EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of October 1, 1997
by and between MEDCATH, INCORPORATED, a North Carolina corporation (the
"Company") and XXXXXXX X. XXXXXXX ("Xxxxxxx"), a resident of Charlotte, North
Carolina.
WHEREAS, the Company desires to employ Xxxxxxx and Xxxxxxx desires to
accept that employment;
NOW, THEREFORE, it is agreed as follows:
1. Employment. For new and very valuable consideration described
herein, the Company employs Xxxxxxx and Xxxxxxx accepts employment upon the
terms and conditions hereinafter set forth.
2. Duties. Xxxxxxx shall be Chairman of the Board, President and Chief
Executive 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, Xxxxxxx 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
Xxxxxxx from investing his personal assets in businesses which do not compete
with the Company and which will not require substantial services on the part of
Xxxxxxx in the operation of the affairs of the companies in which such
investments are made.
3. Compensation. For and in consideration of the services to be
rendered by Xxxxxxx hereunder, the Company shall pay to Xxxxxxx during the term
of this Agreement compensation described as follows:
(a) Base Salary. The Company shall pay to Xxxxxxx an annual
base salary (herein "Base Salary") of Two Hundred Fifty Thousand Dollars
($250,000.00) which shall be paid on a monthly basis.
(b) Cash Bonus Compensation. In addition to the Base Salary,
the Company shall also pay to Xxxxxxx annually bonus compensation (herein
"Bonus") which will be paid within 45 days of the end of each fiscal year of the
Company during the term of this Agreement. The Bonus for each fiscal year of the
Company will be tied to the Company's earnings per share as reported in its
annual financial statements before any extraordinary items set forth therein
(herein "EPS") and the annual EPS target for that year (herein "EPS Target") as
established by the Management and the Board of Directors. At the beginning of
each fiscal year, Management and the Board of Directors shall establish an
EPS Target for that year. At the end of each fiscal year, Xxxxxxx shall be paid
a Bonus based upon the following formula:
If the Company's actual EPS is 80% of the EPS Target or
greater (the comparative percentage of the EPS to the EPS Target is referred to
herein as the "Bonus Growth Percentage"), then Xxxxxxx'x Bonus shall be the
Bonus Growth Percentage multiplied times 50% of Xxxxxxx'x Base Salary for the
fiscal year then ended, subject to a maximum Bonus Growth Percentage of 120%. If
the Bonus Growth Percentage is less than 80%, no Bonus will be earned or paid.
(c) Base Salary Compensation. The Company recognizes that
Xxxxxxx has made substantial contributions to the success of the Company and
therefore he may also receive such increases to Base Salary and Bonus
Compensation as the Board of Directors may determine from time to time based
upon recommendations of the Compensation Committee of the Board of Directors. In
that regard, the Company agrees that at all times, Xxxxxxx'x base salary shall
be no less than the median base salary of chief executive officers for companies
of comparable size to Medcath.
4. Incentive Stock Options. Annually during the term of this Agreement,
the Company shall grant to Xxxxxxx options to purchase additional stock of the
Company, which options shall vest 25% in the year earned and 25% in each year
for the following three years, on the following terms and conditions:
(a) Number of Shares Granted. In determining the number of
shares contained in each annual option grant, the following definitions shall
apply:
(i) "EPS" 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 10%.
The Company shall grant to Xxxxxxx each year during the term of this Agreement
the option to purchase the number of shares calculated by subtracting the EPS
Growth Target Percentage of 10% from the Actual EPS Growth Percentage and
multiplying that percentage times the Outstanding Shares, and multiplying that
quotient times the Bonus Percentage. (For example, if the Actual EPS Growth Rate
calculation for a fiscal year is 17.6%, and the outstanding shares of the
Company are 11,600,000 shares, then Xxxxxxx for that fiscal year would earn an
option to purchase 88,160 shares [the formula as applied in this example is as
follows: .176 minus .10 equals .076 times 11,600,000 shares times .10 equals
88,160 shares]). Xxxxxxx'x maximum Incentive Stock Option Grant for each year
covered under the Agreement will be limited to no more than 1.67% of the shares
of the Company outstanding in that fiscal year and to no more than 4.05% of the
shares of the Company outstanding for the three year period covered by this
Agreement, such limits to exclude shares and Incentive Stock Option Grants
owned by Xxxxxxx as of the date of this Agreement.
(b) Purchase Price of Shares. For any options granted
hereunder, the purchase price of the stock shall be the market price or 10%
above the market price based upon regulations covering the granting of the
option.
(c) Exercise of Options. The time for exercising all options
granted hereunder shall be the maximum time period allowed by law.
5. Miscellaneous Benefits. The Company shall provide Xxxxxxx with all
additional benefits during the period of his employment substantially equivalent
to those which are generally provided to the executive officers of the Company.
The Company shall reimburse Xxxxxxx for reasonable expenses incurred by him in
the course of his employment with the Company provided those expenses are
consistent with reasonable policies provided from time to time by the Company's
Board of Directors.
6. Term and Termination of Employment.
(a) This Agreement shall have a term of three (3) years
commencing as of the date hereof, and shall be renewed automatically upon the
expiration of such term for consecutive one year terms unless either party gives
the other notice of nonrenewal at least 90 days prior to the end of the then
current term;
(b) By the Company for Cause. The Company shall have the right
to terminate Xxxxxxx'x employment for cause as provided herein by giving written
notice thereof. "Cause" shall mean that Xxxxxxx commits a 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. Xxxxxxx shall be deemed disabled if he has been
unable, by reason of physical or mental infirmity, to perform on a full-time
basis the duties of a principal executive officer of the Company then assigned
to him by the Company's Board of Directors for a period of nine (9) months or
more. The existence of disability shall be reasonably determined by the Board of
Directors of the Company (excluding Xxxxxxx).
(c) By the Company Without Cause or Upon Change of Control.
Subject to (e) below, Xxxxxxx'x employment may be terminated by the Company at
any time after the date six months from the date hereof without cause upon
written notice thereof, and in any event, this
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Agreement shall be terminated upon a Change of Control of the Company as defined
herein. For purposes of this Agreement, a "Change of Control" shall mean the
earliest date on which either of the following events shall occur:
(i) An individual, entity, or group shall acquire
otherwise than directly from the Company, beneficial ownership of 40% or more of
the outstanding common stock or voting power of the Company, provided that no
such individual, entity or group shall be deemed to beneficially own any
securities held by:
(1) the Company or any of its subsidiaries,
or
(2) any employee benefit plan of the Company
or any of its subsidiaries;
(3) any current employee of the Company; or
(ii) The persons who are directors of the Company on
the date of this Agreement, together with those who subsequently became
directors of the Company and whose election, or nomination for election by the
Company's shareholders, was approved by the vote of at least a majority of the
directors who were directors on the date of this Agreement, or directors whose
nomination or the continuing Directors as defined in the MedCath, Incorporated
Omnibus Stock Plan, as amended, shall cease to constitute a majority of the
Board or of its successor by merger, consolidation, or sale of assets.
(d) By Xxxxxxx. Xxxxxxx may terminate his employment upon at
least ninety (90) days' written notice.
(e) Salary and Benefits. (i) If the Company terminates
Xxxxxxx'x employment under this Agreement for any reason other than cause, or
this Agreement is terminated as the result of a Change of Control, then within
thirty days of the event causing such termination, the Company will pay to
Xxxxxxx in a lump sum, an amount equal to two times the total cash
compensation earned by Xxxxxxx during the immediately preceding fiscal year of
the Company, regardless of when such compensation was paid, plus an amount equal
to the then present value of two years of normal health, life insurance and
retirement benefits provided to Xxxxxxx pursuant to Paragraph 5 above. If this
Agreement is terminated as a result of a Change of Control, all stock options
previously granted to Xxxxxxx by the Company, including those granted prior to
the date of this Agreement, shall vest immediately. Further, if the Company
terminates Xxxxxxx'x employment under this Agreement for any reason other than
cause, then Xxxxxxx shall be granted the Incentive Stock Options described in
Paragraph 4 for the fiscal year in which such termination occurs with all
computations to be as of the date of termination.
(ii) Upon any termination of Xxxxxxx'x employment for
cause, Xxxxxxx shall be entitled to receive only his then accrued salary and
additional benefits.
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(iii) Upon termination of Xxxxxxx'x employment for
any reason, Xxxxxxx shall be entitled to receive only such additional benefits
as provided in this subparagraph (e) except for benefits which, under the terms
of the governing plan, he has earned the right to receive after his retirement
from the Company.
(iv) Upon termination of his employment by Xxxxxxx,
Xxxxxxx shall not be entitled to any additional salary or benefits other than
those accrued prior the date of termination. Notwithstanding anything herein to
the contrary, no further salary shall be due Xxxxxxx once he begins to receive
the proceeds of any disability insurance policy.
7. Confidentiality and Non-Disclosure. During the course of Xxxxxxx'x
employment, Xxxxxxx has been and will be exposed and have access to substantial
quantities of information and technology (the "Confidential Information")
relating to the Company's business that are valuable trade secrets or
confidential information, including information concerning customers and
marketing strategies.
The Confidential Information was developed, compiled and/or tested by
the Company at considerable expense, and the Company continues to spend
considerable amounts of money in building upon and expending that Confidential
Information. The 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).
Xxxxxxx, by reason of his role as an employee, officer, director, and
major shareholder of the Company, is familiar with and has access to the
Company's customers and their needs and to the marketing and pricing pursued by
the Company with respect to those customers and the Company's products and
services.
This Paragraph is designed to prohibit Xxxxxxx from using the
Confidential Information and knowledge and relationships developed as an insider
of the Company for his own benefit or for the benefit of parties other than the
Company. The Company would not give Xxxxxxx access to the Confidential
Information and authority without Xxxxxxx'x execution of this Agreement and
Xxxxxxx willingly signs this Agreement because he has received additional
consideration to do so and because he believes his relationship with the Company
is and will be in his own best interest. Both parties agree that this
Paragraph's provisions should be construed broadly in favor of the Company.
In light of the foregoing, the parties agree as follows:
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A. Confidential Information.
Xxxxxxx promises that:
(1) During or after termination of his relationship with the
Company, he will not, directly or indirectly, use, or disclose or make available
to anyone outside the Company, any Confidential Information.
(2) He will safeguard all Confidential Information at all
times so that it is not exposed to, or taken by, unauthorized persons, and, when
entrusted to him, will exercise his best efforts to assure its safekeeping.
B. Competition.
Xxxxxxx agrees that:
(1) He will not, during the period of his relationship with
the Company, engage or be interested, directly or indirectly, in any manner, as
a partner, officer, director, advisor, employee or in any other capacity in any
business which is a competitive business to the Company.
(2) The Company's business is unusual and that by virtue of
his relationship with the Company he is, and will become more, familiar with and
close to the Confidential Information and the Company's business and customers.
In the event this relationship with the Company ceases for any reason, he will
not engage in, for a period of twelve (12) months after that termination, in any
manner, directly or indirectly, whether as an employee, officer, owners,
partners, shareholder, consultant or otherwise, in the cardiology services
business or any other health care business in which the Company is specifically
engaged as of the date of such termination, within the continental United
States.
8. Renegotiation Rights. Both Xxxxxxx and the Company shall have the
right to require a renegotiation of the Bonus Compensation formula if
circumstances arise that cause the results of such formula to be unfair or
inequitable. Such circumstances include, but are not limited to, a combination
with another company, capital restructuring, material changes in accounting
rules or tax laws, severe or prolonged recession or inflation or any other
circumstance, whether intrinsic or extrinsic to the Company, that would
materially effect the bonus formula results. If in such circumstances the
Company and Xxxxxxx are unable to reach an agreement on a substitute Bonus
Compensation formula, the parties agree to submit the matter for binding
arbitration to the American Arbitration Association. Any change in the bonus
formula for Bonus Compensation may be made only on a prospective basis (i.e.,
only with respect to future years or a year as to which the deadline under
federal tax law for establishing a performance-based plan has not passed).
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9. Enforcement. If there is a breach or threatened breach of the
provision of Paragraph 7 of this Agreement, in addition to other remedies at law
or equity, the Company shall be entitled to injunctive relief. The parties
desire and intend that the provisions of Paragraph 7 shall be enforced to the
fullest extent permissible under the law and public policies applied, but the
unenforceability or modification of any particular paragraph, subparagraph,
sentence, clause, phrase, word, or figure shall not be deemed to render
unenforceable the remainder of Paragraph 7. Should any such paragraphs,
subparagraph, sentence, clause, phrase, word, or figure be adjudicated to be
wholly invalid or unenforceable, the balance of Paragraph 7 shall thereupon be
modified in order to render the same valid and enforceable.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be sent by registered or certified mail,
by other reasonable means of delivery providing overnight service, or by hand to
Xxxxxxx at 0000 Xxxxxxxxx Xxxxxxx, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000; to the
Company at 0000 Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000. Notice shall be
deemed to have been given when deposited with the Postal Service or other
delivery service or, if delivered by hand, when received by the addressee. A
party may change the address to which notice to it must be given by advising the
other parties in writing of the new address.
11. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the waiving party.
12. 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 Xxxxxxx under this Agreement may not be assigned by him.
13. Entire Agreement. This instrument may not be changed orally but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
14. Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of North Carolina applicable to contracts made and to
be performed in this State, without reference to choice of laws principles, and
that law shall be applied in connection with its enforcement in other states and
jurisdictions to the fullest extent possible.
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IN WITNESS WHEREOF, the parties have signed and sealed this Agreement
as of the date first above written.
MEDCATH, INCORPORATED
By: /s/ W. Xxxx Xxxxxx
------------------
Chair
Compensation Committee
ATTEST:
By: ________________________________
Secretary
[Corporate Seal]
/s/ Xxxxxxx X. Xxxxxxx
____________________________[SEAL]
Xxxxxxx X. Xxxxxxx
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