EXHIBIT 13
EXECUTION COPY
--------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation
(the "Company"), and Xxxxx X. Xxxxx, a resident of Philadelphia, Pennsylvania
("Employee").
BACKGROUND
----------
The Company desires to provide for Employee's continued employment
with the Company. Employee desires to accept such employment on the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Effective Date. This Agreement shall become effective at the time
--------------
Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined
in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof,
between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to
the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer
Agreement), provided that Employee is employed by the Company at such time. This
Agreement cancels and supersedes any and all prior oral or written agreements
and understandings (the "Prior Agreements") between or among any or all of the
parties hereto with respect to the employment by or obligations of Employee to
any thereof, with the exception of the Employee's obligations under any
restrictive covenants or confidentiality provisions contained in any Prior
Agreement, which covenants and provisions shall survive with respect to the time
period prior to the Effective Date of this Agreement. This Agreement constitutes
the entire agreement among the parties with respect to the matters herein
provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto.
2. Employment. The Company hereby employs Employee as Chairman and
----------
Chief Executive Officer of the
Company and Employee hereby accepts such employment, upon the terms and
conditions set forth in this Agreement.
3. Term. The Company shall employ Employee hereunder for a three (3)
----
year term commencing on the Effective Date hereof (the "Term"), which Term will
be automatically extended for additional one (1) year periods beginning on the
third anniversary of the Effective Date and upon each subsequent anniversary
thereof unless either party provides the other party with at least ninety (90)
days' prior written notice of its intention not to renew this Agreement.
4. Office and Duties.
-----------------
a. Duties. During the Term, Employee shall
------
render such services as are appropriate for a person holding Employee's position
and such additional or alternative duties as may from time to time be assigned
to Employee by the Board of Directors of the Company ("Duties").
5. Full Time Emp1oyment. During the Term,
--------------------
Employee shall use Employee's best efforts to carry out the Duties and other
obligations hereunder and devote Employee's entire working time to the business
and affairs of the Company, and shall not, in any advisory or other capacity,
work for any other individual, firm or corporation without the prior written
consent of the Company.
a. No Conflicting Agreements. Employee
-------------------------
represents and warrants to the Company that he is not subject or a party to any
Agreement, non-competition covenant, non-disclosure agreement or other
agreement, covenant, understanding or restriction which would prohibit Employee
from executing this Agreement or performing fully the Duties and other
obligations hereunder, or which would in any manner, directly or indirectly,
limit or affect the Duties or other obligations hereunder.
b. Base Salary; Short Term Bonus; Options.
--------------------------------------
As compensation for the services that Employee shall render hereunder, Employee
shall be entitled to a total base salary of $460,000 per year ("Base Salary"),
payable at such times as is consistent with the Company's pay periods
-2-
for other executives of the Company. In addition, Employee shall be eligible for
participation in the Company's short term targeted bonus plan in an amount equal
to up to 75% of Base Salary. Subject to approval of the Board of Directors, on
or promptly following the Effective Date, the Company shall grant to Employee an
option to purchase shares of the common stock of the Company under the Company's
Incentive Stock Option Plan for Officers and Key Employees adopted by the Board
of Directors on January 17, 1992 in accordance with the terms outlined on
Schedule A annexed hereto. Employee agrees that the consummation of the
transactions contemplated by the Tender Offer Agreement shall not constitute a
"change in control" for purposes of all of the total of 365,998 outstanding
unvested Company options he will hold as of the Effective Date (the "Deferred
Vesting Options") and hereby waives all rights to the accelerated vesting of the
Deferred Vesting Options that would have occurred upon the consummation of the
transactions authorized by the Tender Offer Agreement (the "Waiver").
Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all
Deferred Vesting Options will immediately vest in the event of (i) the
Employee's death, (ii) the Employee's Disability, (iii) a termination by the
Company of the Employee's employment without cause, (iv) the receipt by the
Employee of notice from the Company of nonrenewal of the Agreement, (v) a
voluntary resignation by the Employee following a required relocation of the
Employee's principal place of business by more than fifty miles, or (vi) a
failure by the Company to pay the compensation authorized by this Agreement,
provided that Employee has given the Company notice of such breach and the
Company has not cured such breach within thirty days of receipt of such notice
(a "Material Breach").
6. Other Benefits. During the Term, Employee
--------------
will be eligible to receive the following benefits (collectively, "Benefits"):
a. Savings and Retirement Plans.
----------------------------
Participation in all savings, pension and retirement plans and programs of the
Company generally available to other executives of the Company as in effect from
time to time;
b. Welfare Plans. Participation in any welfare benefit plans and
-------------
programs of the Company as in effect from time to time;
-3-
c. Life Insurance. Life insurance
--------------
maintained by the Company on the life of Employee (naming the beneficiary of
Employee's choice) in an amount consistent with policy of the Company as in
effect from time to time;
d. Vacation. Paid vacation (taken
--------
consecutively or in segments) in accordance with the Company's policies
generally applicable to other executives of the Company from time to time, taken
at such times as is reasonably consistent with proper performance by Employee of
Employee's duties and responsibilities hereunder; and
e. Car Allowance. The Company shall
-------------
continue to provide a car allowance or use of an automobile to Employee,
including all reasonable expenses of operation, consistent with the car
allowance that is presently provided to Employee.
7. Reimbursement for Expenses. During the Term,
--------------------------
the Company shall reimburse Employee in full for all reasonable and necessary
business and travel expenses incurred by him in connection with the performance
of the Duties (collectively, "Expenses"). Notwithstanding any provision herein
to the contrary, the Company shall reimburse Employee only (i) upon presentation
by Employee of written vouchers or expense statements satisfactorily evidencing
such expenses as may be reasonably required by the Company and (ii) if such
expenses are in accordance with the Company's policies generally applicable to
executives of the Company.
8. Termination.
-----------
a. Death or Disability. Subject to Section
-------------------
8.d. below, this Agreement shall terminate immediately upon Employee's death.
Subject to Section 8.d. below, the Company may terminate Employee's employment
hereunder in the event of physical or mental incapacity or disability which
renders Employee unable to perform the Duties for a period of one hundred twenty
(120) days or more during any period of twelve (12) consecutive months
("Disability").
b. Termination for Cause. Subject to
---------------------
Section 8.d. below, the Company may terminate this Agreement at any time with
cause upon written notice to
-4-
Employee. Termination for "cause" shall mean discharge of the Employee by the
Company on any of the following grounds:
(i) Employee's indictment or conviction in a court of
law of any crime or offense that makes Employee unfit for continuing employment,
prevents Employee from performing the Duties or other obligations hereunder or
adversely affects the reputation or business activities of the Company;
(ii) Employee's dishonesty, substance abuse or
misappropriation of funds; or
(iii) Employee's failure or refusal to
perform the Duties or other obligations hereunder.
c. Resignation. Subject to Section 8.d.
-----------
below, Employee may resign from his employment hereunder by giving the Company
six (6) months' prior written notice.
d. Obligations of the Company Upon
-------------------------------
Termination.
-----------
(1) Termination for Cause; Resignation;
----------------------------------
Death or Disability. If the Company terminates Employee's employment hereunder
-------------------
for cause, or if Employee resigns, or if Employee dies or suffers a Disability,
the Company shall have no further obligations to Employee hereunder other than
for the payment of (i) accrued but unpaid salary prorated through the date of
termination or effective date of resignation ("Accrued Salary"), (ii) any
Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed
Expenses incurred prior to such date.
(2) Termination Without Cause, Upon
-------------------------------
Required Relocation or Material Breach. If (i) the Company terminates
--------------------------------------
Employee's employment hereunder without cause or (ii) if the Employee
voluntarily terminates his employment following a required relocation of his
principal place of business by more than 50 miles or following a Material
Breach, the Company shall have no further obligation to Employee hereunder other
than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x)
2 multiplied by (y) the sum of all cash compensation awarded to Employee in the
fiscal year immediately prior to
-5-
termination, or if Employee's compensation was higher or would be higher on an
annualized basis, in the fiscal year in which such termination takes place,
(iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the
date of termination.
9. Restrictive Covenants and Confidentiality;
-----------------------------------------
Injunctive Relief.
-----------------
a. As a condition to the performance by the Company of its
obligations hereunder so long as Employee remains an employee of the Company,
and for a period of two (2) years thereafter, Employee shall not, without the
prior written approval of the Board of Directors of the Company, directly or
indirectly through any other person, firm or corporation, whether individually
or in conjunction with any other person, or as an employee, agent,
representative, partner or holder of any interest in any other person, firm,
corporation or other association:
(i) solicit, entice or induce any person, firm or corporation
who or which presently is, within eighteen (18) months prior hereto was, or at
any time during the Term shall be, a client or customer of the Company or any of
its subsidiaries to become a client or customer of any other person, firm or
corporation, and Employee shall not approach any such person, firm or
corporation for such purpose or authorize or knowingly approve the taking of
such actions by any other person; or
(ii) solicit, entice, induce or hire any person who presently
is, within eighteen (18) months prior hereto was, or at any time during the term
hereof shall be an employee of the Company or any of its subsidiaries to become
employed by any other person, firm or corporation, and Employee shall not
approach any such employee for such purpose or authorize or knowingly approve
the taking of such actions by any other person; or
(iii) compete with, or encourage or assist others to compete
with, or solicit orders or otherwise participate in business transactions in the
electronic transcription services and health information management solutions
services businesses anywhere within the United States (each, a "Competing
Business"); or
-6-
(iv) lend any credit or money for the purposes of
establishing or operating or assisting any Person to establish or operate a
Competing Business, or otherwise give aid or advice to any other person or
entity engaging in any Competing Business; or
(v) lend or allow his professional skill, knowledge or
experience to be so used by any person or entity which is engaged in a Competing
Business.
Nothing in the foregoing shall prohibit Employee from engaging in any
business that is not a Competing Business after termination of Employee's
employment with the Company, or investing in the securities of any corporation
(including a Competing Business) having securities listed on a national security
exchange, provided that such investment does not exceed 5% of any class of
securities of any corporation engaged in business in competition with the
Company, and provided that such ownership represents a passive investment and
that neither Employee nor any group of persons including Employee, in any way,
either directly or indirectly, manages or exercises control of any such
corporation, guarantees any of its financial obligations, otherwise takes any
part in its business, other than exercising Employee's rights as a shareholder,
or seeks to do any of the foregoing.
b. Employee acknowledges that during the Term, Employee will have
access to confidential information of the Company, including plans for future
developments, and information about costs, customers, potential customers,
profits, markets, sales, products, key personnel, pricing policies, operational
methods, technical processes and other business affairs and methods and other
information not available to the public or in the public domain (hereinafter
referred to as "Confidential Information"). In recognition of the foregoing,
Employee covenants and agrees that, except as required by Employee's duties to
the Company, Employee will keep secret all Confidential Information and will
not, directly or indirectly, either during the Term or at any time thereafter,
disclose or disseminate to anyone or make use of, for any purpose whatsoever,
any Confidential Information, and upon termination of Employee's employment,
Employee will promptly deliver to the Company all tangible materials containing
Confidential Information (including
-7-
all copies thereof, whether prepared by Employee or others) which Employee may
possess or have under Employee's control.
c. Employee represents (i) that Employee's experience and
capabilities are such that the restrictions contained herein will not prevent
Employee from obtaining employment or otherwise earning a living at the same
general economic benefit as reasonably required by Employee and (ii) that
Employee has, prior to the execution of this Agreement, reviewed this Agreement
thoroughly with Employee's legal counsel.
d. Employee acknowledges that the services to be rendered by Employee
are special, unique and extraordinary, that the restrictions contained in this
Section 9 are reasonable and necessary to protect the legitimate business
interests of the Company and that the Company and Parent would not have entered
into the Tender Offer Agreement in the absence of such restrictions. By reason
of the foregoing, Employee consents and agrees that if Employee violates any of
the provisions of this Section 9, the Company would sustain irreparable harm
and, therefore, irrevocably and unconditionally agrees that in addition to any
other remedies which the Company may have under this Agreement or otherwise, all
of which remedies shall be cumulative, the Company shall be entitled to apply to
any court of competent jurisdiction for preliminary and permanent injunctive
relief and other equitable relief. In the event that any of the provisions of
this Section 9 hereof should ever be adjudicated to exceed the time, geographic,
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, service, or other limitations permitted by applicable
law.
e. Employee agrees that the Company may provide a copy of this
Agreement to any business or enterprise (i) which the Employee may directly or
indirectly own, manage, operate, finance, join, control or participate in the
ownership, management, operation, financing, or control of, or (ii) with which
Employee may be connected with as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise, or in connection with
which Employee may use or
-8-
permit Employee's name to be used. Employee will provide the names and addresses
of any of such persons or entities as the Company may from time to time
reasonably request.
f. In the event of any breach or violation of the restriction
contained in Section 9.a. above, the period therein specified shall xxxxx during
the time of any violation thereof and that portion remaining at the time of
commencement of any violation shall not begin to run until such violation has
been fully and finally cured.
g. Employee acknowledges that the Company shall be the sole owner
of all the results and proceeds of Employee's services hereunder, including but
not limited to, all inventions, developments, enhancements, discoveries and
other improvements relating to equipment, methods or processes connected with or
useful to the Company's and its subsidiaries' businesses, (collectively, the
"Developments"), which Developments Employee, by himself or in conjunction with
any other person or entity, may conceive, make, acquire, acquire knowledge of,
develop or create in connection with and during the term of or prior, to
Employee's employment hereunder, free and clear of any claims by Employee (or
any successor or assignee of Employee) of any kind or character whatsoever other
than Employee's right to compensation hereunder. Employee hereby assigns and
transfers his right, title and interest in and to all such Developments, and
agrees that he shall, at the request of the Company, execute such assignments,
certificates or other instruments, and do any and all other acts, as the Company
from time to time reasonably deems necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend the Company's right,
title and interest in or to any such Developments. Employee acknowledges that
any Development which may be copyrightable shall be deemed to be "work for
hire."
10. Survival. The provisions of Section 9 shall
--------
survive the termination of this Agreement for any reason whatsoever.
11. Certain Additional Payments by the Company
------------------------------------------
a. Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment, award, benefit or
distribution
-9-
(or any acceleration of any payment, award, benefit or distribution) by the
Company (or any of its affiliated entities) to or for the benefit of Employee
(whether pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section 11) (the
"Payments") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay to Employee an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of
(x) the Excise Tax imposed upon the Payments and (y) the product of any
deductions disallowed because of the inclusion of the Gross-Up Payment in
Employee's adjusted gross income and the highest applicable marginal rate of
federal income taxation for the calendar year in which the Gross-Up Payment is
to be made. For purposes of determining the amount of the Gross-Up Payment, the
Employee shall be deemed to (i) pay federal income taxes at the highest marginal
rates of federal income taxation for the calendar year in which the Gross-Up
Payment is to be made, (ii) pay applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-Up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes and (iii)
have otherwise allowable deductions for federal income tax purposes at least
equal to those which could be disallowed because of the inclusion of the Gross-
Up Payment in the Employee's adjusted gross income. Notwithstanding the
foregoing provisions of this Section 11(a), if it shall be determined that
Employee is entitled to a Gross-Up Payment, but that the Payments would not be
subject to the Excise Tax if the Payments were reduced by an amount that is less
than 10% of the portion of the Payments that would be treated as "parachute
payments" under Section 280G of the Code, then the amounts payable to Employee
under this Agreement shall be reduced (but not below zero) to the maximum amount
that could be paid to Employee without
-10-
giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment
shall be made to Employee. The reduction of the amounts payable hereunder, if
applicable, shall be made by reducing first the payments under Section 8(d)(ii),
unless an alternative method of reduction is elected by Employee. For purposes
of reducing the Payments to the Safe Harbor Cap, only amounts payable under this
Agreement (and no other Payments) shall be reduced. If the reduction of the
amounts payable hereunder would not result in a reduction of the Payments to the
Safe Harbor Cap, no amounts payable under this Agreement shall be reduced
pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall
not apply to any stock option grant if the result of the application of such
Section 11 would be to alter the basis on which compensation expense is measured
for purposes of APB Opinion Number 25.
b. Subject to the provisions of Section 11(a), all determinations
required to be made under this Section 11, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment, the reduction of the
Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving
at such determinations, shall be made by the public accounting firm that is
retained by the Company as of the date immediately prior to the Change in
Control (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Employee within fifteen (15) business days
of the receipt of notice from the Company or the Employee that there has been a
Payment, or such earlier time as is requested by the Company (collectively, the
"Determination"). In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in Control,
Employee may appoint another nationally recognized public accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company and the Company shall enter
into any agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-Up Payment under this Section
11 with respect to any Payments shall be made no later than thirty (30) days
following such Payment. If the Accounting Firm determines that no Excise Tax is
payable by Employee, it
-11-
shall furnish Employee with a written opinion to such effect, and to the effect
that failure to report the Excise Tax, if any, on Employee's applicable federal
income tax return will not result in the imposition of a negligence or similar
penalty. In the event the Accounting Firm determines that the Payments shall be
reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion
to such effect. The Determination by the Accounting Firm shall be binding upon
the Company and Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the Determination, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment") or Gross-Up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations required to
be made hereunder. In the event that the Employee thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the
benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the
amount necessary to reimburse the Employee for his Excise Tax, the Accounting
Firm shall determine the amount of the Overpayment that has been made and any
such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has
received a refund if the applicable Excise Tax has been paid to the Internal
Revenue Service) to or for the benefit of the Company. Employee shall cooperate,
to the extent his expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
12. Miscellaneous.
-------------
a. Any notice authorized or required to be given or made by or
pursuant to this Agreement shall be made in writing and either personally
delivered or mailed by overnight express mail to the respective address of the
party to receive such notice, which address is the one designated below the
signature of such party hereto, or to such other address as a party may specify
by notice to the
-12-
other parties hereto. In the event that the Company desires to terminate
Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall
provide Employee with prompt written notice of such termination and, if
requested by Employee, afford Employee a reasonable opportunity to cure such
default within sixty (60) days after receipt of such notice.
b. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that the duties and responsibilities of Employee
hereunder are of a personal nature and shall not be assignable or delegatable in
whole or in part by Employee.
c. If any provision of this Agreement or application thereof to
anyone or under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provision or application of this Agreement which can be given effect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable such provision or application in any other
jurisdiction.
d. No remedy conferred upon any party by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission by any
party in exercising any right, remedy or power hereunder or existing at law or
in equity shall be construed as a waiver thereof, and any such right, remedy or
power may be exercised by the party possessing the same from time to time and as
often as may be deemed expedient or necessary by such party in its sole
discretion.
e. This Agreement may be executed in several counterparts, each
of which is an original. It shall not be necessary in marking proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts.
-13-
f. In the event of a lawsuit by either party to enforce any
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable costs, expenses and attorney's fees from the other party.
13. Controlling Law. The validity,
---------------
interpretation, construction, performance and enforcement of this Agreement
shall be governed by the laws of the State of New Jersey, without reference to
principles of conflicts of laws. Venue, for purposes of all causes of action,
mediation, arbitration or other disputes shall be in Camden County, New Jersey.
14. Gender; Number. In this Agreement, words of
--------------
gender may be read as masculine, feminine, or neuter, as required by context.
Words of number may be read as singular or plural, as required by context.
-14-
IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
EMPLOYEE
/s/ Xxxxx X. Xxxxx
----------------------------------
Xxxxx X. Xxxxx
MEDQUIST INC.
/s/ Xxxx X. Xxxxxxx
----------------------------------
Title: Senior Vice President
MedQuist Inc.
Xxxx Xxxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxx Xxxxxx 00000
-15-
