EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered as of this 21st day of April, 1999
("Effective Date"), by and between Mid Atlantic Medical Services, Inc., a
Delaware corporation with its principal executive offices at ▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Company"), and ▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D. ("Executive")
and supercedes and replaces the employment agreements between the parties dated
December 4, 1998 and January 8, 1999;
WHEREAS, the Company wishes to assure itself of the services of
Executive for the period provided in this Agreement, and Executive is willing to
serve in the employ of the Company on a full-time basis for said period;
WHEREAS, the Company and Executive desire to set forth the amounts
payable and benefits to be provided by the Company to Executive while in the
employment of the Company and in the event of a termination of Executive's
employment with the Company under the circumstances set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. Employment. The Company agrees to continue Executive in its employ,
and Executive agrees to remain in the full time employ of the Company, for the
period stated in Section 3 hereof and upon the other terms and conditions herein
provided.
2. Position and Responsibilities. The Company employs Executive, and
Executive agrees to serve, as Chairman of the Board of Directors of the Company
on the conditions hereinafter set forth. Executive agrees to perform such
services consistent with his position as shall from time to time be assigned to
him by the Company's Board of Directors ("Board"), or another executive
designated by the Board. Such duties may include, in addition to his duties as
Chairman of the Board, the appointment of Executive as an officer and/or
director of any present or future subsidiary or affiliate of the Company without
any additional remuneration under this Agreement. Executive shall devote all of
his business time, attention, skill, and efforts to the faithful performance of
the duties hereunder. Executive acknowledges that his employment will be at the
pleasure of the Board.
3. Term. The period of Executive's employment under this Agreement with
the Company shall commence as of the Effective Date and remain in effect for
three years unless terminated earlier as provided herein.
4. Compensation and Reimbursement of Expenses. For all services
rendered by Executive as Chairman of the Board in addition to any other capacity
during employment under this Agreement (including, without limitation, services
as an executive, officer, or director of the Company, or any subsidiary or
affiliate of the Company, or as a member of any committee of the Board of
Directors of the Company or any subsidiary or affiliate of the Company), the
Company shall pay Executive as compensation (A) an annual salary ("Base
Salary"); (B) such bonus for such period, if any, as may be awarded to Executive
from time to time pursuant to any Bonus Plan adopted by the Company for its
senior management or otherwise awarded by the Board or by a committee designated
by the Board; and (C) stock options at the discretion of the Board or the
appropriate Committee of the Board.
Stock Options. By action of the Board on February 25, 1999, the Company
granted Executive 85,000 options to purchase MAMSI common stock at an exercise
price of $ 8.25 under the terms of the 1995 Non-Qualified Stock Option Plan.
Such options will vest on the date of the February 2000 Board meeting on the
following prorata basis over a period to be determined by the percentage
increase of 1999 earnings per share over 1998 earnings per share as adjusted for
one time items and as determined by the Board at its February 2000 meeting at
which 1999 audited earnings are announced:
1999 EPS % Increase Vesting Dates of Vesting
up to
$0.51 0-16% 5 years 1/5 in 2/2000; 1/5 in 2/2001
; 1/5 in 2/2002;1/5 in 2/2003;
1/5 in 2/2004
$0.54 23% 4 years 1/4 in 2/2000; 1/4 in 2001;
1/4 in 2/2002;1/4 in 2/2003
$0.57 30% 3 years 1/3 in 2/2000; 1/3 in 2/2001
1/3 in 2002
$0.60 36% 2 years 1/2 in 2/2000; 1/2 in 2/2001
$0.63 43% 1 year All in 2/2000
or greater
For the purposes of the above calculation, the 1998 earnings per share is
established at $.44 per share.
On January 1, 2000 and January 1, 2001, the Company will grant Executive
options to purchase no less than 150,000 shares of MAMSI common stock at the
stock price on the date of grant. Such options will vest 50% on the date of
grant and 50% based on performance to be determined by the Stock Option
Committee and the Board at the first Board meeting in 2000 and 2001
respectively.
Base Salary. Base Salary shall be not less than the rate at which
Executive is compensated on the Effective Date which is $525,000. Thereafter,
Base Salary shall be adjusted annually. For 2000 and each year thereafter, the
Executive Base Salary will increase or decrease by an amount equal to 50% of the
percentage change in the Company's consolidated net income as determined by the
Company, and audited by the Company's independent certified public accountant
but any annual increase may not be greater than 25 percent and any annual
decrease may not be greater than 12.5 percent. This increase or decrease would
first apply to the year 2000 and would take effect retroactively to January 1 of
the then current year. Items of a non-recurring nature may be excluded in the
calculations as mutually agreed to by the Company and the Executive.
The Company shall also reimburse Executive, in accordance with such
policies and procedures as the Board may establish from time to time, for all
reasonable travel and other expenses incurred by Executive in the performance of
his obligations under this Agreement. Executive shall also be entitled to
participate in any benefit plans established by the Company for which Company
executives are or shall become eligible.
5. Termination of Employment. Executive's employment under this
Agreement may be terminated by the Company or Executive as follows:
(a) Disability. (i) If Executive fails to perform his duties under this
Agreement on account of Disability (as hereinafter defined), the
Company may give notice to Executive to terminate this Agreement on a
date not less than ninety (90) days thereafter ("Notice Period") and,
if Executive has not resumed full performance of his duties under this
Agreement within such Notice Period, then Executive's employment under
this Agreement will terminate on the date provided in the notice
("Disability Termination Date").
(ii) During any period of Disability, the Company shall
maintain and pay for health and other insurance benefits for Executive
at least equal to those he had at the commencement of such Disability.
(iii) As used in this Agreement, the term "Disability" shall
mean the inability of Executive to perform his duties under this
Agreement by reason of his medical disability, as determined by an
independent physician selected with the approval of the Board and
Executive.
(b) Death. If Executive dies while employed under this Agreement, his
employment under this Agreement will terminate as of the date of his
death ("Date of Death"). Within thirty (30) days after the Date of
Death, the Company shall pay to Executive's legal representative
Executive's Base Salary as then in effect that has accrued to the last
day of the month in which the Date of Death occurs. If the Executive
dies while receiving payments pursuant to Section 5(c) below, said
payment shall continue for the period remaining and shall be paid to
the estate of the Executive.
(c)Certain Other Events of Termination. In the event that (i) the Company
terminates Executive's employment for any reason (other than because of
death, Disability, or "just cause" (as hereinafter defined) including
failure of the Executive to be re-elected as a member of the Board by the
Company's shareholders, (ii) Executive terminates his or her employment
with the Company because of the Company's material breach of this
Agreement, (iii) Executive terminates his employment with the Company
because the Company requires Executive to be based anywhere other than
Executive's current location or within seventy-five (75) miles round trip
of the Company's principal executive offices (except for required travel on
the Company's business), or (iv) Executive terminates his employment with
the Company because of a substantial reassignment of duties and
responsibilities, then the Company shall pay Executive an amount equal to
24 months Base Salary paid in equal bi-weekly payments over a period of two
years commencing on the Executive Termination Date and in accordance with
the regular payroll practices of the Company. The Company shall also pay
Executive any pro-rata bonus that the Executive would have been entitled to
had he been employed until the end of the year. Such bonus payment shall
occur when bonuses are normally paid by the Company. In addition, all stock
options which Executive has been granted shall immediately vest and become
exercisable under the terms of the applicable plan. For the purposes of the
time period available for exercising such stock options, Executive shall be
considered an employee of the Company unless terminated pursuant to
subsection (e) below. Payment made pursuant to this paragraph shall be the
exclusive remedy provided to Executive and Executive shall not be entitled
to any other severance benefit that the Company may provide or adopt unless
approved by the Board of the Directors of the Company.
(d) Retirement. Subject to the vesting schedule set forth below,
retirement benefits shall be payable to Executive on the day Executive
attains age sixty-two (62), (1) if he is at that time still employed by
the Company, and he elects to retire from employment with the Company,
or (2) he is not at that time employed by the Company, and elects to
begin receiving retirement benefits. This date shall be referred to as
the "Retirement Termination Date". Notwithstanding the above provision,
the Executive and the Company may agree that the Executive may continue
to be employed by the Company and not to retire at age 62.
Executive will be entitled to receive from the Company a
retirement benefit which will provide an annual lifetime benefit in an
amount equal to three percent of the total average Base Salary and
bonus compensation for the years beginning on or after January 1, 1999
times the number of years of service with the Company to a limit of 60%
of Executive's total compensation defined as the total amount of annual
salary and maximum annual bonus that Executive could have earned in the
calendar year of Executive's termination of employment with the
Company. This retirement benefit will vest 50% if Executive is employed
by the Company on January 1, 2000 and the remaining 50% if the
Executive is employed on January 1, 2001 and 100% immediately upon a
change in control, death or disability. Such retirement benefit shall
be paid in a lump sum with the initial payment made to the Executive on
the Retirement Termination Date and annually thereafter on each
anniversary of the Retirement Termination Date. The Company shall not
be obligated to pay any retirement benefit under this subsection if the
Executive is terminated for cause by the Company.
Executive may elect a survivor benefit upon the Retirement
Termination Date. If Executive dies prior to retirement, the
Executive's spouse shall be entitled to a lump sum benefit of the
actuarial equivalent of the retirement benefit earned to the date of
death.
If Executive is employed by the Company on the Retirement
Termination Date, the Company shall pay to Executive his Base Salary as
then in effect that has accrued to the last day of the month in which
the Retirement Termination Date occurs and any non-reimbursed business
expenses.
(e) Termination by the Company for Just Cause.
(i) The Company may terminate Executive's employment for "just
cause" at any time by giving written notice thereof to Executive.
(Except as provided below, the date of such notice is the "Just Cause
Termination Date" unless otherwise provided in the notice). Within
thirty (30) days after the Just Cause Termination Date, the Company
shall pay to Executive his Base Salary as then in effect that has
accrued to the Just Cause Termination Date. For the purposes of this
subparagraph, "just cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, breach of
fiduciary duty, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations
or similar offenses), or material breach of any provision of this
Agreement. Unless otherwise determined by the Board, Executive shall
have no right to receive compensation or other benefits under this
Agreement after a termination for just cause.
(ii) Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for just cause pursuant to this Section 5(e)
unless and until he shall have received a copy of a resolution duly
adopted by the affirmative vote of a majority of the Board, at a
meeting held for that purpose, declaring that in the good faith opinion
of the Board one or more of the conditions set forth in clause (i) of
this Section 5(e) has occurred and specifying the particulars thereof.
(f) Termination by Executive Without Cause. Executive may terminate
this Agreement without cause upon the provision of eight (8) weeks'
prior written notice to the Company. Upon such a termination, the
Executive shall receive the compensation set forth in Section 7 below.
No other payment shall be made to Executive under this Agreement other
than the retirement benefit in accordance with Section 5(d) of this
Agreement which has vested prior to the Executive's termination date
and any other non-reimbursed business expenses.
6. Change in Control. Notwithstanding any other provision to the contrary,
the following provisions will govern in the event of a change in control as
defined herein.
a. A change in control shall be deemed to have occurred if, at
any time, (I) substantially all the assets of the Company
shall have been sold or transferred by sale, merger or
otherwise, or if any "person" (as such term is used in
Sections 13(d) or 14(d) of the Exchange Act) is or becomes
the beneficial owner, directly or indirectly, of securities
of the Company representing 50% or more of the combined
voting power of the then-existing outstanding securities of
the Company.
b. In the event of a change in control as defined in Section
6(a) above, Executive shall be entitled to a lump sum payment
which shall be equal to two times the Executive's Base Salary
and two times the amount equal to the maximum bonus the
Executive could have earned under the applicable bonus plan
for the year in which such change in control occurs in lieu
of payment under the bonus plan. Upon payment of the lump sum
provided under this subsection, the obligations of the
Company to employ Executive under this Agreement shall cease.
c. In the event of a change in control as defined in Section
6(a) above, all stock options to which Executive has been
granted shall immediately vest and become exercisable. Such
acceleration of the vesting of stock options shall be in
addition to, and shall have no affect on, any payments
accrued pursuant to subsection 6(b).
d. In the event of a change in control as defined in Section
6(a) above, the Company shall also pay to Executive an amount
equal to the sum of (x) excise taxes imposed on the Executive
under Section 4999 of the Internal Revenue Code and (y)
income taxes due from the Executive with respect to the
payment of the amount in subsection (x) above as well as the
payment for income taxes under this subsection 6(d).
e. In the event of a change in control as defined in Section
6(a) above, or any successor changes in control thereafter,
the payment of all retirement benefits as defined in Section
5(d) of this Agreement shall become the obligation and
responsibility of the successor company or "person" noted in
Section 6(a) above.
7. Covenant Not to Compete. Executive covenants and agrees that, in
consideration of the amounts to be paid Executive hereunder and other good and
valuable consideration, for a period of one (1) year beyond the Without Cause
Termination Date, Executive shall not be employed as an executive officer of,
control, manage, or otherwise participate in the management of the business of a
"significant competitor" of the Company. The term "significant competitor" shall
mean any company or division of a company that, on Effective Date, directly or
indirectly, is materially (10% or more of its revenues) engaged in the operation
or management of a health maintenance organization or any other similar
provider, payer or insurer for medical services. The Company and Executive agree
that the terms and conditions of this Section 7 shall survive the termination of
this Agreement following the Termination Date.
In consideration of the Executive's covenant not to compete under this Section
7, the Executive shall be paid an amount equal to one year of the Executive's
pre-termination Base Salary.
8. Business Automobile. The Company shall pay to Executive a car
allowance of $450 monthly.
9. Health Insurance. Both the Executive and the spouse of the Executive at the
time of retirement or spouse upon death of the Executive will be eligible for
health coverage from the Company or its successor during the term of their
respective lives. Such health coverage to be paid for by Executive or the spouse
of the Executive with the normal Company contribution for active employees in
effect during the period of coverage.
10. Confidential Information. Executive shall fully comply with and abide
by the provisions of the Company's Employee Manual and other announced policies
in effect from time to time, including those provisions relating to the
protection of the Company's confidential information. The Company and Executive
agree that the foregoing provision shall survive the termination of this
Agreement for any reason whatsoever.
11. Indemnification. Employee shall be entitled to indemnification to the
full extent allowed by the Company's Certificate of Incorporation and Bylaws for
third party claims and to advances for expenses in defending against such
claims.
12. General Provisions.
(a) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto and supersedes any prior employment agreement between
the Company and Executive.
(b) No Duty to Mitigate. Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise, nor shall any amounts received from other employment or
otherwise by Executive offset in any manner the obligations of the Company
hereunder.
(c) Nonassignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof is assignable by
Executive, his beneficiaries, or legal representatives without the Company's
prior written consent; provided, however, that nothing in this Section 11(d)
shall preclude (i) Executive from designating a beneficiary to receive any
benefit payable hereunder upon his death, or (ii) the executors, administrators,
or other legal representatives of Executive or his estate from assigning any
rights hereunder to the person or persons entitled thereto.
(d) Notices. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by certified mail, return
receipt requested, first-class postage prepaid, to the parties to this Agreement
at the following addresses:
(i) if to the Company at:
Mid Atlantic Medical Service, Inc.
▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
and
(ii) if to Executive at the address set
forth on the signature page.
or to such other address as either party to this Agreement shall have last
designated by notice to the other party. All such notices and communications
shall be deemed to have been received on the earlier of the date of receipt or
the third business day after the date of mailing thereof.
(e) Binding Effect; Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended or shall be construed to give any person, other than the parties to
this Agreement or their respective successors or permitted assigns, any legal or
equitable right, remedy, or claim under or in respect of any agreement or any
provision contained herein.
(f) Waiver. No provision of this Agreement may be amended, waived,
discharged, or terminated except by an instrument in writing and executed by
each party. Any waiver of enforcement of any provision of this Agreement shall
not operate or be construed as a continuing waiver or a waiver of any other
provisions unless expressly stated in such instrument.
(g) Amendment. This Agreement may be terminated, amended, modified, or
supplemented only by a written instrument executed by Executive and the Company.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware, regardless of the law that
might be applied under principles of conflict of laws.
(i) Severability. If, for any reason, any provision of this Agreement
is held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall, to the full
extent consistent with law, continue in full force and effect. If any provision
of this Agreement shall be held invalid in part, such invalidity shall in no way
affect the rest of such provision not held so invalid, and the rest of such
provision, together with all other provisions of this Agreement, shall to the
full extent consistent with law continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and Executive has signed this Agreement, all as of the Effective
Date.
ATTEST: MID ATLANTIC MEDICAL SERVICES, INC.
By:/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(Corporate Seal) Name:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:President and CEO
WITNESS EXECUTIVE:/s/▇▇▇▇ ▇. ▇▇▇▇▇▇ MD
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇
Address: ▇ ▇▇▇▇ ▇▇
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