EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered as of this 8th day of
January, 1999 ("Effective Date"), by and between Mid Atlantic Medical Services,
Inc., a Delaware corporation with its principal executive offices at 0 Xxxx
Xxxxx, Xxxxxxxxx, Xxxxxxxx 00000 ("Company"), and Xxxxxx X. Xxxx ("Executive");
WHEREAS, the Company wishes to assure itself of the services of
Executive for the period provided in this Agreement, and Executive is willing to
serve in the employ of the Company on a full-time basis for said period;
WHEREAS, the Company and Executive desire to set forth the amounts
payable and benefits to be provided by the Company to Executive in the event of
a termination of Executive's employment with the Company under the circumstances
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. Employment. The Company agrees to continue Executive in its employ,
and Executive agrees to remain in the full time employ of the Company, for
the period stated in Section 3 hereof and upon the other terms and
conditions herein provided.
2. Position and Responsibilities. The Company employs Executive, and
Executive agrees to serve, as Senior Executive Vice President of the
Company on the conditions hereinafter set forth. Executive agrees to
perform such services consistent with his position as shall from time to
time be assigned to him by the Company's Chief Executive Officer, the
Company's Board of Directors ("Board"), or another executive designated by
the Board. Such duties may include the appointment of Executive as an
officer and/or director of any present or future subsidiary or affiliate of
the Company without any additional remuneration under this Agreement.
Executive shall devote all of his business time, attention, skill, and
efforts to the faithful performance of the duties hereunder.
3. Term. The period of Executive's employment under this Agreement
with the Company (i) shall commence as of the Effective Date and remain in
effect for three (3) years after the date of the approval by the Board of
Directors of a permanent Chairman of the Board and a permanent Chief
Executive Officer and President, whichever date is later. Notwithstanding
the above, in no event will this Agreement continue beyond January 1, 2003
unless the term is extended by consent of the parties.
4. Compensation and Reimbursement of Expenses. For all services
rendered by Executive in any capacity during employment under this
Agreement (including, without limitation, services as an executive,
officer, or director of the Company, or any subsidiary or affiliate of the
Company, or as a member of any committee of the Board of Directors of the
Company or any subsidiary or affiliate of the Company), the Company shall
pay Executive as compensation (A) an annual salary ("Base Salary") and (B)
such bonus for such period, if any, as may be awarded to Executive from
time to time pursuant to any Bonus Plan adopted by the Company for its
senior management or otherwise awarded by the Board or by a committee
designated by the Board. Base Salary for the first year of this Agreement
shall be not less than the rate at which Executive is compensated on the
Effective Date which is $400,000. Thereafter, Base Salary shall be adjusted
annually. For 2000 and each year thereafter, the Executive Base Salary will
increase or decrease by an amount equal to 50% of the percentage change in
the Company's consolidated net income as determined by the Company, and
audited by the Company's independent certified public accountant but any
annual increase may not be greater than 20 percent and any annual decrease
may not be greater than 10 percent. This increase or decrease would first
apply to the year 2000 and would take effect retroactively to January 1 of
the then current year. Items of a non-recurring nature may be excluded in
the calculations as mutually agreed to by the Company and the Executive. By
action of the Board on February 25, 1999, the Company will grant Executive
75,000 shares of MAMSI stock options as of that date. Such options will
vest on the date of the February 2000 Board meeting on the following
prorata basis over a period to be determined by the percentage increase of
1999 earnings per share over 1998 earnings per share as adjusted for one
time items and as determined by the Board at its February 2000 meeting at
which 1999 audited earnings are announced:
1999 EPS % Increase Vesting Dates of Vesting
up to 0-16% 5 years 1/5 in 2/2000; 1/5 in
$0.51 2/2001; 1/5 in 2/2002;
1/5 in 2/2003;
1/5 in 2/2004
$0.54 23% 4 years 1/4 in 2/2000; 1/4 in
2001; 1/4 in 2/2002;
1/4 in 2/2003
$0.57 30% 3 years 1/3 in 2/2000; 1/3 in
2/2001; 1/3 in 2002
$0.60 36% 2 years 1/2 in 2/2000; 1/2 in
2/2001
0.63 43% 1 year All in 2/2000
or more
For the purposes of the above calculation, the 1998 earnings per
share is established at $.44 per share. The Company shall also reimburse
Executive, in accordance with such policies and procedures as the Board may
establish from time to time, for all reasonable travel and other expenses
incurred by Executive in the performance of his obligations under this
Agreement. Executive shall also be entitled to participate in any benefit plans
established by the Company for which Company executives are or shall become
eligible.
5. Termination of Employment. Executive's employment under this
Agreement may be terminated by the Company or Executive as follows:
(a) Disability. (i) If Executive fails to perform his duties
under this Agreement on account of Disability (as hereinafter
defined), the Company may give notice to Executive to terminate this
Agreement on a date not less than thirty (30) days thereafter ("Notice
Period") and, if Executive has not resumed full performance of his
duties under this Agreement within such Notice Period, then
Executive's employment under this Agreement will terminate on the date
provided in the notice ("Disability Termination Date").
(ii) During any period of Disability, the Company shall
maintain and pay for health and other insurance benefits for Executive
at least equal to those he had at the commencement of such Disability.
(iii) As used in this Agreement, the term "Disability" shall
mean the inability of Executive to perform his duties under this
Agreement by reason of his medical disability, as determined by an
independent physician selected with the approval of the Board and
Executive.
(b) Death. If Executive dies while employed under this Agreement,
his employment under this Agreement will terminate as of the date of
his death ("Date of Death"). Within thirty (30) days after the Date of
Death, the Company shall pay to Executive's legal representative
Executive's Base Salary as then in effect that has accrued to the last
day of the month in which the Date of Death occurs. If the Executive
dies while receiving payments pursuant to Section 5(c) below, said
payment shall continue for the period remaining and shall be paid to
the estate of the Executive.
(c) Certain Other Events of Termination. In the event that (i)
the Company terminates Executive's employment for any reason (other
than because of death, Disability, or "just cause" (as hereinafter
defined), (ii) Executive terminates his employment with the Company
because of the Company's material breach of this Agreement (iii)
Executive terminates his employment with the Company because the
Company requires Executive to be based anywhere other than Executive's
current location or within seventy-five (75) miles round trip of the
Company's principal executive offices (except for required travel on
the Company's business), or (iv) Executive terminates his employment
with the Company because of a substantial reassignment of duties and
responsibilities unrelated to a change in control as defined below,
then the Company shall pay Executive an amount equal to 12 months Base
Salary, as adjusted pursuant to Section 4, paid in equal bi-weekly
payments over a period of one year commencing on the Executive
Termination Date and in accordance with the regular payroll practices
of the Company. The Company shall also pay Executive any pro-rata
bonus that the Executive would have been entitled to had he been
employed until the end of the year. Such bonus payment shall occur
when bonuses are normally paid by the Company. In addition, all stock
options which Executive has been granted shall immediately vest and
become exercisable under the terms of the applicable plan. For the
purposes of the time period available for exercising such stock
options, Executive shall be considered an employee of the Company
unless terminated pursuant to subsection (e) below. Payment made
pursuant to this paragraph shall be the exclusive remedy provided to
Executive and Executive shall not be entitled to any other severance
benefit that the Company may provide or adopt unless approved by the
Board of Directors of the Company.
(d) Retirement. Executive shall be entitled to terminate his
employment with the Company on, or at any date after, a date on which
he is at least sixty-five (65) years old. Any date on which Executive
elects to retire shall be referred to as the "Retirement Termination
Date." The Company shall pay to Executive his Base Salary as then in
effect that has accrued to the last day of the month in which the
Retirement Termination Date occurs.
(e) Termination by the Company for Just Cause.
(i) The Company may terminate Executive's employment for
"just cause" at any time by giving written notice thereof to
Executive. (Except as provided below, the date of such notice is
the "Just Cause Termination Date" unless otherwise provided in
the notice). Within thirty (30) days after the Just Cause
Termination Date, the Company shall pay to Executive his Base
Salary as then in effect that has accrued to the Just Cause
Termination Date. For the purposes of this subparagraph, "just
cause" shall mean termination because of Executive's personal
dishonesty, willful misconduct, breach of fiduciary duty,
intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or
similar offenses), or material breach of any provision of this
Agreement. Unless otherwise determined by the Board, Executive
shall have no right to receive compensation or other benefits
under this Agreement after a termination for just cause.
(ii) Notwithstanding the foregoing, Executive shall not be
deemed to have been terminated for just cause pursuant to this
Section 6(e) unless and until he shall have received a copy of a
resolution duly adopted by the affirmative vote of a majority of
the Board, at a meeting held for that purpose, declaring that in
the good faith opinion of the Board one or more of the conditions
set forth in clause (i) of this Section 6(e) has occurred and
specifying the particulars thereof.
f. Termination by Executive Without Cause. Executive may terminate
this Agreement without cause upon the provision of two weeks' prior written
notice to the Company. Upon such a termination, the following payments will
be made by the Company to the Executive:
1. If Executive elects such a termination between the
Effective Date of this Agreement and the first date of work of
either the permanent Chairman of the Board, the permanent Chief
Executive or the permanent President, the Executive would receive
no benefits under this Agreement.
2. If the Executive elects such a termination after the
first date of work of either the permanent Chairman, permanent
Chief Executive Officer or the permanent President, the Executive
would receive the same payment as a termination pursuant to
Section 5(c) above.
6. Change in Control. Notwithstanding any other provision to the contrary,
the following provisions will govern in the event of a change in control as
defined herein.
a. A change in control shall be deemed to have occurred if, at any
time, (I) substantially all the assets of the Company shall have been sold
or transferred by sale, merger or otherwise, or if any "person" (as such
term is used in Sections 13(d) or 14(d) of the Exchange Act) is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the then-existing
outstanding securities of the Company; and (ii) the Executive is reassigned
without his concurrence to another position in the Company within 6 months
of such sale, merger or other event. No change in control shall be deemed
to have occurred if the reassignment is on a temporary basis and is
attributable to the Executive's illness or other physical, mental or
emotional disability or incapacity.
b. In the event of a change in control as defined in Section 6(a)
above, Executive shall be entitled to a lump sum payment which shall be
equal to two times the Executive's base salary and two times the amount
equal to the maximum bonus the Executive could have earned under the
applicable bonus plan for the year in which such change in control occurs
in lieu of payment under the bonus plan. Upon payment of the lump sum
provided under this subsection, the obligations of the Company to employ
Executive under this Agreement shall cease. However, if the event which
triggers the application of this provision occurs in calendar year 2002,
the Executive shall receive compensation under Section 5(c) above as full
compensation.
c. In the event of a change in control as defined in subsection 6(a),
all stock options to which Executive has been granted shall immediately
vest and become exercisable. Such acceleration of the vesting of stock
options shall be in addition to, and shall have no affect on, any payments
accrued pursuant to subsection 6(b).
d. The value of all payments, benefits and other consideration
received pursuant to subsections 6(b) and 6(c) and contingent upon a change
in control, and any additional payments in the nature of compensation
described by Section 280G(b)(2) of the Internal Revenue Code, shall not
exceed an amount which is equal to three times the average taxable
compensation from the Company for the "base period" as that term is defined
in Section 280G(d)(2) of the Internal Revenue Code. The parties agree to
review the impact of the termination of the Agreement pursuant to Section
6, and to negotiate modifications, if mutually acceptable, in situations
where the results to the Executive and to the Company are not compatible.
7. Confidential Information. Executive shall fully comply with and abide
by the provisions of the Company's Employee Manual and other announced policies
in effect from time to time, including those provisions relating to the
protection of the Company's confidential information. The Company and Executive
agree that the foregoing provision shall survive the termination of this
Agreement for any reason whatsoever.
8. Indemnification. Employee shall be entitled to indemnification to the
full extent allowed by the Company's Certificate of Incorporation and Bylaws for
third party claims and to advances for expenses in defending against such
claims.
9. General Provisions.
(a) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto and supersedes any prior employment agreement between
the Company and Executive.
(b) No Duty to Mitigate. Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise, nor shall any amounts received from other employment or
otherwise by Executive offset in any manner the obligations of the Company
hereunder.
(c) Nonassignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof is assignable by
Executive, his beneficiaries, or legal representatives without the Company's
prior written consent; provided, however, that nothing in this Section 11(d)
shall preclude (i) Executive from designating a beneficiary to receive any
benefit payable hereunder upon his death, or (ii) the executors, administrators,
or other legal representatives of Executive or his estate from assigning any
rights hereunder to the person or persons entitled thereto.
(d) Notices. All notices and 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 delivered personally or sent by certified mail, return
receipt requested, first-class postage prepaid, to the parties to this Agreement
at the following addresses:
(i) if to the Company at:
Mid Atlantic Medical Service, Inc.
0 Xxxx Xxxxx
Xxxxxxxxx, XX 00000
and
(ii) if to Executive at the address set forth on the signature
page. or to such other address as either party to this Agreement shall have last
designated by notice to the other party. All such notices and communications
shall be deemed to have been received on the earlier of the date of receipt or
the third business day after the date of mailing thereof.
(e) Binding Effect; Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended or shall be construed to give any person, other than the parties to
this Agreement or their respective successors or permitted assigns, any legal or
equitable right, remedy, or claim under or in respect of any agreement or any
provision contained herein.
(f) Waiver. No provision of this Agreement may be amended, waived,
discharged, or terminated except by an instrument in writing and executed by
each party. Any waiver of enforcement of any provision of this Agreement shall
not operate or be construed as a continuing waiver or a waiver of any other
provisions unless expressly stated in such instrument.
(g) Amendment. This Agreement may be terminated, amended, modified, or
supplemented only by a written instrument executed by Executive and the Company.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware, regardless of the law that
might be applied under principles of conflict of laws.
(i) Severability. If, for any reason, any provision of this Agreement
is held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall, to the full
extent consistent with law, continue in full force and effect. If any provision
of this Agreement shall be held invalid in part, such invalidity shall in no way
affect the rest of such provision not held so invalid, and the rest of such
provision, together with all other provisions of this Agreement, shall to the
full extent consistent with law continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and Executive has signed this Agreement, all as of the Effective
Date.
ATTEST: MID ATLANTIC MEDICAL SERVICES, INC.
By:/s/Xxxxxx X. Xxxxxxx
(Corporate Seal) Name:Xxxxxx X. Xxxxxxx
Title:President and CEO
WITNESS EXECUTIVE:
/s/Xxxx X. Xxxxxx /s/ Xxxxxx X. Xxxx
Address: 0 Xxxx Xx.
Xxxxxxxxx, XX 00000
