PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
To: Robert L. Smith
This Agreement establishes the terms of your employment with Paracelsus
Healthcare Corporation, a California corporation (the "Company") and reflects
your employment as the Company's Chief Executive Officer ("CEO").
Employment and Duties You and the Company agree to your employment
by the Company as the Company's CEO. In such
position, you will report directly to the
Company's Board of Directors (the "Board").
You agree to perform whatever duties the
Board may assign you from time to time that
are consistent with those of the CEO of a
public company. During your employment,
you agree to devote your full business
time, attention, and energies to performing
those duties (except as the Board otherwise
agrees from time to time). On termination of
your employment under this Agreement, you
agree that you will promptly resign as an
officer and director and from all other
officer and director positions at the
Company and its subsidiaries and affiliates
which you hold at that time.
You represent as a condition to your
employment under this Agreement that you are
not subject to any agreement or understanding
with any other person which might adversely
affect your ability to perform your work as
the Company's CEO under this Agreement.
Term of Employment Your employment under this Agreement shall
begin no later than _________, 2000 (the
"Effective Date") and, unless sooner
terminated or extended, shall end on
December 31, 2001. Your employment term under
this Agreement will be automatically
extended for the period of one additional
year on December 31 of each year, beginning
with December 31, 2001 absent notice on or
before October 1 of that year from either
you or the Company not to extend such term
for an additional year. The period running
from the Effective Date to December 31, 2001
or, if extended, to the last day of the
calendar year of such extension shall be
referred to in this Agreement as your "Term".
Compensation
Base Salary The Company will pay you a monthly base
salary (the "Monthly Base Salary") while
you are employed under this Agreement, and
your initial Monthly Base Salary shall be
$35,420 per month, payable in accordance
with the Company's generally applicable
payroll practices. Future adjustments to
your Monthly Base Salary will be made in
the discretion of the Company's Option
and Compensation Committee. However, no
future adjustments will reduce your Monthly
Base Salary below $35,420 per month.
Benefits While you are employed under this
Agreement, you will be eligible to
participate in the employee benefit and
fringe benefit plans and programs
generally available to the Company's
executive officers and such additional
benefits as the Board may from time to time
provide. If a participant is required to
make a contribution or pay a premium to
participate in any such plan or program, the
Company will reimburse you for up to $6,000
in such contributions and premiums which
you make or pay each calendar year. In
addition, you will be entitled while
employed to the following life insurance and
disability coverages and fringe benefits:
Life Insurance. The Company will maintain
(whether through individual or group
coverage or both) for your benefit while you
are employed life insurance coverage with a
face amount equal to three times the amount
of your annualized initial Monthly Base
Salary, $1,000,000 or the face amount of
coverage which can be purchased for a
premium of no more than $6,000 a year,
whichever is less. You will have the right
to name and to change from time to time the
beneficiary or beneficiaries under such life
insurance coverage. Such life insurance
coverage will be in addition to any death
benefits that may be payable under any
accidental death and dismemberment plan, any
separate business travel accident coverage,
or any qualified or nonqualified deferred
compensation plan in which you may
participate, and such coverage will also be
in addition to any life insurance that you
purchase for yourself.
Health Insurance. You agree to elect COBRA
coverage under your current employer's group
health plan. The Company will reimburse you
for your COBRA premiums while your COBRA
coverage is in effect, and the Company will
provide you, your wife and your children with
a comprehensive medical insurance and dental
insurance which shall be effective when your
COBRA coverage terminates.
Long-Term Disability. lf you become disabled
(as defined in the long-term disability plan
the Company presently maintains) while you
are employed, you will be eligible to
receive disability benefits in an amount
equal to 60% of your then annualized Monthly
Base Salary. Any amount payable under any
salary continuation plan or disability or
other plan maintained by the Company, and
any amount payable to you or to your
immediate family (if timely applied for) as
a Social Security disability benefit or
similar benefit will be counted towards the
Company's fulfillment of such obligation.
Disability benefits will be payable monthly
beginning 30 days following your disability
and will continue until you are no longer
disabled or, if earlier, until you reach age
65 or die, whichever comes first.
Liability Coverage. During your employment,
you will be insured under the Company's
general liability insurance policy for all
acts done by you in good faith to the same
extent as the Company insures other senior
officers of the Company.
Vacations and Holidays. You will be entitled
to five (5) weeks paid vacation time each
year, which will vest and accrue on a month
pro rata basis without an accrual limit
while you are employed and which can be
taken as reasonably agreed upon by you and
the Option and Compensation Committee. You
will be entitled to all holidays as listed
annually in the Company's official holiday
schedule.
Tax Return Preparation; Financial Advice.
The Company while you are employed will
provide you with the assistance of its
regular auditors for the preparation of your
federal and state tax returns without charge
to you. In addition, the Company will
reimburse you while you are employed up to
$5,000 per year for the reasonable costs you
actually incur for financial and estate
planning services.
Annual Physical. The Company while you are
employed will reimburse you 100% of the
reasonable costs you actually incur in
obtaining an annual, comprehensive physical
examination to be conducted by your choice
of physician, clinic, or medical group
located within a reasonable distance from
your place of employment.
Reimbursement for business expenses. Your
reimbursement for business expenses,
including travel and entertainment and
monthly country club dues, will be limited
to reasonable and necessary expenses you
actually incur on the Company's behalf in
connection with performing duties on the
Company's behalf and subject to (i) timely
submission of a properly executed Company
expense report form accompanied by
appropriate supporting documentation, and
(ii) compliance with Company policies and
procedures governing business expense
reimbursement and reporting based upon
principles and guidelines established from
time to time by the Board's Audit Committee,
including periodic audits by the Company's
Internal Audit Department or the Board's
Audit Committee.
Annual Performance Bonus. You shall have the
opportunity while you are employed to earn
an annual performance bonus of up to 50% of
your annualized Monthly Base Salary for each
year if you achieve the specific performance
goals mutually agreed upon by you and the
Option and Compensation Committee. Your
annual performance bonus will be paid no
later than 30 days after the completion of
the annual audit on which the bonus is
based.
However, if you fail to earn an annual
performance bonus for year 2000 equal to at
least 25% of your Monthly Base Salary
actually payable for calendar year 2000, you
nevertheless shall receive a minimum bonus
for calendar year 2000, provided that your
employment has not terminated before December
31, 2000, equal to 25% of your total Monthly
Base Salary payable for the calendar year
2000.
Long-term Incentive. When your employment
begins you shall receive a restricted stock
grant of 1,300,000 shares of the Company's
common stock .
This grant shall vest either under the
general vesting rule or the special vesting
rule, whichever is more favorable to you.
Under the general vesting rule this grant
shall vest 25% (or 325,000 shares) on
January 1, 2001, 25% (or 325,000 shares) on
January 1, 2002, 25% (or 325,000 shares) on
January 1, 2003 and 25% (or 325,000 shares)
on January 1, 2004. However, under either
the general vesting rule or the special
vesting rule you shall vest on a date only
if you are still the Company's CEO on that
date. Alternatively the option grant shall
vest under the special vesting rule as
follows:
(i) If the stock price hits $ 3.50 at any
time in the first eighteen (18) months of
your employment and closes for at least ten
(10) consecutive trading days at or above $
3.50, 35% (or 455,000) of the shares shall
become vested.
(ii) If the stock price hits $ 4.50 at any
time in the first twenty four (24) months of
your employment and closes for at least ten
(10) consecutive trading days at or above $
4.50, a total of 66% (or 858,000) of the
shares shall become vested.
(iii) If the stock price hits $ 6.00 at any
time in the first thirty-six (36) months of
your employment and closes for at least ten
(10) consecutive trading days at or above $
6.00, 100% of the shares shall become vested.
If your employment is terminated by the
Company without Cause (as defined in this
Agreement) and your right to your restricted
stock is less than 50% vested, your right to
such stock shall automatically increase to
vest 50% (or 650,000 shares).
If your employment is terminated for Cause
(as defined in this Agreement), you will
forfeit all your unvested restricted stock.
If there is a change of control in the
Company as a result of a change in ownership
of thirty percent (30%) or more or a change
of three (3) or more of the members of the
Company's seven (7) member Board of Directors
(or a proportionate number of members if the
total number of members exceeds seven (7)) in
any annual term (other than a change in such
members which was approved by a majority of
the members of the Board of Directors who
were members at the beginning of such term or
which results from the death, voluntary
resignation or mandatory retirement of a
member) and your employment terminates within
the one (1) year period following such change
of control, your right to your restricted
stock will automatically vest 100%.
All of the foregoing stock figures shall be
adjusted up or down to reflect any stock
split or reverse stock split.
Finally, on each anniversary of this
Agreement, beginning on January 1, 2001, you
will be granted an additional stock option
(if you are still the Company's CEO) to
purchase 200,000 shares of the Company's
common stock (or an equivalent of that figure
if there is a stock split or reverse stock
split which increases or decreases the
current number of shares of the Company), no
stated par value, at an exercise price at the
fair market value of a share of such stock at
that time, with a term of ten (10) years.
These options become fully vested three years
after grant (if you are still the Company's
CEO).
Excise Tax. If, as a result of a change of
control, any option vesting or other
payments trigger a "golden parachute excise
tax" for you, such vesting may be delayed or
such payments may be suspended or cut back
to the extent required to avoid that tax.
Car Allowance. You shall be entitled to
receive an annual Car Allowance of $9,600,
payable per the Company's generally
applicable payroll practices.
Termination Subject to the provisions of this section,
you and the Company agree that the Company
may terminate your employment, or you may
resign, at any time with or without good
reason before the end of your Term, except
that, if you resign, you agree to provide the
Company with 90 days' prior written notice
(unless the Board has previously waived such
notice in writing or authorized a shorter
notice period).
For Cause The Company may terminate your employment for
"Cause" if you:
(i) act with willful disregard for the
Company's best interests; provided
however, that such act or action was not
approved by the Board;
(ii) seize an opportunity to enhance or
diversify the Company's business for
yourself instead of offering such
opportunity to the Company;
(iii) are convicted of or plead guilty or no
contest to a felony, or, with respect to
your employment, commit either a material
dishonest act or common law fraud or
intentionally violate any federal or state
securities or tax laws; or
(iv) violate the Company's code of conduct
or materially breach any provision of this
Agreement.
Your termination for Cause will be effective
immediately upon the Company's mailing or
transmission of notice of such termination.
However, before terminating your employment
for Cause for any reason (except for the
reason described in clause (iii)), the
Company will specify in writing to you the
nature of the act, omission, refusal, or
failure that it deems to constitute Cause and
give you 60 days after you receive such
notice to correct the situation (and thus
avoid a termination for Cause), unless the
Company agrees to extend the time for the
correction. You agree that the Board will
have the reasonable discretion to determine
whether the situation is correctable and
whether your correction is sufficient to
eliminate the basis for a termination for
Cause. If your employment is terminated for
Cause, the Company shall have no further
obligations to you under this Agreement.
Without Cause The Company may terminate your employment
under this Agreement at any time during your
Term without Cause. The termination will
take effect 60 days after the Company gives
you written notice of such termination. If
the Company terminates your employment
without Cause during your Term, the Company
shall pay you your then Monthly Base Salary
for the month in which you terminate and
shall pay you as severance pay an amount
equal to twenty-four (24) months of your
final Monthly Base Salary plus any Bonus
earned but not yet paid in one lump sum. The
Company thereafter shall have no further
obligations to you under this Agreement.
Finally, a failure by the Company to extend
your Term, or a failure by the Company to
renew or replace the surety bond described in
the next paragraph within 30 days prior to
its expiration (unless such deadline is
extended in writing by Robert L. Smith),
shall constitute a termination of your
employment by the Company without Cause.
The Company will establish a surety bond at a
mutually agreeable insurance company for an
amount of $850,000 upon execution of this
agreement to satisfy in whole or in part the
Company's obligations, if any, under this
part of this Agreement.
Resignation If you resign at any time during your Term,
the Company shall have no further
obligations to you under this Agreement.
If your employment is terminated, you shall
return within 3 business days any and all
property to the Company which you have in
your possession when your employment
terminates and any copies of any such
property.
Noncompetition You have disclosed to the Board, in writing,
and Secrecy all healthcare related interests,
investments, and business activities,
whether as proprietor, stockholder, partner,
co-venturer, director, officer, employee,
independent contractor, agent, consultant,
or in any other capacity or manner
whatsoever. You shall promptly
notify the Board, in writing, of any changes
in or additions to such interests, activities
or investments within 15 days of such change
or addition.
Without the written consent of the Board, you
may not engage in any of the following
actions during the period that is (a) prior
to your termination of employment with the
Company and (b) within two (2) years
following the termination of your employment
with the Company (the "Restricted Period"):
(i) own, either directly or indirectly, any
interest in any business that competes with
the "Primary Business" in which the Company
or any subsidiary or affiliate is engaged at
the time your employment terminates, within a
radius of 35 miles from any site, facility,
or location which is owned, managed or
operated by or affiliated with the Company or
any of its subsidiaries or affiliates,
including physician practices of any kind
(except with respect to the Company's
Baytown, Texas, facility, where such radius
shall be 5 miles). For purposes of this
Agreement, the term Primary Business shall
mean the delivery of integrated healthcare
services in markets where the Company or its
subsidiaries or affiliates own hospitals and/
or skilled nursing facilities, with the
hospital serving as the hub of the local
delivery system in conjunction with its
physical medical staff. In addition to
inpatient acute care, these services can
include (a) individual physician practices
and/ or physician based organizations such as
primary care and specialty clinics,
physician-hospital organizations or medical
service organizations, or physician medical
groups and (b) ambulatory surgery,
psychiatric services, occupational and sports
medicine centers, psychiatric after-care and
day care programs, and other diagnostic,
rehabilitative and treatment services. The
Board may modify, from time to time, the
definition of Primary Business to include any
additional business or service activity in
which the Company may engage during your Term
or to exclude any business or service in
which the Company ceases to engage;
(ii) participate or serve, either directly or
indirectly, whether as a proprietor,
stockholder, partner, co-venturer, director,
officer, agent, or in any other capacity or
manner whatsoever in any business or service
activity that competes with the Primary
Business;
(iii) directly or indirectly, solicit or
recruit any individual employed by the
Company, its subsidiaries or affiliates for
the purpose of being employed by you or by
any competitor of the Company on whose behalf
you are acting as an agent, representative or
employee, or convey any confidential
information or trade secrets regarding the
Company, its subsidiaries or affiliates to
any other person; or
(iv) directly or indirectly, influence or
attempt to influence customers of the Company
or any of its subsidiaries or affiliates to
direct their business to any competitor of
the Company.
In the event you violate any of these
noncompetition and secrecy provision, you
agree to repay any severance amount paid
pursuant to this Agreement and agree that you
shall forfeit all your outstanding stock
options held by you, except for those stock
options already vested.
You further expressly agree that the Company
will or would suffer irreparable injury if
you were to compete with the Company or any
subsidiary or affiliate in violation of this
Agreement and that the Company would by
reason of such competition be entitled to
preliminary or permanent injunctive relief in
a court of appropriate jurisdiction, and you
further consent and stipulate to the entry of
such preliminary or permanent injunctive
relief in such a court prohibiting you from
competing with the Company or any subsidiary
or affiliate of the Company in violation of
this Agreement upon an appropriate finding by
such court that you have violated this
Agreement.
You acknowledge and agree that in your
employment under this Agreement you will
occupy and will continue to occupy a position
of trust and confidence. You shall not,
except as may be required to perform your
duties under this Agreement or as required by
applicable law, until the expiration of the
Restricted Period or until such information
shall have become public other than by your
unauthorized disclosure, disclose (or
threaten to disclose) to others or use,
whether directly or indirectly, and any trade
secrets or confidential information regarding
the Company, its subsidiaries and affiliates,
and you agree that the Company would by
reason of such disclose or threatened
disclosure or other failure to comply, be
entitled to preliminary or permanent
injunctive relief in a court of appropriate
jurisdiction, and you further consent and
stipulate to the entry of such preliminary or
permanent injunctive relief in such a court
prohibiting you from disclosing any trade
secrets or confidential information in
violation of this Agreement upon an
appropriate finding by such court that you
have violated this Agreement. You agree never
to copy, and to deliver or return to the
Company, at the Company's request at any time
or upon termination or expiration of your
employment or as soon thereafter as possible,
all documents, computer tapes and disks,
records, lists, data, drawings, prints, notes
and written information furnished by the
Company, its subsidiaries or affiliates or
prepared by you during the term of your
employment by the Company, its subsidiaries
and affiliates.
You agree that you will hold in a fiduciary
capacity for the benefit of the Company and
any subsidiary and affiliate, and will not
directly or indirectly use or disclose, any
trade secret that you may have acquired
during the term of your employment under this
Agreement so long as such information remains
a trade secret. The term "trade secret" shall
mean information, including, but not limited
to, technical or nontechnical data, a
formula, a pattern, a compilation, a program,
a device, a method, a technique, a drawing, a
process, financial data, financial plans,
product plans, or a list of actual or
potential customers or suppliers that (a)
derives economic value, actual or potential,
from not being generally known to, and not
being generally readily ascertainable by
proper means by, other persons who can obtain
economic value from its disclosure or use and
(b) is the subject to reasonable efforts by
the Company and each subsidiary and affiliate
to maintain its secrecy. This provision
regarding trade secrets is intended to
provide rights to the Company which are in
addition to those rights the Company has
under the common law or applicable statutes
for the protection trade secrets.
The term "confidential information" under
this Agreement shall mean any secret,
confidential or proprietary information that
the Company or a subsidiary or an affiliate
(not otherwise included in the definition of
a trade secret under this Agreement) that has
not become generally available to the public
by the act of one who has the right to
disclose such information without violating
any right of the company or a subsidiary or
an affiliate.
You agree that your obligations under this
section are obligations which will continue
beyond the date your employment terminates.
You agree that you were separately and
adequately compensated for the obligations
described in this section, and that they
reasonably reflect the need for the Company
to protect its business interests.
Assignment The Company may assign or otherwise transfer
this Agreement and any and all of its rights,
duties, obligations, or interests under it
to any subsidiary or affiliate of the
Company. Upon such assignment or transfer,
any such business entity will be deemed to
be substituted for the Company
for all purposes. You agree that assignment
or transfer does not entitle you to
Severance. This Agreement binds and
benefits the Company and its assigns and
your heirs and the personal
representatives of your estate. Without the
Board's prior written consent, you may not
assign or delegate your obligations under
this Agreement or any or all your rights,
duties, or interests under it.
Severability lf the final determination of an arbitrator
or a court of competent jurisdiction
declares, after the expiration of the time
within which judicial review (if permitted)
of such determination may be perfected, that
any term or provision of this Agreement is
invalid or unenforceable, the remaining terms
and provisions will be unimpaired, and the
invalid or unenforceable term or provision
will be deemed replaced by a term or
provision that is valid and enforceable and
that comes closest to expressing the
intention of the invalid or unenforceable
term or provision.
Amendment; Waiver Neither you nor the Company may
modify, amend, or waive the terms of this
Agreement other than by a written instrument
signed by you and a director of the Company
duly authorized by the Board. Either party's
waiver of the other party's compliance with
any provision of this Agreement is not a
waiver of any other provision of this
Agreement or of any subsequent breach by such
party of a provision of this Agreement.
No Other Agreements This Agreement supercedes
and replaces any and all prior agreements
and understandings regarding the terms and
conditions of your employment, and this
Agreement constitutes the entire agreement
between you and the Company with respect to
such terms and conditions.
Withholding The Company will reduce its compensatory
payments to you for withholding and FICA
taxes and any other withholdings and
contributions required by law or elected by
you.
Governing Law The laws of the State of Texas (other than
its conflict of laws provisions) govern this
Agreement.
Notices Notices must be given in writing by personal
delivery, by certified mail, return receipt
requested, by telecopy, or by overnight
delivery. You must send or deliver your
notices to the Company's corporate
headquarters. The Company will send or
deliver any notice given to you at your
address as reflected on the Company's
personnel records. You and the Company may
change the address for notice by like notice
to the others. You and the Company agree
that notice is received on the date it is
personally delivered, the date it is
received by certified mail, the date of
guaranteed delivery by the overnight service,
or the date the fax machine confirms
effective transmission.
lf you accept the terms of this Agreement, please sign in the space indicated
below. We encourage you to consult before signing with any advisors you choose.
PARACELSUS HEALTHCARE CORPORATION
By:_______________________________________
Name:____________________________________
Title:_____________________________________
I accept and agree to the terms of employment set forth in this Agreement:
- --------------------------------
Robert L. Smith
Dated: December___, 1999