LIQUIDATED DAMAGES AGREEMENT
THIS LIQUIDATED DAMAGES AGREEMENT (the "Agreement") dated as of the 30th
day of June, 1997 is by and among those Shareholders of PIMA HEART ASSOCIATES,
P.C., an Arizona corporation (the "Company") who have executed this Agreement
below (each such person being individually referred to as a "Shareholder" and
collectively as the "Shareholders"), MEDCATH INCORPORATED, a North Carolina
corporation ("MedCath") and PIMA HEART PHYSICIANS, P.C., an Arizona professional
corporation (the "Practice").
RECITALS:
1. The Shareholders are the owners of all of the issued and outstanding
common shares of the Company;
2. The Shareholders are also the owners of Practice which specializes in
the practice of cardiology;
3. As of the date hereof, MedCath and the Shareholders have entered into
that certain Share Exchange Agreement and Plan of Reorganization (the "Share
Exchange Agreement") pursuant to which the Shareholders shall exchange their
common shares of the Company for common shares of MedCath;
4. As a material condition to the closing of such transaction, and as an
inducement to MedCath to enter into such transaction, each of the Shareholders
have agreed to become employed by the Practice and to cause the Practice to
enter into as of the date hereof a Service Agreement with the Company (the
"Service Agreement");
5. MedCath would not enter into the Share Exchange Agreement if each of the
Shareholders had not agreed to be employed by the Practice and to enter into
this Agreement;
6. The Shareholders acknowledge that MedCath and the Company will be
materially damaged if they fail to remain employed by the Practice in accordance
with the terms of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The parties hereto acknowledge that the Company is, as of the date
hereof, entering into the Service Agreement with the Practice, which Service
Agreement requires that for the benefit of the Practice and the Company, that
each of the Shareholders, as physician employees of Practice as of the date
hereof, execute an employment agreement (an "Employment Agreement") for the
provision of the full-time service of such individual. MedCath would not enter
into the Share Exchange Agreement unless each of the Shareholders so agreed to
remain employed by the Practice in that their employment by Practice enhances
the value of the Service Agreement and also therefore, the value of the Company
to MedCath. The Shareholders agree and covenant that except as provided in
Schedule 1 attached hereto, each such Shareholder as a
physician employee of the Practice shall remain employed by the Practice
pursuant to the terms of such Shareholder's respective Employment Agreement for
at least five (5) years from the Closing Date (as defined in the Share Exchange
Agreement) subject only to the death or permanent disability of any such
physician employee. The Shareholders shall have breached their covenants set
forth in this paragraph 1 in the event that any Shareholder fails to so remain
employed by Practice for at least five (5) years from the Closing Date unless
such Shareholder is a "Retiring Shareholder" or a "Part-Time Shareholder" as
defined in Schedule 1 attached hereto.
2. Each of the Shareholders further hereby acknowledge and agree that
MedCath and the Company will incur substantial losses and damages in the event
that any Shareholder as a physician employee of Practice fails to fulfill his
obligations to remain employed by the Practice for at least five (5) years from
the Closing Date, except in the case of a Retiring Shareholder or a Part-Time
Shareholder as defined in Schedule 1. Accordingly, in the event that any
Shareholder of the Practice as of the date hereof (the "Breaching Physician")
hereafter ceases to be employed on a full-time basis for any reason by Practice
for at least five (5) years from the Closing Date (other than due to the death
or permanent disability of any such physician employee or in the case of a
Retiring Shareholder), which failure shall constitute a material breach of their
covenants in paragraph 1 hereof and which shall materially decrease the value of
the consideration received by MedCath pursuant to the Share Exchange Agreement,
then all of the Shareholders, jointly and severally, agree to indemnify MedCath
for its losses and damages suffered as a result of such failure. Due to the
difficulty in measuring such loss, MedCath and the Shareholders agree that upon
any such Breaching Physician's failure to fulfill his obligation to so remain
employed for five (5) years by Practice from the Closing Date, the Shareholders
shall be jointly and severally obligated to pay to MedCath as indemnification,
liquidated damages in an amount determined as set forth in Schedule 1 attached
hereto, provided that nothing herein shall release Practice or its Shareholders
as physician employees from any noncompetition covenant or restriction to which
they are a party during such five (5) year period and for the one (1) year
period thereafter. Such amounts of liquidated damages shall be due in full
within fifteen (15) days of demand therefore by MedCath.
3. In the event of any conflict or inconsistency between the terms of any
Employment Agreement between a Shareholder and Practice (other than the terms
set forth in Section 6 of any such Employment Agreement), the Service Agreement,
this Agreement and the Share Exchange Agreement (collectively, the "Controlling
Documents") on the one hand, and the terms of Section 6 of any such Employment
Agreement or any rules and regulations incorporated therein on the other hand,
the parties hereto agree that the Controlling Documents shall govern and control
all such conflicts, inconsistencies, issues and matters.
4. It is further acknowledged and agreed that any termination for any
reason of the Employment Agreement which each Shareholder has entered into with
the Practice shall not release a Shareholder from any obligation or liability
which he may have under any of the Controlling Documents or under any provision
of the Employment Agreement containing noncompetition or other restrictive
covenants.
5. The parties hereby incorporate the terms and conditions of Article XIII
from the Share Exchange Agreement in their entirety as if all such provisions
were fully set forth herein.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MEDCATH INCORPORATED
By: /s/ Xxxxx Xxxxx
--------------------------------------
Title: Executive V.P. & C.O.O.
PIMA HEART PHYSICIANS, P.C.
By: /s/ Xxxxxxxx X. Xxxxxxx
--------------------------------------
Title:___________________________
/s/ Xxxxxxx X. Xxxxx
-----------------------------------------
Xxxxxxx X. Xxxxx, M.D.
/s/ Xxxx X. Xxxxxx
-----------------------------------------
Xxxx X. Xxxxxx, M.D.
/s/ Xxxxxxxx X. Xxxxxxxxx
-----------------------------------------
Xxxxxxxx X. Xxxxxxxxx, M.D.
/s/ Xxxxx X. Xxxxx
-----------------------------------------
Xxxxx X. Xxxxx, M.D.
/s/ Xxxxx X. Xxxxxxx
-----------------------------------------
Xxxxx X. Xxxxxxx, M.D.
/s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx, M.D.
/s/ Xxxxxx Xxxxx-Xxxxx
-----------------------------------------
Xxxxxx Xxxxx-Xxxxx, M.D.
/s/ Xxxx X. Xxxxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxxxx, M.D.
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/s/ Xxxxxxx X. Xxxxxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxxxxx, M.D.
/s/ Xxx X. Xxxxxxx
-----------------------------------------
Xxx X. Xxxxxxx, M.D.
/s/ Xxxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxxx X. Xxxxxxx, M.D.
/s/ Xxxxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxxxx X. Xxxxxx, M.D.
/s/ Xxxxxxx X. Winter
-----------------------------------------
Xxxxxxx X. Winter, M.D.
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SCHEDULE 1
TO THE
LIQUIDATED DAMAGES AGREEMENT
BY AND BETWEEN
MEDCATH INCORPORATED
AND
THE SHAREHOLDERS OF
PIMA HEART ASSOCIATES, P.C.
June 30, 1997
Liquidated Damages.
1. In the event of a breach of paragraph 1 of this Agreement due to a
Shareholder's ceasing to be employed by Practice for any reason other than as a
result of his death or permanent disability (a "Breaching Physician"), unless
such Shareholder is a Retiring Shareholder or a Part-Time Shareholder as defined
Paragraph 5 below, the amount of "Liquidated Damages" immediately due to MedCath
from the Shareholders, shall equal the Breaching Physician's Consideration
Allocation reduced by the Breaching Physician's Management Fee Allocation.
"Consideration Allocation" shall mean the amount listed in Paragraph 2 below
that is allocated to the Breaching Physician as provided in Paragraph 3 below.
Such obligation to pay the Liquidated Damages shall be a joint and several
liability of the Shareholders. A Breaching Physician's "Management Fee
Allocation" shall mean the cumulative Management Fee paid by Practice to Manager
under Section 8.1 of the Service Agreement, calculated however by excluding all
Manager Expenses, Practice Expenses, and Physician Surplus and any payment of
liquidated damages which is due to Manager pursuant to the Service Agreement
therefrom, which Practice allocated through the date of the event giving rise to
application of this Schedule 1 to the Breaching Physician in determining his
compensation under his employment agreement with Practice.
2. The "Consideration Allocation" to be allocated among the Shareholders
shall equal:
[ ] If the breach occurs between Closing and the last day of
the sixth (6th) month after Closing.
[ ] If the breach occurs between the first day of the seventh
(7th) month and the last day of the twelfth (12th) month
after Closing.
[ ] If the breach occurs between the first day of the
thirteenth (13th) month and the last day of the
eighteenth (18th) month after Closing.
The Consideration Allocation shall be further increased by nine percent
(9%) for each six (6) month period after the eighteenth (18th) month until
the fifth (5th) anniversary.
[ ] These portions have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
3. Listed below is the allocation of the Consideration Allocation among the
Shareholders as determined by Practice:
Percentage of Consideration Allocation
Shareholder Allocated to Shareholders
----------- -------------------------
Xxxxxxx X. Xxxxx, M.D. [ ]
Xxxx X. Xxxxxx, M.D. [ ]
Xxxxxxxx X. Xxxxxxxxx, M.D. [ ]
Xxxxx X. Xxxxx, M.D. [ ]
Xxxxx X. Xxxxxxx, M.D. [ ]
Xxxxxx X. Xxxxxx, M.D. [ ]
Xxxxxx Xxxxx-Xxxxx, M.D. [ ]
Xxxx X. Xxxxxxxxx, M.D. [ ]
Xxxxxxx X. Xxxxxxxxxx, M.D. [ ]
Xxx X. Xxxxxxx, M.D. [ ]
Xxxxxxxx X. Xxxxxxx, M.D. [ ]
Xxxxxxxx X. Xxxxxx, M.D. [ ]
Xxxxxxx X. Winter, M.D. [ ]
4. Notwithstanding the payment of Liquidated Damages as set forth above,
nothing herein shall release the Practice or the Breaching Physician from any
noncompetition covenant or restriction which shall remain in full force and
effect and MedCath shall also be entitled to any other equitable relief to which
it is entitled under this Agreement, the Service Agreement, any employment
agreement or otherwise (e.g., injunctive relief).
5. Notwithstanding anything herein to the contrary, Liquidated Damages
shall not be due if (x) at any time after three (3) years from the Closing Date,
up to three (3) Shareholders, who prior to their retiring are designated in
writing by the Practice as a "Retiring Physician" for purposes of this
Agreement, terminate their employment with the Practice in which event such
termination shall not be a breach of this Agreement or the Service Agreement as
long as such Shareholders have fully retired from the practice of medicine and
all other professional medical duties and (y) up to one (1) Shareholder in the
aggregate at any one time during the first year
[ ] These portions have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
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after the Closing Date and up to an aggregate of two (2) Shareholders at any one
time during the second through fifth years after the Closing Date elect
part-time status in accordance with Practice's policies (a "Part-Time
Shareholder") provided further that during the fourth and fifth years after the
Closing Date, the Practice may elect, upon prior written notice to Manager, to
reduce the maximum potential number of Retiring Physicians and replace each
Retiring Physician position which is eliminated with a position for an
additional Part-Time Shareholder; provided further however, at no time during
the fourth and fifth years after the Closing Date shall there be more than an
aggregate at any one time of five (5) Retiring and Part-Time Shareholders, and
there shall never be more than three (3) Retiring Shareholders in the aggregate
prior to the fifth anniversary of the Closing Date. All such Shareholders shall
remain subject to their noncompetition covenants set forth in their Employment
Agreement no less than for the remainder of such five (5) year period plus one
(1) year thereafter.
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