Exhibit 10.13
August 3, 1998
Xx. Xxxxxxx Xxxxxx
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Dear Xx. Xxxxxx
We write to set forth our agreement with respect to your employment as the
President and Chief Executive Officer of Medical Graphics, Inc. (the "Company"),
commencing August 3, 1998 (the "Employment Date"). This agreement is intended to
be effective as of August 3, 1998, except for the Company's agreement in Section
3, which is effective as of December 16, 1998.
1. EMPLOYMENT. The Company hereby agrees to employ you, and you agree to be
employed by the Company, during the term stated in Section 6, and on the terms
and conditions hereinafter set forth. You will serve as the President and Chief
Executive Officer of the Company and, at no additional compensation, be elected
as a member of the Board of Directors, and in such other directorships, Board
committee memberships and offices of the Company and its subsidiaries to which
you may from time to time be elected or appointed by the Chairman of the Board.
You agree to serve the Company faithfully and, to the best of your ability, to
promote the Company's interest, and to devote your full working time, energy and
skill to the Company's business. You may attend to personal business and
investments, engage in charitable activities and community affairs, and serve on
a reasonable number of corporate, educational and civic boards, so long as those
activities do not interfere with your duties under this Agreement and provided
that service on any corporate boards on which you did not serve as of the date
hereof shall be subject to prior approval by the Board of Directors.
You will have such authority, powers, functions, duties, and
responsibilities as are normally accorded chief executive officers. You will
discharge your duties at all times in accordance with any and all policies
established by the Board of Directors and will report to, and be subject to the
direction of, the Board of Directors.
2. BASE SALARY.
As partial compensation for all of your services (including services as
director, Board committee member or officer of the Company and its subsidiaries)
during your term of employment hereunder, you will receive a base salary at an
annual rate of Two Hundred Forty Thousand Dollars ($240,000), payable in
biweekly installments. Such base salary shall be reviewed annually at the
discretion of the Board.
3. BONUS; STOCK OPTIONS.
(a) As additional compensation for your services, you shall be eligible
to earn bonus compensation for each fiscal year of the Company, commencing with
the fiscal year ending December 31, 1999, during your term of employment
hereunder in accordance with an incentive compensation plan
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August 3, 1998
Page 2
to be mutually agreed to in advance of each such fiscal year by you and the
Company's Board of Directors.
(b) You shall receive, subject to shareholder approval as necessary,
options to purchase 400,000 shares of the Company's Common Stock at an exercise
price per share as listed below under the terms and conditions of the Company's
1987 Stock Option Plan. The option agreements shall be substantially in the form
of Exhibit A and Exhibit B attached hereto and shall have the following terms:
(i) A ten-year option to purchase 200,000 shares at a price of
$1.25 per share, which shall vest 25% on the date of grant which shall
be December 16, 1998, and an additional 25% per year on August 3, 1999,
2000, and 2001, subject to earlier vesting upon a Change in Control as
defined below.
This option will be an incentive stock option to the extent possible.
(ii) A ten-year option to purchase 200,000 shares at a price
of $2.25 per share, which shall vest on the date that is nine years and
eleven months from August 3, 1998, subject to earlier vesting upon the
achievement of reasonable performance goals as set forth on the exhibit
attached to the option or upon a Change in Control as defined below.
(c) You shall be eligible to receive additional stock options annually,
at the discretion of the Board.
4. FRINGE BENEFITS.
(a) You will be eligible to participate in any and all Company
sponsored insurance (including medical, dental, life and disability insurance),
retirement, and other fringe benefit programs that it maintains for its
executive officers, subject to and on a basis consistent with the terms of each
such plan or program.
(b) You will be entitled to four weeks of paid vacation annually.
(c) The Company will pay or reimburse you $600 per month for all costs
associated with a private automobile selected by you, including, but not limited
to, lease costs, gas, repairs, general maintenance and insurance.
5. EXPENSES. During the term of your employment, the Company will reimburse you
for your reasonable travel and other expenses incident to your rendering of
services in conformity with its regular policies regarding reimbursement of
expenses as in effect from time to time. Payments to you under this paragraph
will be made upon presentation of expense vouchers in such detail as the Company
may from time to time reasonably require.
6. TERM AND TERMINATION.
(a) TERM. The term of this Agreement will begin on August 3, 1998 and
will continue for a period of two (2) years thereafter, unless and until
terminated in accordance with the terms of this Agreement (the "Original Term").
Upon the expiration of the Original Term of this Agreement, and on each
successive anniversary thereafter, the term of your employment under this
Agreement will be automatically extended for one (1) additional year, unless at
least 120 days prior to any such anniversary, either you or the Company delivers
to the other written notice of the notifying party's desire not to
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 3
extend the term of your employment. Notice by the Company to not extend the term
of this Agreement shall not constitute termination without Cause under this
Agreement.
(b) TERMINATION. This Agreement and your employment may be
terminated prior to the end of the Term provided in Section
6(a):
(i) By your resignation upon 30 days prior written notice to
the Company;
(ii) By the Company for Cause (as defined in this Agreement)
immediately upon written notice to you.
(iii) By the Company for any reason and at any time upon 30
days prior written notice to you.
(iv) By the Company at any time in the event of your
Disability (as defined in this Agreement.)
(v) After a Change in Control, by you for Good Reason (as
defined in this Agreement) upon 30 days prior written notice to the
Company.
In the event of your termination of employment for any of the foregoing reasons,
you shall immediately resign as a director of the Company and any of its
subsidiaries.
(c) DEATH. This Agreement will automatically terminate upon your death.
7. CONSEQUENCES OF TERMINATION.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. If
your employment is terminated by the Company for Cause or by
you without Good Reason, then you will be paid your base
salary to the date of termination and the unpaid portion of
any bonus or incentive amount earned by you for the fiscal
year ending prior to the termination of your employment which
you are entitled to receive under the terms of the annual
incentive plan. You will not be entitled to receive any base
salary or fringe benefits for any period after the date of
termination, except for the right to receive benefits which
have become vested under any benefit plan or to which you are
entitled as a matter of law.
(b) TERMINATION WITHOUT CAUSE PRIOR TO A CHANGE IN CONTROL. If the
Company terminates your employment without Cause prior to a
Change in Control, then for a period of 12 months after the
effective date of the termination of your employment :
(i) The Company will continue to pay your then current
base salary in accordance with the Company's normal
payroll practice; and
(ii) The Company will pay the unpaid portion of any bonus
or incentive amount earned by you for the fiscal year
ending prior to the termination of your employment
which you are entitled to receive under the terms of
the applicable incentive plan; and
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 4
(iii) You will be entitled to continued participation in
the health care coverage, and life insurance benefit
plans of the Company, as in effect on the date of
your termination as permitted by law. The Company
will continue to pay its share of the health care and
life insurance premiums for this coverage for a
period of up to 12 months, and you shall pay your
share of the cost associated with that coverage as if
you were still actively employed by the Company. If
you cannot be covered under any of the Company's
group plans or policies, the Company will reimburse
you for your full cost of obtaining comparable
alternative or individual coverage elsewhere, less
any contribution that you would have been required to
make under the Company's group plans or policies. If,
during the aforesaid 12-month period, you are
employed by a third party and become eligible for any
health care and/or life insurance coverage provided
by that third party, the Company will not,
thereafter, be obligated to provide you with the
insurance benefits described in this paragraph
(b)(iii). This 12-month coverage shall run
concurrently with COBRA and thereafter you shall be
responsible for the full cost of any such coverage
for which you may be entitled by law for the
remainder of the COBRA continuation period.
(c) TERMINATION IN THE EVENT OF DEATH OR DISABILITY. If your
employment terminates due to your death or if the Company
terminates your employment due to a Disability, then
(i) The Company will continue to pay your base salary to
your estate or to you for the remainder of the month
in which your death occurs or in which your
employment is terminated due to Disability, together
with the unpaid portion of any bonus or incentive
amount earned by you for the fiscal year ending prior
to the termination of your employment which you are
entitled to receive under the terms of the applicable
incentive plan; and in the event of termination due
to Disability, you will continue to receive, during
that month, all of the fringe benefits then being
paid or provided to you;
(ii) You will be entitled to receive all Disability and
other benefits, such as continued health coverage or
life insurance proceeds, provided in accordance with
the terms and condition of the health care coverage,
life insurance, disability, or other employee benefit
plans of the Company and applicable law; and .
(d) CHANGE IN CONTROL; TERMINATION WITHOUT CAUSE; RESIGNATION FOR
GOOD REASON. If, after a Change in Control, the Company
terminates your employment without Cause or you resign your
employment for Good Reason, then:
(i) For a period of 24 months after the effective date of
the termination of your employment:
(A) The Company will continue to pay your then
current base salary in accordance with the
Company's normal payroll practice; and
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 5
(B) The Company will pay the unpaid portion of
any bonus or incentive amount earned by you
for the fiscal year ending prior to the
termination of your employment which you are
entitled to receive under the terms of the
applicable incentive plan; and
(C) You will be entitled to continued
participation in the health care coverage,
and life insurance benefit plans of the
Company, as in effect on the date of your
termination, for a period of up to 24
months. The Company will continue to pay its
share of the health care and life insurance
premiums for this coverage, and you shall
pay your share of the cost associated with
that coverage as if you were still actively
employed by the Company. If you cannot be
covered under any of the Company's group
plans or policies, the Company will
reimburse you for your full cost of
obtaining comparable alternative or
individual coverage elsewhere, less any
contribution that you would have been
required to make under the Company's group
plans or policies. If, during the aforesaid
24-month period, you are employed by a third
party and become eligible for any health
care coverage provided by that third party,
the Company will not, thereafter, be
obligated to provide you with the insurance
benefits described in this clause (C). This
24-month coverage shall run concurrently
with COBRA.
(ii) The Company will pay a reasonable amount for
out-placement and job search services for you by a
nationally recognized out-placement firm selected by
you and reasonably acceptable to the Company.
(d) The benefits provided you under this Section 7 are in lieu of
any benefits that would otherwise be provided to you under any
severance pay or other policies of the Company.
8. EFFECT OF TERMINATION ON STOCK OPTIONS.
(a) In the event of (i) the termination of your employment by the Company
other than for Cause, or (ii) your termination of your employment prior
to a Change in Control and other than by reason of death or Disability,
any vested stock options granted to you under Section 3, to the extent
unexercised, shall terminate ninety (90) days after termination and be
without further force or effect.
(b) In the event you are terminated for Cause as defined herein or you
violate any of your obligations under Section 10 following termination
of your employment and during such period as such provisions remain in
effect any vested stock options granted to you under Section 3, to the
extent unexercised, shall terminate 30 days after termination of
employment at which time the options shall be without further force or
effect.
(3) In the event of the termination of your employment by reason
of death or Disability, all options shall vest immediately and
shall remain exercisable for a period of one year (or such
earlier time as the option by their terms otherwise expire) at
which time the options shall be without further force or
effect.
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 6
9. NO MITIGATION. Following termination of your employment for any reason, you
will be under no obligation to mitigate your damages by seeking other
employment, and there will be no offset against the amounts due you under
Section 7, except as specifically provided in Section 7(b)(iii) or for any
claims which the Company may have against you.
10. PROPERTY RIGHTS, CONFIDENTIALITY, NON-SOLICIT AND NON-COMPETE
PROVISIONS
(a) COMPANY'S PROPERTY.
(i) You shall promptly disclose to the Company in writing all
inventions, discoveries, and works of authorship, whether or not
patentable or copyrightable, which are conceived, made, discovered,
written, or created by you alone or jointly with another person, group,
or entity, whether during the normal hours of employment at the Company
or on your own time, during the term of this Agreement. You agree to
assign all rights to all such inventions and works of authorship to the
Company. You further agree to give the Company any of the assistance it
reasonably requires in order for the Company to perfect, protect and
use its rights to inventions and works of authorship.
This provision shall not apply to an invention, discovery, or work of
authorship for which no equipment, supplies, facility, or trade secret
information of the Company was used and which was developed entirely on
your own time and which does not relate to the business of the Company,
to the Company's anticipated research or development, or does not
result from any work performed by you for the Company.
(ii) You shall not remove any records, documents, or any other
tangible items (excluding your personal property) from the premises of
the Company in either original or duplicate form, except as is needed
in the ordinary course of conducting business for the Company.
(iii) You shall immediately deliver to the Company, upon
termination of employment with the Company, or at any other time upon
the Company's request, any property, records, documents, and other
tangible items (excluding your personal property) in your possession or
control, including data incorporated in word processing, computer, and
other data storage media, and all copies of such records, documents,
and information, including all Confidential Information, as defined
below.
(b) CONFIDENTIAL INFORMATION. During the course of your employment you
will develop, become aware of, and accumulate expertise, knowledge, and
information regarding the Company's organization strategies, business, and
operations and the Company's past, current, or potential customers, and
suppliers. Company considers such expertise, knowledge, and information to be
valuable, confidential, and proprietary, and it shall be considered Confidential
Information for purposes of this Agreement. During this Agreement and at all
times thereafter you agree not to use such Confidential Information or disclose
it to other persons or entities except as is necessary for the performance of
your duties for the Company or as has been expressly permitted in writing by the
Company. Provided, however, that the foregoing covenant shall not apply to any
information possessed by you prior to your employment by the Company, or to any
information which is in or has entered the public domain or has
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 7
been disclosed with any industry segment in which the Company or any subsidiary
or affiliated company of the Company operates by or pursuant to the authority of
the Company or any subsidiary or affiliated company of the Company.
(c) NON-SOLICITATION. During (i) the term of this Agreement, and (ii)
the greater of (A) any period for which you are receiving payments under Section
7 of this Agreement, or (B) one year after the termination of this Agreement or
the date on which you are no longer employed by the Company in any capacity,
whichever shall last occur, you shall not directly or indirectly attempt to hire
away any then-current employee of the Company or a subsidiary of the Company or
to persuade any such employee to leave employment with the Company.
(d) NON-COMPETITION. During (i) the term of this Agreement and (ii) the
greater of (A) any period for which you are receiving payments under Section 7
of this Agreement, or (B) one year after termination of this Agreement or the
date on which you are no longer employed by the Company in any capacity,
whichever shall last occur, you shall not engage or participate, either
individually or as an employee, consultant, or principal, partner, agent,
trustee, officer, or director of a corporation, partnership, or other business
entity, in any business in which the Company, including any subsidiary or
affiliated company in which the Company has a more than 20 percent equity
interest, was engaged prior to the termination of this Agreement. Provided,
however, that mere ownership of not more than 5% of the outstanding common stock
of a company the securities however, which are publicly traded shall not
constitute competition for purposes of this Section 10(d).
The provisions of this Section 10 shall survive the termination of this
Agreement.
11. ARBITRATION. Any disputes arising under or in connection with this Agreement
(including without limitation the making of this Agreement) shall be resolved by
final and binding arbitration to be held in Minneapolis, Minnesota in accordance
with the rules and procedures of the American Arbitration Association. The
parties shall select a mutually acceptable single arbitrator to resolve the
dispute or if they fail or are unable to do so, each side shall within the
following ten (10) business days select a single arbitrator and the two so
selected shall select a third arbitrator within the following ten (10) business
days. The arbitration award or other resolution may be entered as a judgment at
the request of the prevailing party by any court of competent jurisdiction in
Minnesota or elsewhere. The arbitrator shall have no power to award any punitive
or exemplary damages. The arbitrator may construe or interpret, but shall not
ignore or vary the terms of this Agreement, and shall be bound by controlling
law. You acknowledge that your failure to comply with the terms of the Agreement
regarding Confidential Information, Inventions, and Non-Competition could cause
immediate and irreparable injury to the Company and that therefore, the
arbitrators, or a court of competent jurisdiction, if an arbitration panel
cannot immediately be convened, will be empowered to provide injunctive relief,
including temporary or preliminary relief, to restrain any such failure to
comply. Each party shall bear its own costs and attorneys' fees in connection
with the arbitration.
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 8
12. DEFINITIONS. For purposes of this Agreement, the following terms
will have meanings set forth below:
(a) CAUSE. "Cause" means that you have (A) committed an act of
dishonesty or fraud or involving a breach of trust; (B) committed any act or
omission that is a substantial cause for a regulatory body with jurisdiction
over the Company or any of its affiliates to request or recommend adverse action
against you, the Company, or any of its affiliates; (C) been indicted for or
convicted of any felony including moral turpitude; (D) failed to follow any
reasonable and material policy of the Company or reasonable and material
instructions of the Company's Board of Directors; (E) engaged in any gross
misconduct or gross negligence in the performance of your duties; (F) failed to
make substantial progress toward one or more of the performance goals
established between you and the Company's Board of Directors as established in
the budget approved by the Board of Directors; or (G) have otherwise materially
breached this Agreement. In the case of conduct described in clauses (D), (E),
(F) and (G), the Company must give you written notice of that failure or breach
and you will have 30 days to correct the same. You will be entitled to a hearing
before the Board of Directors of the Company before any termination for Cause
described in clauses (D), (E) and (F) becomes effective.
(b) CHANGE IN CONTROL. A "Change in Control" means a change in control
of the Company of a nature that would be required to be reported (assuming such
event has not been previously reported) in response to Item 1(a) of the Current
Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 0000 (xxx "Xxxxxxxx Xxx"); provided,
that, without limiting the foregoing, a "Change in Control" shall be deemed to
have occurred at such time as (i) any person (that is not currently a 35%
beneficial owner) is or becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 35 percent or more of the
combined voting power of the Company's outstanding securities ordinarily
possessing the right to vote for the election of directors; (ii) there ceases to
be a majority of the Board of Directors comprised of the individuals described
in the next sentence, or (iii) the Company disposes of all or substantially all
of its assets. For purposes of this paragraph, "Board of Directors" shall mean:
individuals who on the date hereof constituted the Board of Directors and any
new director who subsequently was elected or nominated for election by a
majority of the directors who held such office immediately prior to the Change
in Control.
(c) DISABILITY. "Disability" means that you are deemed to be disabled
under the terms of the Company's long term disability plan and have satisfied
the qualifying period for entitlement to benefits under such plan.
(d) GOOD REASON. "Good Reason" means, after a Change in Control, the
Company, without your express written consent, (A) materially reduces your
principal duties, responsibilities, or authority as President and Chief
Executive Officer; (B) reduces your annual base compensation as described in
Section 2 (including any increases given under Section 2(b)) or your target
bonus as described in Section 3, or reduces the benefits provided you under any
fringe benefit plan; provided, however, that the Company may alter, amend or
terminate any benefit plan so long as any such change applies to executive
officers generally; (C) relocates the Company's corporate headquarters or your
principal place of work outside the Minneapolis-Saint Xxxx metropolitan area; or
(D) materially breaches this Agreement. The occurrence of an event described in
this Section 12 (d) will not constitute Good Reason unless, within 60 days
thereof, you give the Company written notice stating that an event of Good
Reason has occurred
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 9
and describing that event, and the Company does not correct the same, if the
same is correctable, within 30 days.
13. GENERAL PROVISIONS.
(a) This Agreement may not be amended or modified except by a
written agreement signed by both of us.
(b) In the event that any provision or portion of this agreement
are determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement will remain in full
force and effect to the fullest extent permitted by law.
(c) This Agreement shall bind and benefit the parties hereto and
their respective successors and assigns, but none of your
rights or obligations hereunder may be assigned by either
party hereto without the written consent of the other, except
by operation of law upon your death.
(d) This Agreement has been made in and shall be governed and
construed in accordance with the laws of the State of
Minnesota without giving effect to the principles of conflict
of laws of any jurisdiction.
(e) No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy under this Agreement
will operate as a waiver; nor will any single or partial
exercise of any right or remedy preclude any other or further
exercise of any right or remedy.
(f) Any notice or other communication under this Agreement must be
in writing and will be deemed given when delivered in person,
by overnight courier (with receipt confirmed), by facsimile
transmission (with receipt confirmed by telephone or by
automatic transmission report), or upon receipt if sent by
certified mail, return receipt requested, as follows (or to
such other persons and/or addresses as may be specified by
written notice to the other party):
If to Medical Graphics, Inc.:
Medical Graphics, Inc.
Attention: Chairman of the Board of Directors
000 Xxx Xxxxx Xxxxxxx
Xx. Xxxx, XX 00000
With a copy to:
Xxxxxxxxx & Xxxxxx, PLLP
0000 XXX Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
If to Xxxxxxx Xxxxxx:
Xx.Xxxxxxx Xxxxxx
August 3, 1998
Page 10
Xxxxxxx Xxxxxx
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
(g) This Agreement, and the option agreements ancillary hereto
contains our entire understanding and agreement with respect
to these matters and supersedes all previous agreements,
discussions, or understandings, whether written or oral,
between us on the same subjects.
(h) In the event any provision of this Agreement is held
unenforceable, that provision will be severed and shall not
affect the validity or enforceability of the remaining
provisions. In the event any provision is held to be
overbroad, that provision shall be deemed amended to narrow
its application to the extent necessary to render the
provision enforceable according to applicable law.
(i) All terms of this Agreement intended to be observed and
performed after the termination of this Agreement will survive
such termination and will continue in full force and effect
thereafter, including without limitation, Sections 7, 8, 9, 10
and 11.
(j) The headings contained in this Agreement are for convenience
only and shall in no way restrict or otherwise affect the
construction of the provisions hereof. Unless otherwise
specified herein, references in this Agreement to Sections and
Exhibits are to the sections of and exhibits to this
Agreement. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of
which together shall constitute one and the same instrument.
------------------------------------
If the foregoing correctly sets forth your understanding of our agreement,
please so indicate by signing and returning to us a copy of this letter.
Very truly yours,
MEDICAL GRAPHICS CORPORATION
/s/ Xxxx X. Xxxxxxxx
------------------------------------
Its Chairman
Accepted and agreed to:
/s/ Xxxxxxx X. Xxxxxx
-------------------------
Xxxxxxx Xxxxxx
