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 XXXXX XXXXX ("Xxxxx"), a resident of Charlotte, North Carolina.
WHEREAS, the Company desires to employ Crane and Crane 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 Crane and Crane accepts employment upon the terms and
conditions hereinafter set forth.
2. Duties. Crane shall be Executive Vice President and Chief Operating
Officer 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, Crane shall not be engaged in any
other business activity whether or not 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 Crane
from investing his personal assets in businesses which do nor compete with the
Company and which will not require substantial services on the part of Crane 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
Crane hereunder, the Company shall pay to Crane during the term of this
Agreement compensation described as follows;
(a) Base Salary. The Company shall pay to Crane an annual base salary
(herein "Base Salary") of Two Hundred Thousand Dollars ($200,000 00) which
shall be paid on a monthly basis.
(b) Cash Bonus Compensation. In addition to the Base Salary, the
Company shall also pay to Crane 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, Crane 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 Crane's Bonus shall be the Bonus Growth
Percentage multiplied times 50% of Crane's 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 Crane 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, Crane's base salary
shall be no less than the median base salary of chief operating officers
for companies of comparable size to Medcath.
4. incentive Stock Options. Annually during the term of this Agreement, the
Company shall grant to Crane 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" shall 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
6%.
The Company shall grant to Crane 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 Crane for that fiscal year would earn an
option to
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purchase 52,896 shares [the formula as applied in this example is as follows:
.176 minus .10 equals .076 times 11,600,000 shares times .06 equals 52,896
shares]). Crane's maximum Incentive Stock Option Grant for each year covered
under the Agreement will be limited to no more than 1.0% of the shares of the
Company outstanding in that fiscal year and to no more than 2.43% 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 Crane
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 granted
hereunder shall be the maximum time period allowed by law.
5. Miscellaneous Benefits. The Company shall provide Crane 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 Crane 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 Crane's employment for cause as provided herein by giving written
notice thereof. "Cause" shall mean that Crane commits a willful 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. Crane 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
Crane).
(c) By the Company Without Cause or Upon Change of Control. Subject to
(e) below, Crane's 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 Crane. Crane may terminate his employment upon at least ninety
(90) days' written notice.
(e) Salary and Benefits. (i) If the Company terminates Crane's
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
Crane in a lump sum, an amount equal to two times the total cash
compensation earned by Crane 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 Crane pursuant to Paragraph 5
above. If this Agreement is terminated as a result of a Change of Control,
all stock options previously granted to Crane by the Company, including
those granted prior to the date of this Agreement, shall vest immediately.
Further, if the Company terminates Crane's employment under this Agreement
for any reason other than cause, then Crane 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 Crane's employment for cause, Crane
shall then accrued salary and additional benefits.
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(iii) Upon termination of Crane's employment for any reason,
Crane 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 Crane, Crane 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 Crane once he begins
to receive the proceeds of any disability insurance policy.
7. Confidentiality and Non-Disclosure. During the course of Crane's
employment, Crane 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 Confidential 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 remain 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).
Crane, 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 Crane 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 Crane access to the Confidential Information
and authority without Crane's execution of this Agreement and Crane 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.
Crane 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.
Crane 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 Crane and the Company shall have the tight 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 Crane are unable
to reach an agreement on a substitute Bonus Compensation formula, the parries
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
Crane at ______________, North Carolina; 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. Assignment. 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 Crane 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/ XXXXX XXXXX (SEAL]
---------------------------
XXXXX XXXXX
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