EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of October 1, 1997 by
and between MEDCATH INCORPORATED, a North Carolina corporation (the "Company")
and XXXXXXX X. XXXXXXX ("Xxxxxxx"), a resident of Charlotte, North Carolina.
WHEREAS, the Company desires to employ Xxxxxxx and Xxxxxxx desires to
accept that employment;
NOW, THEREFORE, it is agreed as follows:
1. Employment. For new and very valuable consideration described herein,
the Company employs Xxxxxxx and Xxxxxxx accepts employment upon the terms and
conditions hereinafter set forth.
2. Duties. Xxxxxxx shall be Senior Vice President - Development and Managed
Care of the Company and shall have such duties as shall be assigned to him from
time to time by the Board of Directors of the Company.
During the term of employment hereunder, Xxxxxxx shall not be engaged in
any other business activity whether or nor such business activity is pursued for
gain, profit, or other pecuniary advantage unless agreed upon by the Board of
Directors of the Company; provided that this provision shall not prevent
Xxxxxxx from investing his personal assets in businesses which do not compete
with the Company and which will not require substantial services on the part of
Xxxxxxx in the operation of the affairs of the companies in which such
investments are made.
3. Compensation. For and in consideration of the services to be rendered by
Xxxxxxx hereunder, the Company shall pay to Xxxxxxx during the term of this
Agreement compensation described is follows:
(a) Base Salary. The Company shall pay to Xxxxxxx an annual base salary
(herein "Base Salary") of One Hundred Eighty Thousand Dollars ($180,000.00) as
of July 1, 1997 which shall be paid on a monthly basis.
(b) Cash Bonus Compensation. In addition to the Base Salary, the Company
shall also pay to Xxxxxxx annually bonus compensation (herein "Bonus") which
will be paid within 45 days of the end of each fiscal year of the Company during
the term of this Agreement. The Bonus for each fiscal year of the Company will
be tied to the Company's earnings per share as reported in its annual financial
statements before any extraordinary items set forth therein (herein "EPS") and
the annual EPS target for that year (herein "EPS Target") as established by
Management and the Board of Directors. At the beginning of each fiscal year,
Management and the Board of Directors shall establish an EPS Target for that
year. At the end of each fiscal year, Xxxxxxx shall be paid a Bonus based upon
the following formula:
If the Company's actual EPS is 80% of the EPS Target or greater (the
comparative percentage of the EPS to the EPS Target is referred to herein as
the "Bonus Growth Percentage"), then Xxxxxxx'x Bonus shall be the Bonus Growth
Percentage multiplied times 50% of Xxxxxxx'x Base Salary for the fiscal year
then ended, subject to a maximum Bonus Growth Percentage of 120%. If the Bonus
Growth Percentage is less than 80%, no Bonus will be earned or paid.
(c) Base Salary Compensation. The Company recognizes that Xxxxxxx has made
substantial contributions to the success of the Company and therefore he may
also receive such increases to Base Salary and Bonus Compensation as the Board
of Directors may determine from time to time based upon recommendations of the
Compensation Committee of the Board of Directors In that regard, the Company
agrees that at all times, Xxxxxxx'x base salary shall be no less than the median
base salary of vice president - development for companies of comparable size to
Medcath.
4. Incentive Stock Options. Annually during the term of this Agreement, the
Company shall grant to Xxxxxxx options to purchase additional stock of the
Company, which options shall vest 25% in the year earned and 25% in each year
for the following three years, on the following terms and conditions:
(a) Number of Shares Granted. In determining the number of shares
contained in each annual option grant, the following definitions shall
apply:
(i) "EPS" shell be as defined in Paragraph 3(b) above;
(ii) "EPS Growth Target Percentage" shall be 10% for each fiscal
year during the term of this Agreement;
(iii) "Actual Growth Percentage" shall mean the percentage by
which the EPS for a fiscal year exceeds the EPS for the immediately
preceding fiscal year.
(iv) "Outstanding Shares" means the number of common shares of
the Company outstanding based on the same figures used by the Company
in calculating EPS for the applicable fiscal year;
(v) "Bonus Percentage" for each applicable fiscal year shall be
5%.
The Company shall grant to Xxxxxxx each year during the term of this Agreement
the option to purchase the number of shares calculated by subtracting the EPS
Growth Target Percentage of 10% from the Actual EPS Growth Percentage and
multiplying that percentage times the Outstanding Shares, and multiplying that
quotient times the Bonus Percentage. (For example, if the Actual EPS Growth
Rate calculation for a fiscal year is 17.6%, and the outstanding shares of the
Company are 11,600,000 shares, then Xxxxxxx for that fiscal year would earn an
option to
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purchase 44,080 shares [the formula as applied in this example is as follows:
.176 minus 10 equals .076 times 11,600,000 shares times .05 equals 44,080
shares]). Xxxxxxx'x maximum Incentive Stock Option Grant for each year covered
under the Agreement will be limited to no more than 0.83% of the shares of the
Company outstanding in that fiscal year and to no more than 2.02% of the shares
of the Company outstanding for the three year period covered by this Agreement,
such limits to exclude shares and Incentive Stock Option Grants owned by Xxxxxxx
as of the date of this Agreement.
(b) Purchase Price of Shares. For any options granted hereunder, the
purchase price of the stock shall be the market price or 10% above the
market price based upon regulations covering the granting of the option.
(c) Exercise of Options. The time for exercising all options ranted
hereunder shall be the maximum time period allowed by law.
5. Miscellaneous Benefits. The Company shall provide Xxxxxxx with all
additional benefits during the period of his employment substantially equivalent
to those which are generally provided to the executive officers of the Company.
The Company shall reimburse Xxxxxxx for reasonable expenses incurred by him in
the course of his employment with the Company provided those expenses are
consistent with reasonable policies provided from time to time by the Company's
Board of Directors.
6. Term and Termination of Employment.
(a) This Agreement shall have a term of three (3) years commencing as of
the date hereof and shall be renewed automatically upon the expiration of such
term for consecutive one year terms unless either party gives the other notice
of nonrenewal at least 90 days prior to the end of the then current term,
(b) By the Company for Cause. The Company shall have the right to terminate
Xxxxxxx'x employment for cause as provided herein by giving written notice
thereof. "Cause" shall mean that Xxxxxxx commits a wilfull act of fraud or
dishonesty toward the Company; is convicted of criminal felony resulting in a
jail sentence (whether or not such sentence is suspended); materially violates a
material term of this Agreement; becomes disabled; or submits a notice of
resignation to the Company. Xxxxxxx shall be deemed disabled if he has been
unable, by reason of physical or mental infirmity, to perform on a full-time
basis the duties of a principal executive officer of the Company then assigned
to him by the Company's Board of Directors for a period of nine (9) months or
more. The existence of disability shall be reasonably determined by the Board of
Directors of the Company (excluding Xxxxxxx).
(c) By the Company Without Cause or Upon Change of Control. Subject to (e)
below, Xxxxxxx'x employment may be terminated by the Company at any time after
the date six months from the date hereof without cause upon written notice
thereof, and in any event, this
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Agreement shall be terminated upon a Change of Control of the Company as defined
herein. For purposes of this Agreement, a "Change of Control" shall mean the
earliest date on which either of the following events shall occur:
(i) An individual, entity, or group shall acquire otherwise than
directly from the Company, beneficial ownership of 40% or more of the
outstanding common stock or voting power of the Company, provided that no
such individual, entity or group shall be deemed to beneficially own any
securities held by:
(1) the Company or any of its subsidiaries, or
(2) any employee benefit plan of the Company or any of its
subsidiaries,
(3) any current employee of the Company, or
(ii) The persons who are directors of the Company on the date of this
Agreement, together with those who subsequently became directors of the
Company and whose election, or nomination for election by the Company's
shareholders, was approved by the vote of at least a majority of the
directors who were directors on the date of this Agreement, or directors
whose nomination or the Continuing Directors as defined in the MedCath,
Incorporated Omnibus Stock Plan, as amended, shall cease to constitute a
majority of the Board or of its successor by merger, consolidation, or sale
of assets.
(d) By Xxxxxxx. Xxxxxxx may terminate his employment upon at least ninety
(90) days' written notice.
(e) Salary and Benefits (i) If the Company terminates Xxxxxxx'x employment
under this Agreement for any reason other than cause, or this Agreement is
terminated as the result of a Change of Control, then within thirty days of the
event causing such termination, the Company will pay to Xxxxxxx in a lump sum,
an amount equal to two times the total cash compensation earned by Xxxxxxx
during the immediately preceding fiscal year of the Company, regardless of when
such compensation was paid, plus an amount equal to the then present value of
two years of normal health, life insurance and retirement benefits provided to
Xxxxxxx pursuant to Paragraph 5 above. If this Agreement is terminated as a
result of a Change of Control, all stock options previously granted to Xxxxxxx
by the Company, including those granted prior to the date of this Agreement,
shall vest immediately. Further, if the Company terminates Xxxxxxx'x employment
under this Agreement for any reason other than cause, then Xxxxxxx shall be
granted the Incentive Stock Options described in Paragraph 4 for the fiscal year
in which such termination occurs with all computations to be as of the date of
termination.
(ii) Upon any termination of Xxxxxxx'x employment for cause, Xxxxxxx shall
be entitled to receive only his then accrued salary and additional benefits.
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(iii) Upon termination of Xxxxxxx'x employment for any reason, Xxxxxxx
shall be entitled to receive only such additional benefits as provided in this
subparagraph (e) except for benefits which, under the terms of the governing
plan, he has earned the right to receive after his retirement from the Company.
(iv) Upon termination of his employment by Xxxxxxx, Xxxxxxx shall not be
entitled to any additional salary or benefits other than those accrued prior the
date of termination. Notwithstanding anything herein to the contrary, no further
salary shall be due Xxxxxxx once he begins to receive the proceeds of any
disability insurance policy.
7. Confidentiallity and Non-Disclosure. During the course of Xxxxxxx'x
employment, Xxxxxxx has been and will be exposed and have access to substantial
quantities of information and technology (the "Confidential Information")
relating to the Company's business that are valuable trade secrets or
confidential information, including information concerning customers and
marketing strategies.
The Confidential Information was developed, compiled and/or tested by the
Company at considerable expense, and the Company continues to spend considerable
amounts of money in building upon and expending that Confidential information.
The ConfldentiaI Information enables the Company to conduct its business with
success and with a competitive edge. It is essential to the Company's success
and competitive advantage that the Confidential information terminal not
generally known to others, whether those others operate in direct competition
with the Company or its customers or begin operations in geographical areas
which are of interest to the Company (that is, within the United States).
Xxxxxxx, by reason of his role as an employee, officer, director, and major
shareholder of the Company, is familiar with and has access to the Company's
customers and their needs and to the marketing and pricing pursued by the
Company with respect to those customers and the Company's products and services.
This Paragraph is designed to prohibit Xxxxxxx from using the Confidential
Information and knowledge and relationships developed as an insider of the
Company for his own benefit or for the benefit of parties other than the
Company. The Company would not give Xxxxxxx access to the Confidential
Information and authority without Xxxxxxx'x execution of this Agreement and
Xxxxxxx willingly signs this Agreement because he has received additional
consideration to do so and because he believes his relationship with the Company
is and will be in his own best interest. Both parties agree that this
Paragraph's provisions should be construed broadly in favor of the Company.
In light of the foregoing, the parties agree as follows:
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A. Confidential Information.
Xxxxxxx promises that:
(1) During or after termination of his relationship with the
Company, he will not, directly or indirectly, use, or disclose or make
available to anyone outside the Company, any Confidential Information.
(2) He will safeguard all Confidential Information at all times
so that it is not exposed to, or taken by, unauthorized persons, and,
when entrusted to him, will exercise his best efforts to assure its
safekeeping.
B. Competition.
Xxxxxxx agrees that:
(1) He will not, during the period of his relationship with the
Company, engage or be interested, directly or indirectly, in any
manner, as a partner, officer, director, advisor, employee or in any
other capacity in any business which is a competitive business to the
Company.
(2) The Company's business is unusual and that by virtue of his
relationship with the Company he is, and will become more, familiar
with and close to the Confidential Information and the Company's
business and customers. In the event this relationship with the
Company ceases for any reason, he will not engage in for a period of
twelve (12) months after that termination, in any manner, directly or
indirectly, whether as an employee, officer, owners, partners,
shareholder, consultant or otherwise, in the cardiology services
business or any other health care business in which the Company is
specifically engaged as of the date of such termination, within the
continental United States.
8. Renegotiation Rights. Both Xxxxxxx and the Company shall have the right
to require a renegotiation of the Bonus Compensation formula if circumstances
arise that cause the results of such formula to be unfair or inequitable. Such
circumstances include, but are not limited to, a combination with another
company, capital restructuring, material changes in accounting rules or tax
laws, severe or prolonged recession or inflation or any other circumstance,
whether intrinsic or extrinsic to the Company, that would materially effect the
bonus formula results. If in such circumstances the Company and Xxxxxxx are
unable to reach an agreement on a substitute Bonus Compensation formula, the
parties agree to submit the matter for binding arbitration to the American
Arbitration Association. Any change in the bonus formula for Bonus Compensation
may be made only on a prospective basis (i.e., only with respect to future years
or a year as to which the deadline under federal tax law for establishing a
performance-based plan has not passed).
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9. Enforcement. If there is a breach or threatened breach of the provision
of Paragraph 7 of this Agreement, in addition to other remedies at law or
equity, the Company shall be entitled to injunctive relief. The parties desire
and intend that the provisions of Paragraph 7 shall be enforced to the fullest
extent permissible under the law and public policies applied, but the
unenforceability or modification of any particular paragraph, subparagraph,
sentence, clause, phrase, word, or figure shall not be deemed to render
unenforceable the remainder of Paragraph 7. Should any such paragraphs,
subparagraph, sentence, clause, phrase, word, or figure be adjudicated to be
wholly invalid or unenforceable, the balance of Paragraph 7 shall thereupon be
modified in order to render the same valid and enforceable.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be sent by registered or certified mail,
by other reasonable means of delivery providing overnight service, or by hand to
Xxxxxxx at 0000 Xxxxxxxx XX, Xxxxxxxxx, XX 00000, to the Company at 0000 Xxxxxx
Xxxxxx, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000. Notice shall be deemed to have been
given when deposited with the Postal Service or other delivery service or, if
delivered by hand, when received by the addressee. A party may change the
address to which notice to it must be given by advising the other parties in
writing of the new address.
11. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the waiving party.
12. Assigment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. As a personal service contract the rights and
obligations of Xxxxxxx under this Agreement may not be assigned by him.
13. Entire Agreement. This instrument may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
14. Applicable Law. This Agreement shall be construed in accordance with
the laws of the State of North Carolina applicable to contracts made and to be
performed in this State, without reference to choice of laws principles, and
that law shall be applied in connection with its enforcement in other states and
jurisdictions to the fullest extent possible.
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IN WITNESS WHEREOF, the parties have signed and sealed this Agreement as of
the date first above written.
MEDCATH, INCORPORATED
By: /s/ W. Xxxx Xxxxxx
--------------------------------
Chair,
Compensation Committee
ATTEST:
By:
--------------------------
Secretary
[Corporate Seal]
/s/ Xxxxxxx X. Xxxxxxx
------------------------------[SEAL]
Xxxxxxx X. Xxxxxxx
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