EMPLOYMENT AGREEMENT
Exhibit 10.1
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made as of February 21, 2006, by and
between MEDCATH CORPORATION, a Delaware corporation (the “Company”), and O. XXXXX XXXXXX
(“Executive”).
R E C I T A L S
The Company desires to employ Executive to serve as its President and Chief Executive Officer,
and Executive is willing to accept such employment and perform services for the Company, all on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Employment.
1.1 Position. Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as President and Chief Executive Officer. In
such capacity, Executive shall report to the board of directors of the Company (the
“Board”) and shall have the customary powers, responsibilities and authorities of such
position and office for corporations of the size and character of the Company, as it exists from
time to time and as are assigned by the Board.
1.2 Duties. Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment with the Company commencing on a date that is mutually agreeable to the Company
and Executive that is no later than March 1, 2006 (the “Commencement Date”) and agrees to
devote his full working time and efforts, to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities in connection therewith. Executive shall
perform such duties and exercise such powers, commensurate with his position, as the Board shall
from time to time delegate to him on such terms and conditions and subject to such restrictions as
the Board may reasonably from time to time impose.
1.3 Outside Activities. Nothing in this Agreement shall preclude Executive (i) from
engaging in charitable and community affairs, from managing any passive investment made by him in
publicly traded equity securities or other property (provided that no such investment may exceed 5%
of the equity of any entity) or (ii) subject to Section 13(b) hereof, from serving as a member of
boards of directors or as a trustee of any other corporation, association or entity,
so long as in the reasonable determination of the Board none of the activities described in clauses
(i) or (ii) interferes with his duties and responsibilities hereunder.
2. Term of Employment. Executive’s term of employment under this Agreement shall
commence on the Commencement Date and, subject to the terms hereof, shall terminate on the third
anniversary of the Commencement Date; provided, however, that the term of this
Agreement and Executive’s employment hereunder shall be automatically renewed and extended for
additional one-year periods commencing on the third anniversary of the Commencement Date and on
each anniversary date thereafter, unless the Company or Executive provides written notice to the
other party, at least 90 days prior to the expiration of the initial term or any renewal term, of
the non-renewal of this Agreement.
3. Compensation.
3.1 Salary. The Company shall pay Executive a base salary (“Base Salary”) at
the rate of $550,000 per annum commencing as of the Commencement Date. Base Salary shall be
adjusted annually at the discretion of the Board but in no event shall Base Salary be reduced nor
be less than the median base salary for a comparable position at corporations of similar size and
character as the Company, as it exists from time to time, and, as increased, shall constitute “Base
Salary” hereunder. Base Salary shall be payable in accordance with the normal payroll practices of
the Company but no less frequently than monthly.
3.2 Bonus. For each fiscal year of Executive’s employment hereunder, Executive shall
participate in the bonus plan established for the Company’s senior executives. Executive’s target
bonus with respect to each such fiscal year shall be equal to 50% of Executive’s Base Salary for
such fiscal year (the “Target Bonus”). The Board (or a committee thereof) shall have
complete authority to establish all other terms and provisions of the bonus plan, including the
performance goals for the bonus plan, the threshold performance required for the payment of any
bonus under the plan and the maximum bonus opportunity for Executive under the plan. Bonuses shall
be paid within 2-1/2 months following the fiscal year to which they relate, and Executive must be
employed by the Company on the day the bonus is payable to be eligible to receive the bonus. Any
bonus for Fiscal Year 2006 shall be pro-rated from November 1, 2005.
3.3 Compensation Plans and Programs. Executive shall be eligible to participate in
any other compensation plan or program maintained by the Company from time to
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time for senior executives of the Company on terms and conditions that are comparable to those
applicable to such other senior executives.
4. Employee Benefits.
4.1 Employee Benefit Programs, Plans and Practices. The Company shall provide
Executive during the term of his employment hereunder with participation in or coverage under all
employee pension and welfare benefit programs, plans and practices (commensurate with his position
in the Company from time to time and to the extent permitted under any employee benefit plan) which
the Company makes available to its senior executives.
4.2 Vacation and Fringe Benefits. Executive shall be entitled to no less than the
number of business days paid vacation in each calendar year which have historically been provided
to the Company’s Chief Executive Officer, which shall be taken at such times as are consistent with
Executive’s responsibilities hereunder. In addition, Executive shall be entitled to the
perquisites and other fringe benefits currently made available to senior executives of the Company,
commensurate with his position with the Company.
4.3 Relocation Expenses. Executive shall become a full-time resident of the
Charlotte, North Carolina area no later than the Commencement Date and shall relocate his family to
the Charlotte, North Carolina area as soon as practicable thereafter. The Company shall provide
Executive with a lump sum payment of $75,000, grossed-up for all applicable income and employment
taxes, to cover all costs related to his relocation from Maryland.
5. Expenses. Executive is authorized to incur reasonable expenses in carrying out his
duties and responsibilities under this Agreement, including, without limitation, expenses for
travel and similar items related to such duties and responsibilities. The Company will reimburse
Executive for all such expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with the Company’s policy) accounts of such expenditures.
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6. Termination of Employment.
6.1 Termination By the Company Without Cause or By Executive for Good Reason. (a) The
Company may terminate Executive’s employment under this Agreement at any time for any reason,
provided that any such termination other than for Cause (as defined in Section 6.4 hereof)
may only be made upon 30 days prior written notice to Executive. If Executive’s employment under
this Agreement is terminated by the Company without Cause (other than as a result of Executive’s
death or Permanent Disability (as defined in Section 6.2 hereof)) or if Executive terminates his
employment for Good Reason (as defined in Section 6.1(c) hereof), Executive shall receive any
payments to which he is entitled under any applicable compensation or employee benefit plan or
program in which he participates, including but not limited to those referred to in Section 3.3
hereof. In addition, in the event of any such termination described in the immediately preceding
sentence, Executive shall be entitled to receive the following:
(i) an amount equal to the sum of two times Executive’s Base Salary and one
times Executive’s Target Bonus (such amount, the “Severance Payment”);
(ii) a cash lump sum payment in respect of (x) accrued but unused vacation
days (the “Vacation Payment”), (y) compensation earned but not yet paid
(including any awarded but deferred Bonus payments) (the “Compensation
Payment”), and (z) reasonable expenses incurred under Section 5 but not yet
reimbursed (the “Expense Payment”); and
(iii) continued coverage under the Company’s group medical plan in accordance
with the terms thereof for a period ending on the earlier of (A) the second
anniversary of the date of termination under this Section 6.1(a) or (B) the date on
which Executive becomes covered under comparable benefit plans of a new employer
(the “Coverage Period”), provided that Executive shall be required
to contribute an amount toward the cost for such coverage during the Coverage
Period that is equal to the cost paid by active employees of the Company for
coverage under the Company’s group medical plan during the Coverage Period, and for
purposes of applying the group health plan coverage continuation requirements of
Section 4980B of the Internal Revenue Code of 1986 and Section 601 et
seq. of the Employee Retirement Income Security Act of 1974, as amended,
the “qualifying event” shall be the termination of the Executive’s employment with
the Company.
(b) The Severance Payment shall be paid by the Company to Executive over the 12 month period
following the date of termination in substantially equal installment payments and in accordance
with the normal payroll practices of the Company but no less
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frequently than monthly. The Vacation Payment, the Compensation Payment and the Expense
Payment shall be paid by the Company to Executive in a cash lump sum payment within 30 days after
the date of termination.
(c) For purposes of this Agreement, “Good Reason” shall mean any of the following
(without Executive’s express prior written consent):
(i) A substantial reduction or elimination of Executive’s management
responsibility for the operations of the Company’s hospital business, other than in
connection with the termination of Executive’s employment by the Company for Cause,
by Executive without Good Reason or as a result of Executive’s Permanent Disability
or death;
(ii) A reduction by the Company in Executive’s Base Salary or Target Bonus; or
(iii) A reduction or elimination of Executive’s eligibility to participate in
any of the Company’s employee benefit plans that is inconsistent with the
eligibility of similarly situated executives of the Company to participate therein.
6.2 Permanent Disability. If Executive becomes totally and permanently disabled (as
defined in the Company’s Long-Term Disability Benefit Plan applicable to senior executive officers
as in effect on the date hereof) (“Permanent Disability”), the Company or Executive may
terminate Executive’s employment under this Agreement upon 30 days prior written notice thereof,
and Executive shall receive or commence receiving, as soon as practicable:
(i) amounts payable pursuant to the terms of a disability insurance policy or
similar arrangement which the Company maintains during the term hereof;
(ii) Executive’s Target Bonus in respect of the fiscal year in which his
termination occurs, prorated by a fraction, the numerator of which is the number of
days of the fiscal year until termination and the denominator of which is 365;
(iii) the Vacation Payment, the Compensation Payment, and the Expense Payment;
and
(iv) any payments to which he is entitled under any applicable compensation or
employee benefit plan or program in which he participates, including but not limited
to those referred to in Section 3.3 hereof.
6.3 Death. In the event of Executive’s death during the term of his employment
hereunder, Executive’s estate or designated beneficiaries shall receive or commence receiving, as
soon as practicable:
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(i) Executive’s Target Bonus in respect of the fiscal year in which his death
occurs, prorated by a fraction, the numerator of which is the number of days of the
fiscal year until his death and the denominator of which is 365;
(ii) any death benefits provided under the employee benefit programs, plans and
practices referred to in Section 4.1 hereof, in accordance with their terms;
(iii) the Vacation Payment, the Compensation Payment, and the Expense Payment;
and
(iv) any payments to which he is entitled under any applicable compensation or
employee benefit plan or program in which he participates, including but not limited
to those referred to in Section 3.3 hereof.
6.4 Termination By the Company for Cause or By Executive without Good Reason. (a) The
Company shall have the right to immediately terminate the employment of Executive under this
Agreement for Cause, and Executive shall have the right to terminate his employment under this
Agreement without Good Reason upon 90 days prior written notice to the Company. In the event that
Executive’s employment is terminated by the Company for Cause or by Executive without Good Reason,
notwithstanding any other provision in this Agreement, Executive shall be entitled only to the
Compensation Payment, the Vacation Payment, and the Expense Payment, and shall not be entitled to
any further compensation or benefits hereunder including, without limitation, the payment of any
bonus in respect of all or any portion of the fiscal year in which such termination occurs.
(b) As used herein, the term “Cause” shall mean and be limited to (i) willful
misconduct by Executive which results in a demonstrable injury (which is other than de minimis or
insignificant) to the Company, (ii) willful and continued failure by Executive to perform his
material duties with respect to the Company or its subsidiaries, which failure continues beyond 10
days after a written demand for substantial performance of such duties was given to Executive by
the Company, or (iii) Executive’s conviction of, or plea of nolo contendere to, a
felony or to a misdemeanor involving moral turpitude. Termination of Executive for Cause pursuant
to Section 6.4(a) shall be made by delivery to Executive of written notice that, in the reasonable
judgment of the Board, Executive was guilty of conduct set forth in any of clauses (i) through
(iii) above and specifying the particulars thereof.
7. Release. Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to pay Executive the Severance Payment pursuant to Section 6.1 in the event
Executive’s employment is terminated by the Company without Cause (other than as
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a result of Executive’s death or Permanent Disability) or by Executive for Good Reason and any
options held by Executive to purchase the Company’s common stock shall not be exercisable after the
termination of the Executive’s employment hereunder unless the Executive executes and delivers to
the Company a release, dated the date of his termination of employment, to the effect that: for
good and valuable consideration, the Executive unconditionally releases and covenants not to xxx
the Company and its subsidiaries and affiliates and directors, officers, employees and stockholders
thereof, from any and all claims, liabilities and obligation of any nature pertaining to
termination of employment other than those explicitly provided for by this Agreement including,
without limitation, any claims arising out of alleged legal restrictions on the Company’s right to
terminate its employees, such as any implied contract of employment or termination contrary to
public policy or to laws prohibiting discrimination (including, without limitation, the Age
Discrimination in Employment Act); and containing such other provisions as the Company may request
to effect the purposes of the foregoing release.
8. Mitigation of Damages. Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other employment or otherwise
after the termination of his employment hereunder.
9. Notices. All notices or communications hereunder shall be in writing, addressed as
follows:
To the Company:
MedCath Corporation
00000 Xxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Chief Executive Officer
00000 Xxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Chief Executive Officer
with a copy to:
MedCath Corporation
x/x Xxxxxxxx Xxxxxx Xxxxxxx & Co.
0000 Xxxx Xxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
(Attn: Xxxx X. Xxxxxxx)
x/x Xxxxxxxx Xxxxxx Xxxxxxx & Co.
0000 Xxxx Xxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
(Attn: Xxxx X. Xxxxxxx)
with a copy to:
Xxx X. Xxxxxxxx, Esq.
Xxxxx & Xxx Xxxxx, PLLC
000 X. Xxxxx Xxxxxx, Xxxxx 00
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000-0000
Xxxxx & Xxx Xxxxx, PLLC
000 X. Xxxxx Xxxxxx, Xxxxx 00
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000-0000
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To Executive:
O. Xxxxx Xxxxxx
[the most recent address
on the Company’s employment
records for Executive]
[the most recent address
on the Company’s employment
records for Executive]
Any such notice or communication shall be delivered by hand, by telecopy (with machine
confirmation) or by courier or sent certified or registered mail, return receipt requested, postage
prepaid, addressed as above (or to such other address as such party may designate in a notice duly
delivered as described above), and the third business day after the actual date of mailing shall
constitute the time at which notice was given.
10. Separability; Legal Fees. If any provision of this Agreement shall be declared to
be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not
affect the remaining provisions hereof which shall remain in full force and effect. Each party
shall bear the costs of any legal fees and other fees and expenses which may be incurred in respect
of enforcing its respective rights under this Agreement.
11. Assignment. This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the Company, but neither
this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of intestate succession) or
by the Company, except that the Company may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of
the Company, if such successor expressly agrees to assume the obligations of the Company hereunder.
12. Amendment. This Agreement may only be amended by written agreement of the parties
hereto.
13. Nondisclosure of Confidential Information; Non-Competition; Non-Disparagement.
(a) At any time during or after Executive’s employment with the Company, Executive shall not,
without the prior written consent of the Company, use, divulge, disclose or make accessible to any
other person, firm, partnership, corporation or other entity any Confidential Information (as
hereinafter defined) pertaining to the business of the Company or any of its subsidiaries, except
(i) while employed by the Company, in the business of and for the benefit of the Company, or (ii)
when required to do so by a court of competent jurisdiction, by
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any governmental agency having supervisory authority over the business of the Company, or by any
administrative body or legislative body (including a committee thereof) with jurisdiction to order
Executive to divulge, disclose or make accessible such information. For purposes of this Section
13(a), “Confidential Information” shall mean non-public information concerning the
financial data, strategic business plans, and other non-public, proprietary and confidential
information of the Company, its subsidiaries, Kohlberg Kravis Xxxxxxx & Co., Welsh, Carson,
Xxxxxxxx & Xxxxx VII, L.P., or their respective affiliates as in existence as of the date of
Executive’s termination of employment that, in any case, is not otherwise available to the public
(other than by Executive’s breach of the terms hereof). Confidential Information further includes
without limitation customer information, vendors, operations and operating procedures, pricing,
financial information, technology, marketing strategies, design of facilities, employment
practices, contractual agreements, and trade secrets.
Executive agrees that both while employed by the Company and following termination of
Executive’s employment with the Company at any time in the future:
(i) Executive will take all reasonable precautions to safeguard all
Confidential Information at all times so that it is not communicated to, exposed to,
available to, or taken by any unauthorized person and will personally use or
disclose such information; and
(ii) Executive will exercise Executive’s best efforts to assure the safekeeping
of the Company’s Confidential Information.
Upon termination of Executive’s employment with the Company, Executive agrees to immediately
return to the Company all Confidential Information and other Company property, including without
limitation all originals, copies, computer data, or other records or information. It is understood
and agreed that Confidential Information and other property of the Company shall remain at all
times the property of the Company.
(b) Recognizing the fact that Executive will be given or have access to the Confidential
Information described in this Section 13 above, and that Executive owes a duty of full loyalty to
the Company and its name, reputation and operational interests, Executive agrees that during the
period of Executive’s employment with the Company, Executive will not engage in or have an interest
in, either directly or indirectly, in any manner, whether as a shareholder, partner, owner,
investor, officer, director, advisor, employee, consultant, or in
any other capacity, any Competitive Business other than an ownership position of less than 5
percent in any company whose shares are publicly traded.
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In addition, Executive agrees that in the event that Executive’s employment with the Company
is terminated for any reason by either party, for a period of one (1) year from the date of
termination of employment, Executive will not, either directly or indirectly, whether as a
shareholder, partner, owner, investor, officer, director, advisor, employee or consultant with
responsibilities which are the same or similar as those which Executive had with the Company,
associate with, participate in or have an interest in any Competitive Business (other than an
ownership position by Executive of less than 5% in any company whose shares are publicly traded)
which is located or which operates within 50 miles of:
(i) any hospital, hospital cardiology or cardiovascular surgery program
or fixed site cardiac catheterization lab in each case which the Company
owns, whether all or in part, or manages or the Company’s corporate
headquarters, or
(ii) any location with respect to which the Company was actively
developing or negotiating as of the Separation Date to own or manage a
hospital, cardiac catheterization lab or a hospital’s cardiology or
cardiovascular surgery program (for purposes of this section, the term
“actively developing or negotiating” means either definitive documents, a
letter of intent, memorandum of understanding or other comparable document
had been executed or the material terms thereof were being actively
negotiated).
For purposes of this Section 13, the term “Competitive Business” means any entity that
owns or manages hospitals, cardiac catheterization labs or any portion thereof and that derives,
directly or indirectly, more than 10% of its gross annual revenue from providing cardiology or
cardiovascular-related healthcare services.
(c) Executive further agrees that in the event Executive’s employment with the Company is
terminated for any reason by either party, for a period of one year from the date of termination of
employment, Executive shall not, on his own behalf or on behalf of any person, firm or company,
directly or indirectly, solicit or offer employment to any person who has been employed by the
Company or its subsidiaries at any time during the 12 months immediately preceding such
solicitation.
(d) Executive further agrees that in the event Executive’s employment with the Company is
terminated for any reason by either party, he will not communicate orally, in
writing or electronically (through, for example, the internet), including but not limited to,
at healthcare, financial or other conferences, seminars or meetings or at any other place or time,
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generally, specifically or by implication to any person or entity any opinions or comments
regarding the prospects, competence or skills of the Company or any facts, opinions or comments
that could reasonably be expected to reflect adversely upon the other or disparage, degrade, malign
or harm the reputation of the Company.
(e) Executive and the Company agree that the covenants in this Section 13 are reasonable
covenants under the circumstances, and further agree that if in the opinion of any court of
competent jurisdiction such restraint is not reasonable in any respect, such court shall have the
right, power and authority to excise or modify such provision or provisions of the covenants as to
the court shall appear not reasonable and to enforce the remainder of the covenants as so amended.
Executive agrees that any breach of the covenants contained in this Section 13 would irreparably
injure the Company. Accordingly, Executive agrees that the Company may, in addition to pursuing
any other remedies it may have in law or in equity, cease making any payments otherwise required by
this Agreement and obtain an injunction against Executive from any court having jurisdiction over
the matter restraining any further violation of this Agreement by Executive.
14. Beneficiaries; References. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following Executive’s death, and may change such
election, in either case by giving the Company written notice thereof. In the event of Executive’s
death or a judicial determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal
representative. Any reference to the masculine gender in this Agreement shall include, where
appropriate, the feminine.
15. Survivorship. The respective rights and obligations of the parties hereunder
shall survive any termination of this Agreement to the extent necessary to the intended
preservation of such rights and obligations, including the provisions of Section 13 herein. The
provisions of this Section 15 are in addition to the survivorship provisions of any other section
of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted and governed in
accordance with the laws of the State of North Carolina without reference to rules relating to
conflicts of law.
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17. Withholding. The Company shall be entitled to withhold from payment any amount of
withholding required by law.
18. Counterparts. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original.
| MEDCATH CORPORATION |
||||
| By: | /s/ Xxxx X. Xxxxx | |||
| Title: | Chairman of the Board | |||
| /s/ O. Xxxxx Xxxxxx | ||||
| O. Xxxxx Xxxxxx | ||||
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