EXHIBIT 10(g)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of March 1, 1997 by and between Magellan Health Services, Inc., a Delaware
Corporation ("Employer"), and E. Xxx Xxxxxxxx ("Officer").
WHEREAS, on October 1, 1995, Employer and Officer entered into an
employment agreement having a term expiring on December 31, 1997; and Employer
and Officer desire to replace that employment agreement with this Agreement; and
WHEREAS, Employer desires to obtain the continued services of Officer,
and Officer desires to continue to render services to Employer; and
WHEREAS, Employer and Officer desire to set forth the terms and
conditions of Officer's employment with Employer under this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and agreements contained in this Agreement, the parties agree
as follows:
1. Term. Employer agrees to employ Officer, and Officer agrees to
serve Employer, in accordance with the terms of this Agreement, for a term (the
"Term") beginning on the date of this Agreement and ending, unless earlier
terminated in accordance with the provisions of this Agreement, on March 1,
2000.
2. Employment of Officer.
(a) Specific Position. Employer and Officer agree that, subject
to the provisions of this Agreement, Employer will employ Officer and Officer
will serve Employer as Chairman of the Board of Directors, President and Chief
Executive Officer. Employer agrees that Officer's duties under this Agreement
shall be the usual and customary duties of a Chief Executive Officer and,
consistent with the foregoing, as are determined from time to time by the Board
of Directors of Employer (the "Board"), and shall not be inconsistent with the
provisions of the Certificate of Incorporation of Employer or applicable law.
(b) Promotion of Employer's Business. Subject to the provisions
of Section 2(c), during the Term Officer shall devote his full business time and
energy to the business, affairs and interests of Employer and related matters,
and shall use his best efforts and abilities to promote Employer's interests.
Officer agrees that he will diligently endeavor to perform services contemplated
by this Agreement in accordance with the policies established by the Board,
subject to the provisions of the second sentence of Section 2(a).
(c) Permitted Activities. Officer may serve as an officer,
director, agent or employee of any direct or indirect subsidiary or other
affiliate of Employer but may not serve as an officer, director, agent or
employee of any other business enterprise without the written approval of the
Board; provided, that Officer may make and manage personal business investments
of his choice (and, in so doing, may serve as an officer, director, agent or
employee of entities and business enterprises that are related to such personal
business investments) and serve in any capacity with any civic, educational or
charitable organization, or any governmental entity or trade association,
without seeking or obtaining such written approval of the Board, if such
activities and services do not significantly interfere or conflict with the
performance of his duties under this Agreement.
(d) Principal Office. Officer's principal office and normal
place of work shall be at Employer's principal executive offices.
3. Salary. Employer shall pay Officer a salary in the amount of
$825,000 per year (pro-rated for any partial year during the Term) payable in
equal semi-monthly installments, less state and federal tax and other legally
required and Officer-authorized withholdings. Such salary shall be subject to
review and adjustment by the Board (or a Board Committee) from time to time
consistent with past practice; provided, that, during the Term, such salary may
not be reduced below any previous level paid during the Term as a result of such
review.
4. 1995-1997 Contract Bonus Compensation. In consideration of
services provided by Officer to Employer from October 1, 1995, to December 31,
1997, under the employment agreement referred to in the first "WHEREAS" clause
of this Agreement and under this Agreement, on January 2, 1998, Employer shall
pay in cash to Officer $10 million minus the amount determined under the next
two paragraphs, whichever is applicable.
If, on December 31, 1997, Officer has not exercised, between October
1, 1995 and December 31, 1997, any options held by Officer on October 1, 1995
under Employer's 1992 Stock Option Plan, then the amount shall be the result
obtained by multiplying (i) 462,990 (the number of options held by Officer as of
October 1, 1995 under Employer's 1992 Stock Option Plan) by (ii) the excess of
the lesser of (A) $18.00 and (B) the arithmetic average of the closing sale
price per share of Employer's Common Stock on the New York Stock Exchange (or if
the Common Stock is not then traded on such exchange, on the largest national
securities exchange on which the Common Stock is then traded or, if not then
traded on a national securities exchange, on the NASD market in or on which the
Common Stock is then traded) for the ten trading days immediately preceding the
date of payment, over (iii) $4.36.
If, on December 31, 1997, Officer has exercised, between October 1,
1995 and December 31, 1997, any of such options held by him on October 1, 1995,
then the amount shall be the sum of (a) and (b), as follows:
(a) the result obtained by multiplying (i) the number of options
held by Officer on October 1, 1995 under Employer's 1992 Stock Option Plan,
which options have not been
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exercised as of December 31, 1997, by (ii) the excess of the lesser of (A)
and (B) in the immediately-preceding paragraph, over (iii) $4.36.
(b) the result obtained by multiplying (i) the number of options
held by Officer on October 1, 1995 under Employer's 1992 Stock Option Plan,
which options are exercised by Officer between October 1, 1995 and
December 31, 1997, by (ii) the excess of $18 over $4.36, or $13.64.
If, prior to the date of payment pursuant to this Section 4, Employer
effects a change in capitalization, as described in Section 10 of Employer's
1992 Stock Option Plan, then the number and dollar amounts in (i), (ii)(A) and
(iii) in the second paragraph of this Section 4 and in (a) and (b) of the third
paragraph of this Section 4 shall be adjusted in the manner provided in Section
10 of Employer's 1992 Stock Option Plan (as such plan was worded on October 1,
1995).
A change in the per share exercise price of such options pursuant to
Section 3(b) of the Stock Option Agreement, dated as of July 21, 1992, between
Employer and Officer shall not affect the amount payable to Officer under this
Section 4.
5. Transaction Bonus Compensation. In consideration of Officer's
services to Employer in connection with the transaction described in this
Section 5, Employer shall pay to Officer $2,475,000 promptly upon the closing of
the transactions contemplated by the Real Estate Purchase and Sale Agreement,
dated as of January 29, 1997, between Employer and Crescent Real Estate Equities
Limited Partnership (the "REPS Agreement"), and the OpCo Contribution Agreement
(as defined in the REPS Agreement), and the execution of the Facilities Lease
(as defined in the REPS Agreement), the Franchise Agreement (as defined in the
REPS Agreement), and the Operating Agreement (as defined in the REPS Agreement),
as any or all of the foregoing agreements may be amended, supplemented, restated
or substituted for from time to time prior to or upon the closing of the
transactions contemplated by the REPS Agreement.
6. Benefits.
(a) Fringe Benefits. In addition to the compensation provided
for in Sections 3, 4 and 5, Officer shall be entitled during the Term to such
other benefits of employment with Employer as are now or may after the date of
this Agreement be in effect for (i) salaried officers of Employer or (ii) senior
executives of Employer, including, without limitation, all bonus, incentive and
deferred compensation, pension, stock option, life and other insurance,
disability (insured and uninsured), medical and dental and other benefit plans
or programs; provided, that bonuses, life insurance and disability insurance for
Officer during the Term shall be in amounts and on other terms that are not less
and no less favorable than those provided, on average, by comparable healthcare
and hospital management companies for a comparable officer position.
(b) Expenses. During the Term, Employer shall reimburse Officer
promptly for all reasonable travel, entertainment, parking, business meeting and
similar expenditures
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in pursuit and furtherance of Employer's business upon receipt of reasonable
supporting documentation as required by Employer's policies applicable to its
officers generally.
7. Termination.
(a) Termination Due to Resignation and Termination For Cause. (1)
Officer's employment under this Agreement shall be terminated and, except as
provided in this Section 7, all of his rights to receive salary and other
benefits (except for salary, bonus and other benefits accrued through the date
of termination) shall terminate upon the occurrence of (i) Officer's resignation
other than for "good reason," as defined in Section 7(e), or (ii) termination by
Employer for "cause," as defined below, during the Term. Employer shall have
the right, exercisable upon 30 days' written notice, to terminate, without
liability except as provided in the parenthetical in the preceding sentence,
Officer's employment for "cause" if Officer (i) materially breaches any material
term of this Agreement, (ii) is convicted by a court of competent jurisdiction
of a felony, (iii) refuses, fails or neglects to perform his duties under this
Agreement in a manner substantially detrimental to the business of the Employer,
(iv) engages in illegal or other wrongful conduct substantially detrimental to
the business or reputation of Employer, or (v) develops or pursues interests
substantially adverse to Employer; provided that in the case of clauses (i),
(iii), (iv), or (v), no such termination shall be effective unless (1) Employer
shall have given Officer 30 days' prior written notice of any conduct or
deficiency in performance by Officer that Employer believes could, if not
discontinued or corrected, lead to Officer's termination under this Section 7(a)
in order that Officer shall have had an opportunity to cure such noncomplying
conduct or performance, and (2) Officer shall not have cured such noncomplying
conduct or performance during such notice period.
(2) If this Agreement is terminated due to Officer's resignation
other than for "good reason" as defined in Section 7(e) and if the payment
provided for in Section 4 has not been paid and has not been required to be paid
pursuant to the terms of Section 4, then Employer shall pay to Officer, in
addition to any amounts payable pursuant to Section 7(a)(1), an amount equal to
the result obtained by multiplying (i) the number of options held by Officer as
of October 1, 1995 under Employer's 1992 Stock Option Plan, which options have
not been exercised by Officer between October 1, 1995 and the date of such
termination of this Agreement by (ii) the excess, if any, of (A) $18.00 over (B)
the arithmetic average of the closing sale price per share of Employer's Common
Stock on the New York Stock Exchange (or other exchange or market, as described
in the second paragraph of Section 4) for the ten trading days immediately
preceding the date of termination.
(b) Termination Due to Death or Disability. Officer's
employment and all of his rights to receive salary and other benefits under this
Agreement may be terminated by Employer upon Officer's death, or on 30 days'
written notice from Employer to Officer if Officer has been unable to perform
substantially all of his duties under this Agreement for a period of 180 days,
or can reasonably be expected to be unable to do so for such period, as the
result of physical or mental impairment; provided that upon any termination
pursuant to this Section 7(b), Officer (or in the event of his death, his
estate) shall be entitled to receive the Specified Amount (as defined below),
and such Specified Amount shall be payable in a lump sum on the date of
termination. In addition to the
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Specified Amount, if Officer is terminated due to death or disability, Officer
(or in the event of his death, his estate) shall be entitled to receive the
portion or portions of any bonus or other cash incentive compensation that had
been accrued with respect to Officer on the books of Employer through the date
of termination pursuant to this Section 7(b) or otherwise.
The term "Specified Amount" shall mean the sum of (x) the greater
of (i) the total of all salary payments pursuant to Section 3 that would
thereafter have come due during the Term had there been no such termination or
resignation or (ii) five years' salary pursuant to Section 3, (in each case as
the same may have been extended and assuming a continuation for the remainder of
the Term of then current salary levels); (y), unless the amount described in
this clause (y) has already been paid to Officer pursuant to the provisions of
Section 4, the amount payable to Officer on January 2, 1998, pursuant to
Section 4, except that the references in Section 4 to "December 31, 1997" shall
be changed to the date of termination of this Agreement; and (z), unless the
amount described in this clause (z) has already been paid to Officer pursuant to
the provisions of Section 5, the amount payable to Officer pursuant to Section 5
but only if the conditions described in Section 5 to payment of the amount
payable to Officer pursuant to Section 5 either (1) have been satisfied as of
the date of termination or (2) are satisfied within 180 days after the date of
termination. Any provisions of this Agreement to the contrary notwithstanding,
if a payment is due to Officer pursuant to subclause (2) of clause (z) of the
preceding sentence, the payment of that portion of the Specified Amount shall be
made promptly after satisfaction of the conditions described in Section 5 to
payment of the amount payable to Officer pursuant to Section 5.
(c) Termination Without Cause. Subject to compliance with the
provisions of Section 7(d), Employer shall have the right, exercisable on 30
days' written notice, to terminate Officer's employment under this Agreement
without cause at any time during the Term.
(d) Payments Upon Termination Without Cause. If Officer is
terminated by Employer without cause pursuant to Section 7(c), Officer (i) shall
be entitled to receive the Specified Amount in cash on the date of such
termination; (ii) any stock option or other stock-based compensation plan shall
be governed by the terms of such plans (and any related stock option or similar
agreements); and (iii) the portion or portions of any bonus or other cash
incentive compensation that had been accrued with respect to Officer on the
books of Employer through the date of termination pursuant to this Section 7(d)
or otherwise shall be paid to Officer in cash on the date of such termination.
(e) Termination By Officer For Good Reason. Officer shall be
entitled to terminate his employment for "good reason" and in such event shall
be entitled to all of the salary, benefits and other rights provided in this
Agreement as though the termination was initiated by Employer without "cause".
For purposes of this Agreement, "good reason" shall mean any of the following
events, which event shall continue for 30 days after notice to the Employer,
unless the event occurs with Officer's express prior written consent:
(i) the assignment to Officer of any duties inconsistent with
his status as
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Chairman of the Board of Directors, President and Chief Executive Officer
of Employer or a substantial alteration in the nature or status of his
responsibilities from those in effect immediately prior to October 1, 1995;
(ii) a reduction by Employer in Officer's annual base salary as
in effect from time to time during the Term;
(iii) the failure by Employer to comply with Section 3,
Section 4, Section 5 or Section 6; or
(iv) any other material breach of this Agreement by Employer.
(f) Termination Upon a Change of Control or Failure to Approve
Stock Option Plan. Officer shall be entitled to terminate his employment upon a
change of control or failure to approve stock option plan as described in clause
(c) of this sentence and shall be entitled to (i) all of the salary, benefits
and other rights provided in this Agreement (including those payments provided
under Section 7(d)) as though the termination has been initiated by Employer
without cause, and (ii) a Gross-Up Payment (as defined), to the extent provided
by the second paragraph of this Section 7(f), upon the occurrence of any of the
following events: (a) the acquisition after the date of this Agreement, in one
or more transactions, of beneficial ownership (within the meaning of Rule
13d-3(a)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) by any person or entity (other than Officer) or any group of persons or
entities (other than Officer) who constitute a group (within the meaning of
Section 13(d)(3) of the Exchange Act) of any securities of Employer such that as
a result of such acquisition such person or entity or group beneficially owns
(within the meaning of Rule 13d-3(a)(1) under the Exchange Act) more than 50% of
Employer's then outstanding voting securities entitled to vote on a regular
basis for a majority of the Board; (b) the sale of all or substantially all of
the assets of Employer (including, without limitation, by way of merger,
consolidation, lease or transfer but not including the transactions contemplated
by the REPS Agreement) in a transaction where Employer or the holders of common
stock of Employer do not receive (i) voting securities representing a majority
of the voting power entitled to vote on a regular basis for the Board of
Directors of the acquiring entity or of an affiliate which controls the
acquiring entity, or (ii) securities representing a majority of the equity
interests in the acquiring entity or of an affiliate that controls the acquiring
entity, if other than a corporation; or (c) the failure for any reason of the
stockholders of Employer to approve (in the manner required by the New York
Stock Exchange) on or before September 1, 1997, a non-qualified stock option
plan providing for the granting to officers and employees of Employer and its
subsidiaries of options to purchase at least 1,500,000 shares of Employer's
Common Stock (as adjusted for stock splits, stock dividends and similar changes
in capitalization after the date of this Agreement), which options (i) vest
one-third on each of the first three anniversaries of their date of grant and
(ii) provide for a per share exercise price that is not in excess of the fair
market value of a share of Employer's Common Stock on the date of grant of an
option.
A Gross-Up Payment (as defined) shall be payable upon termination
of
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employment pursuant to this Section 7(f) on and subject to the following terms
and conditions:
(1) If any payment or other benefit (a "Termination Payment") to
Officer under this Section 7(f) is or will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), Employer shall pay to Officer, at the time the applicable
Termination Payment is made, an additional amount (the "Gross-Up Payment") such
that the net amount retained by Officer, after deduction of any Excise Tax on
such Termination Payment and any federal, state and local income tax and Excise
Tax on the Gross-Up Payment, shall be equal to the amount or value of such
Termination Payment. For purposes of determining whether any such Termination
Payment will be subject to the Excise Tax, any other payments or benefits
received or to be received by Officer in connection with an event giving rise to
a Termination Payment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Employer, with any person whose
actions result in a change in control or with any person affiliated with
Employer or such person) shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be treated as being
subject to the Excise Tax. The amount of the Termination Payment that shall be
treated as subject to the Excise Tax shall be equal to the lesser of (i) the
total amount of the Termination Payment or (ii) the amount of excess parachute
payments within the meaning of Sections 280G(b)(1) and (4) of the Code (after
applying the immediately preceding sentence). The full amount of the Gross-Up
Payment shall be treated as being subject to the Excise Tax. The value of any
non-cash benefits or any deferred payment or benefit shall be determined in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
(2) For purposes of determining the amount of any Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
applicable Termination Payment or Gross-Up Payment is made, and shall be deemed
to pay state and local income taxes at the highest marginal rates of taxation in
the state and locality of his residence on the date the applicable Termination
Payment or Gross-Up Payment is made, net of the maximum reduction in federal
income taxes that could be obtained from deduction of such state and local
taxes.
(3) If the Excise Tax or income tax payable with respect to a
Gross-Up Payment as finally determined exceeds the amount taken into account or
paid to Officer at the time the applicable Termination Payment or Gross-Up
Payment is made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the applicable Gross-Up Payment),
Employer shall make an additional Gross-Up Payment in respect of such excess
(plus any interest payable by Officer with respect to such excess) at the time
that the amount of such excess is finally determined.
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8. Confidentiality and Noncompetition.
(a) Confidentiality. Officer acknowledges that, by reason of his
employment with Employer, he may learn trade secrets and obtain other
confidential information concerning the business and policies of Employer and
its subsidiaries. Officer agrees that he will not voluntarily divulge or
otherwise disclose, directly or indirectly, any such trade secrets or other
confidential information concerning the business or policies of Employer or any
of its subsidiaries that he may learn as a result of his employment during the
Term or may have learned prior to the Term, except to the extent such
information is lawfully obtainable from public sources or such use or disclosure
is (i) necessary to the performance of this Agreement and in furtherance of
Employer's best interests, (ii) required by applicable laws, or (iii) authorized
by Employer.
(b) Noncompetition. In order to protect any confidential
information that Officer may learn during the Term and in order to protect any
goodwill that Employer has earned and may earn during the Term, Officer agrees
that, if Officer voluntarily terminates this Agreement without good reason
during the Term, he shall not, at any location in the State of Georgia, for a
period of 12 months after such termination, provide services, as employee,
officer, director, consultant or otherwise, which services are substantially
similar to the hospital management company chief executive officer services
performed by Officer under this Agreement, for any company, firm or entity that
owns and operates (directly or through subsidiaries) more than one hospital and
that owns and operates one or more psychiatric hospitals located in Georgia
within 25 miles of a similar (psychiatric) hospital owned and operated by
Employer and located within the State of Georgia.
9. Miscellaneous.
(a) Succession. This Agreement shall inure to the benefit of
and shall be binding upon Employer, its successors and assigns, but Employer
shall not have the right to assign this Agreement without the prior written
consent of Officer. The obligations and duties of Officer under this Agreement
shall be personal and not assignable.
(b) Notices. Any notice, request, instruction or other document
to be given under this Agreement by any party to the others shall be in writing
and delivered in person or by courier, telegraphed, telexed or sent by facsimile
transmission or mailed by certified mail, postage prepaid, return receipt
requested (such mailed notice to be effective on the date of such receipt is
acknowledged), as follows:
If to Officer:
E. Xxx Xxxxxxxx
000 Xxxx Xxxx, X.X.
Xxxxxxx, Xxxxxxx 00000
If to Employer:
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Magellan Health Services, Inc.
0000 Xxxxxxxxx Xxxx, X.X.
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attn: Secretary
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains the entire
agreement of the parties relating to the subject matter of this Agreement, and
it replaces and supersedes any prior agreements between the parties relating to
said subject matter, including the employment agreement referred to in the first
"WHEREAS" clause of this Agreement.
(d) Waiver; Amendment. No provision of this Agreement may be
waived except by a written agreement signed by the waiving party. The waiver of
any term or of any condition of this Agreement shall not be deemed to constitute
the waiver of any other term or condition. This Agreement may be amended only
by a written agreement signed by the parties.
(e) Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of Georgia.
(f) Arbitration. Except for an action for injunctive relief,
any disputes or controversies arising under this Agreement shall be settled by
arbitration in Atlanta, Georgia in accordance with the rules of the American
Arbitration Association relating to the arbitration of commercial disputes. The
determination and findings of such arbitrators shall be final and binding on all
parties and may be enforced, if necessary, in the courts of the State of
Georgia.
(g) Attorneys' Fees in Action by Employee on Contract. In the
event of litigation or arbitration between Officer and Employer arising out of
or as a result of this Agreement or the acts of the parties pursuant to this
Agreement, or seeking an interpretation of this Agreement, if Officer is the
party in such litigation or arbitration, in addition to any other judgment or
award, he shall be entitled to receive such sums as the court or panel hearing
the matter shall find to be reasonable as and for attorneys' fees.
(h) Remedies of Employer. Officer acknowledges that the
services he is obligated to render under the provisions of this Agreement are of
a special, unique and intellectual character, which gives this Agreement
peculiar value to Employer. The loss of these services cannot be reasonably or
adequately compensated in damages in an action at law and it would be difficult
(if not impossible) to replace such services. Accordingly, Officer agrees and
consents that, if he materially violates any of the material provisions of this
Agreement, including, without limitation, Section 8, Employer, in addition to
any other rights and remedies available under this Agreement or
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under applicable law, shall be entitled during the remainder of the Term (and,
in the case of Section 8, after the Term to the extent provided in Section 8) to
seek injunctive relief, from a court of competent jurisdiction, restraining
Officer from committing or continuing any violation of this Agreement, or from
the performance of services to any other business entity, or both.
(i) Captions. Captions have been inserted solely for the
convenience of reference and in no way define, limit or describe the scope or
substance of any provisions of this Agreement.
(j) Severability. If this Agreement shall be any reason be or
become unenforceable by any party, this Agreement shall thereupon terminate and
become unenforceable by the other party as well. In all other respects, if any
provision of this Agreement is held invalid or unenforceable, the remainder of
this Agreement shall nevertheless remain in full force and effect and, if any
provision if held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect in all
other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MAGELLAN HEALTH SERVICES, INC.
BY: _________________________________
Name:________________________________
Title:_______________________________
/s/ E. Xxx Xxxxxxxx
_____________________________________
E. Xxx Xxxxxxxx
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