AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Exhibit 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), made as of July 27, 2010
(the “Effective Date”), by and between HEALTH GRADES, INC., a Delaware corporation (the “Company”),
and XXXXX XXXXX (the “Executive”), amends, restates and supersedes the Employment Agreement
originally entered into by and between Specialty Care Network, Inc., the predecessor to the
Company, and the Executive, effective as of April 1, 1996, as amended and restated on August 6,
2008 (the “Prior Agreement”).
WHEREAS, the Executive and the Company desire to clarify the payment terms in the event of a
termination of employment upon a Change in Control and to eliminate certain provisions requiring
reductions in or reimbursement of certain payments made to the Executive in connection with a
Change in Control;
WHEREAS, the Company desires to continue to employ the Executive to devote full time to the
business of the Company (including, without limitation, executive management of the Company) and to
serve as an Executive Vice President and Chief Information Officer of the Company; and
WHEREAS, the Executive desires to be so employed on the terms and subject to the conditions
hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the
parties hereby agree as follows:
SECTION 1
POSITION AND RESPONSIBILITIES
POSITION AND RESPONSIBILITIES
During the Term, the Executive agrees to serve as Executive Vice President and Chief
Information Officer of the Company, performing such duties during the Term of this Agreement for
such compensation and subject to such terms and conditions as are hereinafter set forth.
SECTION 2
TERM AND DUTIES
TERM AND DUTIES
2.1 Term; Extension. The term of this Agreement (the “Term”) will commence as of the
Effective Date and shall continue through the first anniversary of the Effective Date. The Term
shall automatically be extended for an additional one-year period on each successive anniversary of
the Effective Date, unless either party gives the other party ninety (90) days’ prior written
notice of such party’s intent not to extend the Term. Termination of the Executive’s employment
pursuant to this Employment Agreement shall be governed by Section 5 of this Employment Agreement.
2.2 Duties. During the Term of the Employment Agreement, the Executive shall devote
substantially all of his time and attention and best efforts to the Company’s affairs.
Specifically, the Executive shall have authority and responsibility, commensurate with and
customary for the person holding the office and position for which the Executive has contracted in
the Employment Agreement, with respect to the day to day operations and long term management of the
Company, as well as implementation of the long range growth strategy of the Company, consistent
with directions from the Board of Directors or the Chief Executive Officer. The Executive
acknowledges that his title and position, as well as his actual responsibilities, may be modified
by the Company to reflect changes in the nature, scope and direction of the Company’s business,
provided that such modifications shall not substantially diminish Executive’s level of
responsibilities or stature within the Company. The Executive acknowledges and agrees further that
all references herein to the Board of Directors and the Chief Executive Officer include those
senior members of management who are delegated the responsibility for overseeing Executive’s
performance of his job responsibilities.
2.3 Location. The duties of Executive shall be performed at such locations and places
as may be directed by the Board.
SECTION 3
COMPENSATION AND BENEFITS
COMPENSATION AND BENEFITS
3.1 Base Compensation. As of the Effective Date, the Company shall pay the Executive
an annual base salary (“Base Salary”) of $255,000. The Company may increase, but not decrease, the
Base Salary at any time and from time to time during the Term. Base Salary shall be payable
according to the customary payroll practices of the Company, subject to normal withholding, but in
no event less frequently than once each month.
3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive
compensation of up to 75% of his Base Salary based on performance targets established annually by
the Board of Directors (the “Annual Incentive Compensation”). Annual Incentive Compensation shall
be paid in a single lump sum no later than March 15 of the calendar year following the calendar
year in which such compensation is earned.
3.3 Additional Benefits. The Executive will be entitled to participate in all
compensation or employee benefit plans or programs and receive all benefits and perquisites to
which any salaried employees are eligible under any existing or future plan or program established
by the Company for salaried employees. The Executive will participate to the extent permissible
under the terms and provisions of such plans or programs in accordance with program provisions.
These may include group hospitalization, health, dental care, life or other insurance, tax
qualified pension, car allowance, savings, thrift and profit sharing plans, termination pay
programs, sick leave plans, travel or accident insurance, disability insurance, and contingent
compensation plans including capital accumulation programs, restricted stock programs, stock
purchase programs and stock option plans. Nothing in this Agreement will preclude the Company from
amending or terminating any of the plans or programs applicable to
salaried or senior executives as long as such amendment or termination is applicable to all
salaried employees or senior executives. The Executive will be entitled to an annual paid vacation
as established by the Board.
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3.4 Business Expenses. The Company will reimburse the Executive for all reasonable
travel and other expenses incurred by the Executive in connection with the performance of his
duties and obligations under this Agreement. In order to receive reimbursement for business
expenses, the Executive must submit documentation to the Company in accordance with the Company’s
expense reimbursement policy no later than February 15 of the calendar year following the calendar
year in which the business expenses were incurred. Company shall reimburse properly documented and
timely submitted business expenses no later than March 15 of the calendar year following the
calendar year in which the business expenses where incurred.
3.5 Withholding. The Company may directly or indirectly withhold from any payments
under this Agreement all federal, state, city or other taxes that shall be required pursuant to any
law or governmental regulation.
SECTION 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
4.1 Payment in Event of Death. In the event of the death of the Executive during the
Term, the Company’s obligation to make payments under this Agreement shall cease as of the date of
death, except for earned but unpaid Base Salary and Annual Incentive Compensation which will be
paid on a pro-rated basis for that year. Pro-rated Annual Incentive Compensation shall be paid in
a single lump sum no later than March 15 of the calendar year following the calendar year in which
the Executive’s death occurs. The Executive’s designated beneficiary will be entitled to receive
the proceeds of any life or other insurance or other death benefit programs provided in this
Agreement, other than “key man” life insurance benefits.
4.2 Disability Compensation. In the event of Disability (as defined below) of the
Executive during the Term, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his Disability. In the event the
disability continues for a period of three (3) months, the Company may terminate the employment of
the Executive. Following such termination, the Company will continue to pay Executive’s Base
Salary for a period of six (6) months. Payment of Base Salary upon Disability shall be made as
required under the regular payroll procedures of the Company. All other compensation will cease
except for earned but unpaid Annual Incentive Compensation awards which would be payable on a
pro-rated basis for the year in which the Disability occurred, through the date of termination.
Pro-rated Annual Incentive Compensation shall be paid in a single lump sum no later than March 15
of the calendar year following the calendar year in which the Executive terminates employment due
to Disability.
4.3 Responsibilities in the Event of Disability. During the period the Executive is
receiving the payments described in this Agreement and as long as he is physically and mentally
able to do so, the Executive will furnish information and assistance to the Company and from
time to time will make himself available to the Company to undertake assignments consistent
with his prior position with the Company and his physical and mental health. If the Company fails
to make a payment or provide a benefit required as part of the Agreement, the Executive’s
obligation to provide information and assistance will end.
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4.4 Definition of Disability. The term “Disability” means the Executive is:
(a) unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than twelve (12) months; or
(b) by reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last of a continuous period of not les
than twelve (12) months, receiving income replacement benefits for a period of not less than
three months under an accident and health plan covering employees of the Company.
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive agrees to
cooperate with the Company in obtaining “key man” life insurance on the life of the Executive, with
death benefits payable to the Company. Such cooperation shall include the submission by Executive
to a medical examination and medical history.
SECTION 5
TERMINATION OF EMPLOYMENT
TERMINATION OF EMPLOYMENT
5.1 Termination Without Cause; Constructive Termination.
(a) Without a Change in Control. If the Executive suffers a Termination
Without Cause (hereinafter defined) or Constructive Termination (hereinafter defined) and
there has not been a Change in Control (hereinafter defined) the Company will pay the
Executive his Base Salary as in effect at the time of the Termination Without Cause or
Constructive Termination in accordance with ordinary payroll practices for the remainder of
the Term after such termination. Earned but unpaid Base Salary and Annual Incentive
Compensation through the date of termination will be paid in single a lump sum no later than
March 15 of the calendar year following the calendar year in which the Executive suffers a
Termination Without Cause or a Constructive Termination. If the Executive actually elects
(within the time period required by COBRA) continuation coverage pursuant to Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for the Executive and the
Executive’s dependents (to the extent the Executive’s dependents were covered under the
Company’s medical and dental plans on the Executive’s separation from service date), the
Company shall provide, at no cost to the Executive, coverage for the Executive and the
Executive’s dependents under COBRA with respect to medical and dental coverage provided by
the Company to its employees until the earliest of (a) the date the Executive is no longer
eligible to receive continuation
coverage pursuant to COBRA, (b) 6 months following termination of employment with the
Company, or (c) the date the Executive commences new employment offering health insurance
coverage regardless of whether the Executive enrolls in such coverage. The exercisability
of stock options granted to Executive shall be governed by any applicable stock option
agreements and the terms of the respective stock option plans.
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(b) Upon a Change in Control. If Executive suffers a Termination Without Cause
or Constructive Termination upon a Change in Control, the Company will pay to the Executive
upon such termination an amount equal to 300% of Executive’s Base Salary as in effect at the
time of the termination plus 300% of Executive’s prior year Annual Incentive Compensation
(the “Change in Control Severance Amount”). In addition to the foregoing, earned but unpaid
Base Salary and Annual Incentive Compensation awards through the date of termination shall
be paid in single a lump sum no later than March 15 of the calendar year following the
calendar year in which the Executive suffers a Termination Without Cause or a Constructive
Termination upon a Change in Control. If the Executive actually elects (within the time
period required by COBRA) continuation coverage pursuant to Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”) for the Executive and the Executive’s
dependents (to the extent the Executive’s dependents were covered under the Company’s
medical and dental plans on the Executive’s separation from service date), the Company shall
provide, at no cost to the Executive, coverage for the Executive and the Executive’s
dependents under COBRA with respect to medical and dental coverage provided by the Company
to its employees until the earliest of (a) the date the Executive is no longer eligible to
receive continuation coverage pursuant to COBRA, (b) 6 months following termination of
employment with the Company, or (c) the date the Executive commences new employment offering
health insurance coverage regardless of whether the Executive enrolls in such coverage. The
exercisability of stock options granted to Executive shall be governed by any applicable
stock option agreements and the terms of the respective stock option plans.
5.2 Termination With Cause. If the Executive suffers a Termination With Cause,
whether or not there has been a Change in Control, the Company will continue to pay the Executive
his Base Salary as in effect at the time of the Termination With Cause in accordance with ordinary
payroll practices for a period of sixty (60) days following the date of such Termination with
Cause. No incentive compensation or other benefits will be paid or provided to the Executive after
such Termination With Cause.
5.3 Voluntary Termination. In the event of a Voluntary Termination by the Executive
of his employment, the Company shall have no further obligation for salary or Annual Incentive
Compensation or benefits hereunder.
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5.4 Definitions. For this Agreement, the following terms have the following meanings:
(a) “Change in Control” means any transaction pursuant to which (a) the Company
merges with another corporation or other entity and is not the surviving entity, (b)
substantially all of the Company’s assets are sold to persons or entities not affiliated
with the Company, (c) shares of Common Stock of the Company are issued or acquired by
persons or entities not affiliated with the Company, who, acting as a group, have the voting
power to change the composition of the Board of Directors of the Company, or (d) any other
transaction of a similar nature to the foregoing. For purposes of determining whether or
not any termination of the Executive’s employment was upon a Change in Control, it shall be
presumed that any termination within 12 months after consummation of any transaction
described above was “upon a Change in Control.”
(b) “Constructive Termination” means termination of the Executive’s employment
by the Executive constituting a Separation from Service (as defined in Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”)) within two years following the
initial existence of one or more of the following conditions arising on account of conduct
by the Company or the Board without consent of the Executive:
(i) A material diminution in Executive’s Base Compensation;
(ii) A material diminution in Executives authority, duties or responsibilities;
(iii) A material diminution in the authority, duties, or responsibilities of the
supervisor to whom Executive is required to report, including a requirement that the
Executive report to a corporate office or employee instead of reporting directly to
the Board;
(iv) A material diminution in the budget over which Executive retains authority;
(v) A material change in the geographic location at which Executive must perform
services; or
(vi) Any other action or inaction that constitutes a material breach by the Company
or the Board of this Agreement.
The Executive shall have a period of ninety (90) days after the initial existence of a
condition described in this subparagraph (b) to provide notice to the Company of the
existence of such condition or Executive shall be deemed to have irrevocably waived the
right to such assertion. Company shall have thirty (30) days following receipt of notice in
which to remedy the condition. If the Company remedies the condition within the thirty (30)
day period, no Constructive Termination payment will be required under this Agreement.
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(c) “Termination With Cause” means the termination of the Executive’s
employment by the Company constituting a Separation from Service (as defined in Code Section
409A of the Code) due to (a) any illegal or dishonest conduct which adversely affects or may
adversely affect the reputation, goodwill, or business position of the Company or which
involves Company funds or assets; (b) any intentional or material damage to property or
business of the Company; (c) theft embezzlement or misappropriation of Company property; or
(d) the willful failure of employee to carry out his duties as an employee of the Company.
(d) “Termination Without Cause” means termination of the Executive’s employment
by the Company constituting a Separation from Service (as defined in Section 409A of the
Code) (a) other than due to resignation by Executive, death, disability, Termination With
Cause or (b) upon expiration of the Term as a result of the giving of notice by the Company
of its intent not to extend the Term as provided in Section 2.1.
(e) “Voluntary Termination” means the resignation by Executive from his
employment with the Company constituting a Separation from Service (as defined in Code
Section 409A) for any reason other than a Constructive Termination.
SECTION 6
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE TERM
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE TERM
6.1 Additional Information. The Executive will, with reasonable notice during or
after the Term, furnish information as may be in his possession and cooperate with the Company as
may reasonably be requested in connection with any claims or legal actions in which the Company is
or may become a party.
6.2 Confidentiality. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships of the Company, as
hereinafter defined, is confidential and is a unique and valuable asset of the Company. Access to
and knowledge of this information are essential to the performance of the Executive’s duties under
this Agreement. The Executive will not during the Term or after, except to the extent reasonably
necessary in performance of the duties under this Agreement, give to any person, firm, association,
corporation or governmental agency any information concerning the affairs, business, clients,
customers or other relationships of the Company except as required by law. The Executive will not
make use of this type of information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best efforts to prevent the
disclosure of this information by others. All records, memoranda, etc. relating to the business of
the Company whether made by the Executive or otherwise coming into his possession are confidential
and will remain the property of the Company.
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6.3 Noncompetition.
(a) Voluntary Termination; Termination With Cause. In the event the Executive
suffers a Voluntary Termination or a Termination With Cause and there has not been a Change
in Control, the Executive will not Compete (hereinafter defined) with the Company for a
period of time equal to the then remaining Term (as if this Agreement had not been
terminated). If the Executive suffers a Voluntary Termination or a Termination With Cause
and there has been a Change in Control, the Executive will not Compete with the Company for
a period of one (1) year after the date of such termination.
(b) Termination Without Cause; Constructive Termination. In the event the
Executive suffers a Termination Without Cause or a Constructive Termination and there has
not been a Change in Control, the Executive will not Compete with the Company for a period
of time equal to the remainder of the Term (as if this Employment Agreement had not been
terminated). If the Executive suffers a Termination Without Cause or a Constructive
Termination and there has been a Change in Control, then the provisions in this Section 6
restraining competition shall not apply and the Executive shall be free to Compete with the
Company immediately after such termination.
(c) Definition of “Compete” with the Company. For the purposes of this Section
6, the term “Compete with the Company” means action by the Executive, direct or indirect,
for his own account or for the account of others, either as an officer, director,
stockholder, owner, partner, member, promoter, employee, consultant, advisor, agent,
manager, creditor or in any other capacity, resulting in the Executive having any pecuniary
interest, legal or equitable ownership, or other financial or non-financial interest, in any
corporation, business trust, partnership, limited liability company, proprietorship or other
business or professional enterprise that provides management services to medical practices
within the musculoskeletal specialty or such other specialties practiced by any medical
practice contracted to provide management services at the time of termination of employment;
provided, however, that the term “Compete with the Company” shall not include ownership
(without any more extensive relationship) of a less than 5% interest in any publicly-held
corporation or other business entity.
(d) Reasonableness of Scope and Duration; Remedies. The Executive acknowledges
that the covenants contained herein are reasonable as to geographic and temporal scope. The
Executive acknowledges that his breach or threatened or attempted breach of any provision of
Section 6 would cause irreparable harm to the Company not compensable in monetary damages
and that the Company shall be entitled, in addition to all other applicable remedies, to a
temporary and permanent injunction and a decree for specific performance of the terms of
Section 6 without being required to prove damages or furnish any bond or other security.
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SECTION 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to, another corporation which assumes
this Agreement and all obligations and undertakings of the Company hereunder. Upon such a
Consolidation, Merger of Sale of Assets, the term “the Company” as used will mean the other
corporations and this Agreement shall continue in full force and effect. This Section 7 is not
intended to modify or limit the rights of the Executive hereunder.
SECTION 8
MISCELLANEOUS
MISCELLANEOUS
8.1 Entire Agreement. This Agreement contains the entire understanding between the
Company and the Executive with respect to the subject matter and supersedes any prior employment or
severance agreements between the Company and its affiliates, and the Executive, including, without
limitation, the Prior Agreement.
8.2 Amendment; Waiver. This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this Agreement will be deemed to have been
waived except in writing by the party charged with waiver. A waiver shall operate only as to the
specific term or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Section 409A.
(a) This Agreement is intended to comply with the requirements of Section 409A of the
Code so as not to be subject to taxes, interest or penalties under Section 409A of the Code.
This Agreement shall be interpreted and administered to give effect to such intention and
understanding and to avoid the imposition on the Executive of any tax, interest or penalty
under Section 409A of the Code in respect of this Agreement. The Company reserves the right
to make any necessary amendments to this Agreement in order to comply with Section 409A of
the Code.
(b) If the Executive is a “Specified Employee” within the meaning of Section
409A(a)(2)(B)(i) of the Code on the date of the Executive’s Separation from Service (the
“Separation Date”), then no payment related to a “deferral of compensation,” within the
meaning of Section 409A(d)(1) of the Code, shall be made or commence during the period
beginning on the Separation Date and ending on the date that is six months following the
Separation Date or, if earlier, on the date of the Executive’s death. The amount of any
payment that would otherwise be paid to the Executive during this period shall instead be
paid to the Executive on the first day of the first calendar month following the end of this
period.
8.4 Severability; Modification of Covenant. Should any part of this Agreement be
declared invalid for any reason, such invalidity shall not affect the validity of any remaining
portion hereof and such remaining portion shall continue in full force and effect as if this
Agreement has been originally executed without including the invalid part. Should any
covenant of this Agreement be unenforceable because of its geographic scope or term, its geographic
scope or term shall be modified to such extent as may be necessary to render such covenant
enforceable.
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8.5 Effect of Captions. Titles and captions in no way define, limit, extend or
describe the scope of this Agreement nor the intent of any provision thereof.
8.6 Counterpart Execution. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
8.7 Governing Law; Arbitration. This Agreement has been executed and delivered in the
State of Colorado and its validity, interpretation, performance and enforcement shall be governed
by the laws of that state. Any dispute among the parties hereto shall be settled by arbitration in
Denver, Colorado in accordance with the rules then obtaining of the American Arbitration
Association and judgment upon the award rendered may be entered in any court having jurisdiction
thereof. All provisions hereof are for the protection and are intended to be for the benefit of
the parties hereto and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach of this Agreement
would be inadequate and that the other party shall be entitled to specific performance hereof or
injunctive relief or both, by temporary or permanent injunction or such other appropriate judicial
remedy, writ or order as may be decided by a court of competent jurisdiction in addition to any
damages which the complaining party may be legally entitled to recover together with reasonable
expenses of litigation, including attorney’s fees incurred in connection therewith, as may be
approved by such court.
8.8 Notices. All notices, request, consents and other communications hereunder shall
be in writing and shall be deemed to have been made when delivered or mailed first-class postage
prepaid by registered mail, return receipt requested, or when delivered if by hand, overnight
delivery service or confirmed facsimile transmission, to the following:
(a) If to the Company, at its headquarters, or at such other address as may have been
furnished to the Executive by the Company in writing; or
(b) If to the Executive, at his personal residence, or such other address as may have
been furnished to the Company by the Executive in writing.
8.8 Binding Agreement. This Agreement shall be binding on the parties’
successors, heirs and assigns.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above
written.
| HEALTH GRADES, INC. |
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| By: | /s/ Xxxxx X. Xxxxx | |||
| Xxxxx X. Xxxxx, President | ||||
| EXECUTIVE: |
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| /s/ Xxxxx Xxxxx | ||||
| XXXXX XXXXX | ||||
