EMPLOYMENT AGREEMENT
AGREEMENT, made as of September 3, 2003 by and between MEDCATH
CORPORATION, a Delaware corporation (the "Company") and XXXX X. XXXXX
("Executive").
RECITALS
In order to induce Executive to serve as the President and Chief
Executive Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform services for
the Company, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as its President and Chief
Executive Officer. In his capacity as the President and Chief Executive Officer
of the Company, Executive shall report to the board of directors of the Company
(the "Board") and shall have the customary powers, responsibilities and
authorities of a president and chief executive officer for corporations of the
size and character of the Company, as it exists from time to time, and as are
assigned by the Board.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment with the Company commencing on September 3, 2003 (the
"Commencement Date") and agrees to devote his full working time and efforts, to
the best of his ability, experience and talent, to the performance of services,
duties and responsibilities in connection therewith. Executive shall perform
such duties and exercise such powers, commensurate with his position, as the
Board shall from time to time delegate to him on such
terms and conditions and subject to such restrictions as the Board may
reasonably from time to time impose.
1.3 Nothing in this Agreement shall preclude Executive from engaging,
so long as, upon prior notice to the Board and in the reasonable determination
of the Board, such activities do not interfere with his duties and
responsibilities hereunder, (a) in charitable and community affairs, from
managing any passive investment made by him in publicly traded equity securities
or other property (provided that no such investment may exceed 5% of the equity
of any entity) or, (b) subject to Section 12(b) hereof, from serving as a member
of boards of directors or as a trustee of any other corporation, association or
entity.
1.4 It is acknowledged that Executive may maintain his primary
residence in Florida during the term of this Agreement as long as Executive
spends as much time in Charlotte, North Carolina as is reasonably necessary to
fully perform the responsibilities of Chief Executive Officer of the Company.
2. Term of Employment. Executive's term of employment under this
Agreement shall commence on the Commencement Date and, subject to the terms
hereof, shall terminate on the earlier of (i) the fifth anniversary of the
Commencement Date (the "Termination Date") or (ii) termination of Executive's
employment pursuant to this Agreement; provided, however, that, unless earlier
terminated as a result of Executive's termination of employment, this Agreement
shall automatically renew for one additional year following the Termination Date
unless, at least 90 days prior to the Termination Date, Executive provides
written notice to the Company of his intention not to continue his employment
with the Company for such additional year; provided, further, that (A) any other
termination of employment by Executive (other than for death, Permanent
Disability or Good Reason) may only be made upon 90 days prior written notice to
the Company and any termination of employment by Executive for Good Reason may
only be made upon 30 days prior written notice to the Company and (B) any
termination of employment by the Company for any reason may only be made upon 30
days prior written notice to Executive.
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3. Compensation.
3.1 Salary. The Company shall pay Executive a base salary ("Base
Salary") at the rate of $550,000 per annum for the year commencing on the
beginning of Executive's term of employment hereunder. Base Salary shall be
reduced from time to time by the costs related to the Company providing
Executive with an apartment in the Charlotte, North Carolina area. Base Salary
shall be adjusted annually at the discretion of the Board but in no event shall
Base Salary be reduced nor be less than the median base salary for a comparable
position at corporations of similar size and character as the Company, as it
exists from time to time, and, as increased, shall constitute "Base Salary"
hereunder. Base Salary shall be payable in accordance with the ordinary payroll
practices of the Company.
3.2 Annual Bonus. In addition to his Base Salary, the Company shall pay
to Executive an annual cash bonus (the "Bonus") during the term of his
employment hereunder equal to a percentage of Executive's Base Salary (the
"Target Bonus"). The Bonus for each fiscal year of the Company will be tied to
either the Company's earnings per share as reported in its annual financial
statements excluding any extraordinary or nonrecurring items set forth therein
(the "EPS") and the annual EPS target for that year (the "EPS Target"), or such
other applicable performance targets (such as EBITDA less interest) as are
established by the Board (or a committee thereof). On or before the beginning of
each fiscal year, the Board (or a committee thereof) shall establish an EPS
Target or other applicable performance target (the "Target") for that year. At
the end of each fiscal year, Executive shall be paid a Target Bonus based upon
the following formula:
If the Company's actual performance results equal 80% of the
Target or greater (e.g., actual EPS is 80% of the EPS Target or
greater) (the comparative percentage of the actual performance results
to the Target is referred to herein as the "Bonus Growth Percentage"),
then Executive's Target Bonus shall be the Bonus Growth Percentage
multiplied by 50% of Executive's Base Salary for the fiscal year then
ended, subject to a maximum Bonus Growth Percentage of 200%. If the
Bonus Growth Percentage is less than 80%, no Bonus will be earned or
paid.
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3.3 Compensation Plans and Programs. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company from
time to time, which compensation plans and programs are intended to be
comparable to those currently maintained by the Company, in which other senior
executives of the Company participate on terms that are intended to be
comparable to those applicable to such other senior executives.
4. Employee Benefits.
4.1 Employee Benefit Programs, Plans and Practices. The Company shall
provide Executive during the term of his employment hereunder with coverage
under all employee pension and welfare benefit programs, plans and practices
(commensurate with his positions in the Company from time to time and to the
extent permitted under any employee benefit plan) in accordance with the terms
thereof, which the Company makes available to its senior executives and which
employee pension and welfare benefit programs, plans and practices that are
intended to be comparable to those currently maintained by the Company.
4.2 Vacation and Fringe Benefits. Executive shall be entitled to no
less than the number of business days paid vacation in each calendar year which
have historically been provided to the Company's Chief Executive Officer, which
shall be taken at such times as are consistent with Executive's responsibilities
hereunder. In addition, Executive shall be entitled to the perquisites and other
fringe benefits currently made available to senior executives of the Company,
commensurate with his position with the Company.
5. Expenses. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
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6. Termination of Employment.
6.1 Termination By the Company Without Cause or By Executive for Good
Reason. (a) The Company may terminate Executive's employment at any time for any
reason. If Executive's employment is terminated by the Company without Cause (as
defined in Section 6.4 hereof) (other than as a result of Executive's death or
Permanent Disability (as defined in Section 6.2 hereof)) or if Executive
terminates his employment for Good Reason (as defined in Section 6.1 (c) hereof)
prior to the Termination Date, Executive shall receive such payments, if any,
under applicable plans or programs, including but not limited to those referred
to in Section 3.3 hereof, to which he is entitled pursuant to the terms of such
plans or programs. In addition, in connection with such termination Executive
shall be entitled to receive the following: (i) an amount equal to (A) one times
Executive's Base Salary if such termination occurs prior to the first
anniversary of the Commencement Date or (B) two times Executive's Base Salary if
such termination occurs on or after the first anniversary of the Commencement
Date, in either case at the annual rate as of the date of termination under this
Section 6.1(a), payable over the twelve month period following the Termination
Date in substantially equal installment payments and in accordance with the
normal payroll practices of the Company; (ii) a cash lump sum payment in respect
of (x) accrued but unused vacation days (the "Vacation Payment"), (y)
compensation earned but not yet paid (including any awarded but deferred Bonus
payments) (the "Compensation Payment") and (z) reasonable expenses incurred
under Section 5 but not yet reimbursed (the "Expense Payment"); and (iii)
continued coverage under any employee medical, disability and life insurance
plans in accordance with the respective terms thereof for a period ending on the
earlier of (A) the second anniversary of the date of termination under this
Section 6.1(a) or (B) the date on which Executive becomes covered under
comparable benefit plans of a new employer.
(b) The Vacation Payment, the Compensation Payment, and the Expense
Payment shall be paid by the Company to Executive within 30 days after the
termination of
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Executive's employment by check payable to the order of Executive or by wire
transfer to an account specified by Executive.
(c) For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Executive's express prior written consent):
(i) A substantial reduction by the Company of Executive's
duties or responsibilities, other than in connection with the
termination of Executive's employment by the Company for Cause, by
Executive without Good Reason or as a result of Permanent Disability or
Executive's death;
(ii) A reduction by the Company in Executive's Base Salary or
an amendment to the terms of the bonus plan in effect for senior
executives and in which Executive participates on the date hereof which
would adversely effect the ability of Executive to receive a Bonus
(except that the establishment of the EPS or other performance targets
to be set by the Board annually shall be deemed not to constitute such
an amendment); or
(iii) A reduction or elimination of Executive's eligibility to
participate in any of the Company's employee benefit plans that is
inconsistent with the eligibility of similarly situated executives of
the Company to participate therein.
6.2 Permanent Disability. If Executive becomes totally and permanently
disabled (as defined in the Company's Long-Term Disability Benefit Plan
applicable to senior executive officers as in effect on the date hereof)
("Permanent Disability"), the Company or Executive may terminate Executive's
employment on written notice thereof, and Executive shall receive or commence
receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of a disability
insurance policy or similar arrangement which the Company maintains
during the term hereof;
(ii) the Target Bonus in respect of the fiscal year in which
his termination occurs, prorated by a fraction, the numerator of which
is the number of days of the fiscal year until termination and the
denominator of which is 365;
(iii) the Vacation Payment, the Compensation Payment, and the
Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 3.3 hereof,
to which he is entitled pursuant to the terms of such plans or
programs.
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6.3 Death. In the event of Executive's death during the term of his
employment hereunder, Executive's estate or designated beneficiaries shall
receive or commence receiving, as soon as practicable:
(i) the Target Bonus in respect of the fiscal year in which
his death occurs, prorated by a fraction, the numerator of which is the
number of days of the fiscal year until his death and the denominator
of which is 365;
(ii) any death benefits provided under the employee benefit
programs, plans and practices referred to in Section 4.1 hereof, in
accordance with their terms;
(iii) the Vacation Payment, the Compensation Payment, and the
Expense Payment; and
(iv) such payments under applicable plans or programs,
including but not limited to those referred to in Section 3.3 hereof,
to which Executive's estate or designated beneficiaries are entitled
pursuant to the terms of such plans or programs.
6.4 Termination By the Company for Cause or By Executive without Good
Reason. (a) The Company shall have the right to terminate the employment of
Executive for Cause. In the event that Executive's employment is terminated by
the Company for Cause, as hereinafter defined, or by Executive without Good
Reason (other than as a result of Executive's Permanent Disability or death),
prior to the Termination Date, notwithstanding any other provision in this
Agreement, Executive shall be entitled only to the Compensation Payment, the
Vacation Payment, and the Expense Payment, and shall not be entitled to any
further compensation or benefits hereunder including, without limitation, the
payment of any Bonus in respect of all or any portion of the fiscal year in
which such termination occurs.
(b) As used herein, the term "Cause" shall be limited to (i) willful
misconduct by Executive which results in a demonstrable injury (which is other
than de minimis or insignificant) to the Company, (ii) willful and continued
failure by Executive to perform his material duties with respect to the Company
or its subsidiaries, which failure continues beyond 10 days after a written
demand for substantial performance of such duties was given to Executive
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by the Company, or (iii) Executive's conviction of, or plea of nolo contendere
to, a felony or to a misdemeanor involving moral turpitude. Termination of
Executive pursuant to this Section 6.4 shall be made by delivery to Executive of
written notice that, in the reasonable judgment of the Board, Executive was
guilty of conduct set forth in any of clauses (i) through (iii) above and
specifying the particulars thereof.
7. Mitigation of Damages. 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 after the termination of his employment
hereunder.
8. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
MedCath Corporation
00000 Xxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx, Chairman
with a copy to:
MedCath Corporation
x/x Xxxxxxxx Xxxxxx
Xxxxxxx & Co.
0000 Xxxx Xxxx Xxxx
Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
(Attn: Xxxxxx X. Xxxxxxx)
with a copy to:
Xxx X. Xxxxxxxx, Esq.
Xxxxx & Xxx Xxxxx, PLLC
000 X. Xxxxx Xxxxxx, Xxxxx 00
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000-0000
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To Executive:
Xxxx X. Xxxxx
0000 Xxxxxxxxx Xxxxx
Xxxxx Xxxxx Xxxxx, XX 00000
Any such notice or communication shall be delivered by hand, by telecopy (with
machine confirmation) or by courier or sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other address
as such party may designate in a notice duly delivered as described above), and
the third business day after the actual date of mailing shall constitute the
time at which notice was given.
9. Separability; Legal Fees. If any provision of this Agreement shall
be declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. Each party shall bear the costs of any legal
fees and other fees and expenses which may be incurred in respect of enforcing
its respective rights under this Agreement.
10. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
11. Amendment. This Agreement may only be amended by written agreement
of the parties hereto.
12. Nondisclosure of Confidential Information; Non-Competition. (a) At
any time during or after Executive's employment with the Company, Executive
shall not, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership, corporation
or other entity any Confidential Information (as hereinafter
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defined) pertaining to the business of the Company or any of its subsidiaries,
except (i) while employed by the Company, in the business of and for the benefit
of the Company, or (ii) when required to do so by a court of competent
jurisdiction, by any governmental agency having supervisory authority over the
business of the Company, or by any administrative body or legislative body
(including a committee thereof) with jurisdiction to order Executive to divulge,
disclose or make accessible such information. For purposes of this Section
12(a), "Confidential Information" shall mean non-public information concerning
the financial data, strategic business plans, and other non-public, proprietary
and confidential information of the Company, its subsidiaries, Kohlberg Kravis
Xxxxxxx & Co., Welsh, Carson, Xxxxxxxx & Xxxxx VII, L.P., or their respective
affiliates as in existence as of the date of Executive's termination of
employment (collectively, the "Restricted Group") that, in any case, is not
otherwise available to the public (other than by Executive's breach of the terms
hereof). Confidential Information further includes without limitation customer
information, vendors, operations and operating procedures, pricing, financial
information, technology, marketing strategies, design of facilities, employment
practices, contractual agreements, and trade secrets.
Executive agrees that both while employed by the Company and following
termination of Executive's employment with the Company at any time in the
future:
(i) Executive will take all reasonable precautions to
safeguard all Confidential Information at all times so that it is not
communicated to, exposed to, available to, or taken by any unauthorized
person and will personally use or disclose such information; and
(ii) Executive will exercise Executive's best efforts to
assure the safekeeping of the Company's Confidential Information.
Upon termination of Executive's employment with the Company, Executive
agrees to immediately return to the Company all Confidential Information and
other Company property, including without limitation all originals, copies,
computer data, or other records or information. It is understood and agreed that
Confidential Information and other property of the Company shall remain at all
times the property of the Company.
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(b) Non-Competition Agreement. Recognizing the fact that Executive will
be given or have access to the Confidential Information described in this
Section 12 above, and that Executive owes a duty of full loyalty to the Company
and it's name, reputation and operational interests, Executive agrees that
during the period of Executive's employment with the Company, Executive will not
engage in or have an interest in, either directly or indirectly, in any manner,
whether as a shareholder, partner, owner, investor, officer, director, advisor,
employee, consultant, or in any other capacity, any Competitive Business other
than an ownership position of less than 5 percent in any company whose shares
are publicly traded.
Executive agrees that in the event that Executive's employment with the
Company is terminated for any reason by either party, for a period of one (1)
year from the date of termination of employment, Executive will not engage in or
have an interest in, either directly or indirectly, in any manner, whether as a
shareholder, partner, owner, investor, officer, director, advisor, employee,
consultant, or in any other capacity, any Competitive Business (other than an
ownership position of less than 5 percent in any company whose shares are
publicly traded) which:
(i) is located or operates within fifty (50) miles of:
(A) any one of the Company's or its affiliates'
facilities or a location where the Company or one of its
affiliates has provided services during the term of
Executive's employment with the Company, or
(B) any location where the Company was actively
developing a facility or service before the termination of
Executive's employment with the Company; or
(ii) is located in the United States.
Executive further agrees that in the event that Executive's employment
with the Company is terminated for any reason by either party, for a period of
one (1) year from the date of termination of employment, Executive shall not, on
his own behalf or on behalf of any person, firm or company, directly or
indirectly, solicit or offer employment to any person who has been
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employed by the Company or its subsidiaries at any time during the twelve (12)
months immediately preceding such solicitation.
For purposes of this Section 12, "Competitive Business" shall be
defined as a hospital or any other health care employer, facility, or service
providing cardiology related facilities or services.
(c) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 12 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, cease making any payments otherwise required by this
Agreement and obtain an injunction against Executive from any court having
jurisdiction over the matter restraining any further violation of this Agreement
by Executive.
13. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
14. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations, including
the provisions of Section 12 herein. The
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provisions of this Section 14 are in addition to the survivorship provisions of
any other section of this Agreement.
15. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of North Carolina without
reference to rules relating to conflicts of law.
16. Effect on Prior Agreements. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the Company and Executive.
17. Withholding. The Company shall be entitled to withhold from payment
any amount of withholding required by law.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
MEDCATH CORPORATION
By /s/ Xxxxxxx X. Xxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxx, Chairman
/s/ Xxxx X. Xxxxx
---------------------------------
Xxxx X. Xxxxx
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