation and other plans at a level consistent with Executive's position with the Company and the Company's then current policies and practices. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than four (4) weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. -2- (iii) Perquisites. During the Term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. -3- (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability"shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of the Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania; (iv) any material failure by the Company to comply with any of the provisions of this Agreement; (v) any termination of the Executive's employment for reasons other than death, Disability or Cause; (vi) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement; (vii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. -4- (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause or Death. (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to two times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means the (x) Executive's Base Salary for the most recent two years (including the current year) divided by (y) two. "Executive's Average Assumed Cash Incentive Compensation" means (x) the sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the two most recent fiscal years plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the two most recent fiscal years divided by (y) two; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 60% of the Executive's Average Base Salary. -5- (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. 6. Change of Control. (a) Upon a Change of Control (as defined below), the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice if at any time, within twenty-four (24) months following the date of a Change of Control, any event constituting Good Reason hereunder continues for more than ten (10) days after the Executive delivers notice thereof to the Company. The failure of Executive to exercise his rights hereunder following an event constituting a Change of Control shall not preclude Executive from exercising such rights following the occurrence of a subsequent Change of Control event, even if related to a prior Change of Control Event. (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change of Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested and exercisable in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. -6- (c) For purposes of this Agreement, the term "Change of Control" shall mean the happening of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; (ii) when, during any period of 24 consecutive months after the date of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 6(d)(ii); or (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise. -7- 7. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, independent tax counsel reasonably acceptable to the Company determines after consultation with counsel for the Company that there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 8. Executive's Covenants. (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business. -8- (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company, if such Person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision, in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 8 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. -9- 9. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 10. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department Attention: Chairman and Chief Executive Officer with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E Luongo, Esquire -10- If to Executive, to: Marc D. Rubinger 718 Amherst Circle Newtown Square, PA 19073-2602 (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and voice without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. -11- (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. -12- (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. COMPANY: Attest: By: - ----------------------------- -------------------------------------- Secretary President (Corporate Seal) EXECUTIVE: --------------------------------------- Senior Vice President-Chief Information Officer -13- -----END PRIVACY-ENHANCED MESSAGE-----