Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 15th
day of June, 2001, by and between NCRIC MSO, Inc. ("Employer") and L. E.
Shepherd, Jr. ("Employee").
Recitals:
A. Employer desires to retain Employee as its Employee-Advisor on the
terms and conditions hereinafter set forth; and
B. Employee desires to continue such employment, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth herein, the parties hereto agree as follows:
1. Employment. Employer hereby agrees to continue to employ Employee
for a term ending on December 31, 2002, as Employee-Advisor under the conditions
hereinafter specified. Employee accepts his employment under the conditions
hereinafter specified and agrees to devote his best efforts, energies and
abilities to the service of Employer and its affiliates on a full-time basis. As
of December 31, 2002, the Agreement shall expire and be of no further force and
effort.
2. Duties.
(a) Employee shall serve as Employee-Advisor of Employer and in such
other commensurate capacities of Employer, and/or any one or more affiliates of
Employer (collectively, the "Affiliated Companies"), and as he may from time to
time be assigned by Employer. Employee shall perform all of his duties
diligently and faithfully. Without limiting the generality of the foregoing,
Employee shall use his best efforts to maintain in good standing the Employer's
accounts and customer relationships, and shall diligently work to effect an
orderly transition of accounts and customer relationships on a timely basis
under the direction and supervision of the president of Employer. It is
understood and agreed that Employee shall not receive compensation beyond that
specified herein for services provided to the Affiliated Companies.
(b) Employee shall at all times devote his entire working time,
attention, energies, efforts and skills to the business of Employer and its
Affiliated Companies, and shall not, directly or indirectly, engage in any other
business activity, whether or not for profit, gain or other pecuniary
advantages, without the express written permission of Employer. Notwithstanding
the foregoing, Employee may serve on the board of directors of any non-competing
company and receive compensation therefore provided he obtains the advance
written approval of Employer, which shall not be unreasonably withheld, and
provided that any such service does not adversely affect his performance of his
duties for Employer (it being understood that membership in social, religious,
charitable or similar organizations does not require Board approval pursuant to
this Section 2(b)). Employee will not be required to account to Employer for any
compensation he may receive for such approved service on the board of directors
of a non-competing company, and such compensation shall not diminish in any way
the compensation or benefits to which he is entitled under this Agreement.
3. Compensation. Employer shall pay Employee compensation pursuant to
Schedule A of this Agreement.
4. Benefits.
a. Retirement and/or Pension Plan(s). Employee shall be entitled to
participate in any retirement and/or pension plan(s) offered to Employer's key
management employees as a group in accordance with the terms of such plan(s), as
they may be modified at Employer's discretion from time to time.
b. Health and Medical Insurance. Employee shall be entitled to
participate in any health and medical insurance plan(s) offered to Employer's
key management employees as a group in accordance with the terms of such
plan(s), as they may be modified in their application to all employees at
Employer's discretion from time to time.
c. Paid Sick Leave. Employee shall accrue one (1) day of paid sick
leave per month, up to a maximum of twelve (12) days of paid sick leave at any
given time. Accrued, but unused, paid sick leave may be carried over from one
year to the next in accordance with the policy in effect for Employer's
employees in general. All accrued, but unused, paid sick leave shall be
forfeited upon termination of employment.
d. Paid Vacation. Employee shall accrue four weeks of paid vacation
during each calendar year; however, in no event shall Employee use more than
three weeks at any one time. Accrued, but unused, paid vacation may be carried
over from one year to the next in accordance with the policy in effect for
Employer's employees in general. All accrued, but unused, paid vacation is
forfeited upon termination of employment by either party; provided, however,
that if Employee provides advance notice of his intent to terminate his
employment in accordance with paragraph 7 of this Agreement, Employer shall pay
him for all of his accrued, but unused, paid vacation, less standard
withholdings and deductions.
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e. Life Insurance. Employee shall be entitled to participate in any
term life insurance plan(s) offered to Employer's key management employees as a
group in accordance with the terms of such plan(s), as they may be modified at
Employer's discretion from time to time, provided that Employee is insurable at
standard rates. Employee shall be entitled to designate the beneficiary or
beneficiaries of such policy in his sole discretion. In the event that Employee
is not insurable at standard rates, and desires to be insured, Employee shall be
responsible for payment of any premiums or amounts charged in excess of the
standard rates for such insurance.
f. Disability Insurance. Employee shall be entitled to participate in
any disability income insurance policy (both long and short term) offered to
Employer's key management employees as a group in accordance with the terms of
such policies(s), as they may be modified at Employer's discretion from time to
time. Employer's disability income insurance policy provides for payments to
covered employees commencing after an "elimination period" of fifteen (15) days.
If, and when, Employee should begin to receive monthly disability payments under
the terms of Employer's disability income insurance policy then in force
Employer agrees to supplement said monthly disability payments by paying to
Employee the difference between such sums paid by the disability insurer and
Employee's salary as determined under the disability policy for a maximum period
ending on December 31, 2002. Following expiration of said period ending on
December 31, 2002, the coverage and provisions of Employer's disability income
insurance policy shall constitute the entire wage continuation plan provided in
this Agreement and, except for the payment of the premiums on such policy,
Employer shall have no further liability to Employee for wage continuation. It
is further understood that Employee's employment with Employer shall be
terminated following three (3) consecutive months of disability (being unable to
carry out the normal functions and requirements of his position with employer)
regardless of how and when the aforementioned disability income payments from
Employer's disability income insurance policy may be paid or due to Employee.
5. Expenses.
a. Business Expenses. Employer shall reimburse Employee for ordinary,
necessary and reasonable business expenses incurred by him in the discharge of
his duties hereunder, including but not limited to travel, lodging and
entertainment expenses, provided Employee furnishes appropriate documentation
for such expenses and that said expenses are in accordance with the company's
then prevailing policies and procedures regarding said expenditures.
b. Continuing Education Expenses. Employer shall pay the ordinary and
necessary costs associated with continuing education classes or continuing
education programs Executive participates in which are related to the company's
business interests, provided Executive furnishes appropriate documentation to
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Employer for such costs and gives the Chief Executive Officer of Employer
reasonable notice of any expenditures for continuing education.
c. Effect of Termination of Employment. All payment or reimbursement of
expenses authorized by Section 5 hereof shall cease upon Employee's termination
of employment regardless of cause for said termination, provided that any
expenses incurred by Employee prior to termination shall be reimbursed.
6. Termination of Employment by Employer.
a. Termination for Cause. The employment of Employee under this
Agreement, may be terminated for "cause" by Employer at any time by action of
the Board upon the occurrence of any one or more of the following events:
(i) Employee's fraud, dishonesty, gross negligence or willful
misconduct in the performance of his duties hereunder, including willful failure
to perform such duties as may properly be assigned him hereunder; or
(ii) Employee's material breach of any provision of this Agreement,
and Employee shall be notified in writing of such termination, which
notification shall specify the grounds cited by the Board for such termination
for cause. Any termination by reason of the foregoing shall not be in limitation
of any right or remedy which Employer may have under this Agreement or
otherwise. Upon termination for "cause", Employer shall have no further
obligations to Employee under this Agreement.
Should Employee dispute whether "cause" existed for his termination,
he shall notify Employer of his dispute in writing within fourteen days of the
receipt of the notice of termination, and the parties shall promptly proceed to
arbitration in accordance with paragraph 16 of this Agreement. Employer shall
continue to pay the Employee his Base Salary, and other compensation and
benefits in effect immediately prior to the termination. If it is determined
that termination was for cause, Employee shall return all cash amounts to
Employer promptly following the date of resolution by arbitration, with interest
commencing as of the date of the resolution of the dispute by arbitration (at
the prime rate as published in the Wall Street Journal from time to time). Any
cash amounts paid to Employee pending the resolution of the dispute by
arbitration shall offset any amounts due Employee under paragraph (b) below.
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b. Termination Without Cause.
(i) Employer may terminate Employee's employment without cause and at
any time. Employee shall be notified in writing of such termination on or prior
to the effective date of such termination.
(ii) If Employee's employment is terminated without cause, and
Employee waives all claims against Employer and the Affiliated Companies
relating to or arising out of his employment or the termination of his
employment by executing a general release of such claims in a form satisfactory
to the Employer, Employee shall receive, as severance pay, an amount equal to
the greater of three months of salary (calculated by taking the average monthly
salary for the preceding twelve months and multiplying by three), including any
holdback, or the amount of salary due pursuant to component 1 of Schedule A in
calendar year 2002 for the remaining term of this Agreement (assuming the
percent of time Employee would have worked for the remaining term of the
Agreement is the same as he worked during the month prior to his termination).
Such amount shall represent agreed-upon liquidated damages for any loss, cost,
expense or damages suffered as a result of such termination, as well as
consideration for Employee's execution of a General Release of all claims
against Employer and the Affiliated Companies. Employer shall pay such amount to
Employee in a lump sum on the effective date of termination.
7. Termination of Employment By Employee.
Employee may voluntarily terminate his employment with Employer
provided that he gives Employer sixty (60) days prior notice of such termination
or pays Employer liquidated damages equal to the amount of two months of salary
(calculated by taking the average monthly salary for the preceding twelve months
and multiplying by two). It is agreed that such liquidated damages are to
compensate Employer for injury by reason of Employee's termination of his
employment and not as a penalty, it being impossible to ascertain or estimate
the entire or exact cost, damages or injury that Employer may sustain by reason
of such termination. Employee shall have the right to terminate his employment
hereunder without paying Employer liquidated damages and without in any way
affecting his right to compensation or reimbursement (including, but not limited
to, the right to receive severance payments set forth in this Agreement), or any
other right under this Agreement, if Employer commits a material breach of the
terms and conditions of this Agreement and such breach is not cured within
thirty (30) days of Employer receiving written notice of such breach from
Employee. Such termination shall be deemed a termination without cause under
Section 6 of this Agreement.
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8. Protection of Employer
a. Confidential Information. Employee shall not at any time during or
after his employment with Employer or the Affiliated Companies directly or
indirectly disclose, discuss, divulge, copy or otherwise suffer confidential
information of Employer or the Affiliated Companies to be used, except as
required by the performance of his duties hereunder. For the purposes of this
Agreement, "confidential information" shall mean all information disclosed to
Employee by Employer or the Affiliated Companies, or known by him as a
consequence of or through his employment with Employer or the Affiliated
Companies where such information is not generally known in the trade or
industry, and where such information refers or relates in any manner whatsoever
to the business activities, processes, services or products of Employer or the
Affiliated Companies. Such information includes, but is not limited to, business
and development plans (whether contemplated, initiated or completed),
development sites, business contacts, customer lists, actuarial tables, loss
data, marketing information, policy forms, contracts, research of any kind,
methods of operation, results of analysis, business forecasts, financial data,
costs, revenues, and similar information. Upon termination of this Agreement,
Employee shall immediately return to Employer all of its property, and all
copies thereof, including without limitation all confidential information which
has been reduced to tangible form (including electronic form), in his
possession, custody or control.
b. Covenant Not to Compete. In consideration for this Agreement and the
Termination Agreement and Release dated June 15, 2001 by and among Employer,
Employee and certain other persons, Employee agrees that he shall not, during
his employment and for a period of two (2) years after the date on which either
Employee gives notice of his intention to terminate his employment or Employer
gives notice to employee, to terminate his employment, directly or indirectly,
either as an officer, director, employee, agent, adviser, consultant, principal,
stockholder, partner, owner or in any other capacity, on his own behalf or
otherwise, in any way (i) engage in, represent, be connected with, or have a
financial interest in, any other insurance company or management services
organization in the healthcare field, or any corporation, firm, association or
other business entity which is, or to the best of Employee's knowledge, is about
to become, engaged in the same or similar business as Employer or which
otherwise competes with or is about to compete with Employer in the District of
Columbia or any states where Employer may operate or are licensed to operate,
(ii) solicit or otherwise attempt to establish, for himself or any other person
or entity, any business relationship with any person or entity which was a
customer of Employer or an affiliate of Employer at any time during the two
years preceding such notice or (iii) solicit for employment or employ any person
who was an employee of Employer or an affiliate of Employer in the year
preceding such notice. Employee's ownership of not more than one percent (1%) of
the stock of any publicly traded corporation shall not be deemed a violation of
this covenant.
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Employee agrees that the restrictions imposed upon him by the provisions of this
paragraph 8 are fair and reasonably required for the protection of Employer and
the Affiliated Companies. Notwithstanding the foregoing, while the restrictions
in this Section 8.b continue, Employee may be employed as an administrator of a
medical practice (i) by only one person or entity that is not a client of
Employer or (ii) by only one client of Employer, with the consent of Employer,
which consent shall not be unreasonably withheld or delayed.
c. Remedies and Acknowledgment of Reasonableness. Employee acknowledges
that compliance with this paragraph is necessary for the protection of the
goodwill and other proprietary interests of Employer, and that, after carefully
considering the extent of the restrictions upon him and the rights and remedies
conferred upon Employer under this paragraph 8, the same are reasonable in time
and territory, are designed to eliminate competition which otherwise would be
unfair to Employer, do not stifle the inherent skill and experience of Employee,
would not operate as a bar to Employee's sole means of support, are fully
required to protect the legitimate interests of Employer, and do not confer a
benefit upon Employer disproportionate to the detriment to Employee.
Employee further acknowledges and agrees that in the event of a breach
of this paragraph 8, Employer would not have an adequate remedy at law because
the damages flowing from such breach would not be readily susceptible of
measurement in monetary terms and that Employer shall be entitled to injunctive
relief and may obtain a temporary order restraining any threatened breach or
future breach in addition to any other remedies which may be available at law or
equity. Nothing in this paragraph 8 shall be deemed to limit Employer's remedies
at law or in equity for breach of this or any other paragraph of this Agreement.
9. Death or Incapacitation. In the event that Employee dies or, due to
a physical or mental impairment as evidenced by the written opinion of a
physician duly licensed in Virginia, becomes unable to perform the essential
functions of his position with or without reasonable accommodation, this
Agreement shall be deemed terminated and Employee or his estate, as the case may
be, shall be entitled to no further salary, compensation or benefits hereunder,
except (i) any unpaid salary, incentive payments and vacation accrued and earned
by Employee up to and including the date of such termination, and (ii) any
disability, life insurance or other benefits to which Employee or his estate may
be entitled on the date of such termination in accordance with the terms and
conditions of any applicable benefit plan(s) as set forth in official plan
documents.
10. Assignment. This Agreement is a personal service agreement and
neither party shall have the right to assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party.
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11. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed properly given if delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested. If
mailed to Employer, such notices shall be sent to its principal place of
business, attention: Chief Executive Officer, or at such other address as
Employer may hereafter designate in writing to Employee. If mailed to Employee,
such notices shall be addressed to him at his home address last known on the
records of Employer, or at such other address as Employee may hereafter
designate in writing to Employer.
12. Successors Bound. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, estates and permitted successors and assigns.
13. Waiver. No provision hereof may be waived, except by a written
instrument signed by the party against whom such waiver is sought to be
enforced. The failure or waiver of either party hereto at any time, or from time
to time, to require performance by the other party of such other party's
obligation hereunder, shall not deprive that party of the right to insist upon
strict adherence to such obligation at any subsequent time. Each party hereto
agrees that any waiver of its rights arising out of any breach of this Agreement
by the other party shall not be construed as a waiver of any subsequent breach.
14. Amendment. No provision hereof may be altered or amended, except by
a written instrument signed by the party against whom such alteration or
amendment is to be enforced.
15. Governing Law. The parties agree that this Agreement shall in all
respects be construed, interpreted and enforced in accordance with and governed
by the laws of the District of Columbia, without regard to the principles of
conflict of laws thereof.
16. Arbitration. Whenever a "dispute" arises between the parties
concerning this Agreement (other than a dispute arising under paragraph 8
hereof) or their employment relationship, including without limitation the
termination thereof, the parties shall use their best efforts to resolve the
"dispute" by mutual agreement. If such a "dispute" cannot be so resolved, it
shall be submitted to final and binding arbitration to the exclusion of all
other avenues of relief. For the purposes of this paragraph, the term "dispute"
means all controversies or claims relating to terms, conditions or privileges of
employment, including without limitation claims for breach of contract,
discrimination, harassment, wrongful discharge, misrepresentation, defamation,
emotional distress or any other personal injury, but excluding claims for
unemployment compensation or worker's compensation. The dispute shall be
submitted to the Washington, D.C. office of the American Arbitration Association
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("AAA") and adjudicated in accordance with AAA's Rules for Commercial
Arbitration then in effect. The decision of the Arbitrator must be in writing
and shall be final and binding on the parties, and judgment may be entered on
the arbitrator's award in any court having jurisdiction thereof. The expenses of
the arbitration shall be borne equally by the parties, and each party shall be
responsible for his or its own costs and attorneys' fees; provided, that the
Employee shall not be responsible for the cost of arbitration if he is
successful in whole or part in arbitration. The Arbitrator shall be deemed to
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration; provided, however, that nothing in this
paragraph shall be construed so as to deny Employer the right and power to seek
and obtain injunctive relief in a court of equity for any breach or threatened
breach by Employee of any of the provisions contained in paragraph 8 of this
Agreement. This paragraph shall survive the termination of this Agreement.
17. Severability. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be construed, or if any
such provision is held invalid or unenforceable by a court of competent
jurisdiction or an arbitrator, such provision shall be deleted from this
Agreement and the Agreement shall be construed to give full effect to the
remaining provisions thereof.
18. Headings and Captions. The paragraph headings and captions
contained in this Agreement are for convenience only and shall not be construed
to define, limit or affect the scope or meaning of the provisions hereof.
19. Entire Agreement. (a) This Agreement contains and represents the
entire agreement between the parties and supersedes all prior agreements,
representations or understandings, oral or written, express or implied with
respect to the subject matter hereof, including the Employment Agreement dated
as of January 4, 1999 by and between Employer and Employee, which the parties
acknowledge has been terminated and has no further legal force and effect.
(b) This Agreement may not be modified or amended in any way unless in
writing signed by both Employee and the Chief Executive Officer of Employer.
No representation, promise or inducement has been made by either party hereto
that is not embodied in this Agreement, and neither party shall be bound or
liable for any alleged representation, promise or inducement not specifically
set forth herein.
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IN WITNESS WHEREOF, the parties have executed this Employment
Agreement on the date and year first written above.
NCRIC MSO, Inc.
By: /s/ Stephen S. Fargis
-------------------------------------
Stephen S. Fargis
President
Employee
/s/ L. E. Shepherd, Jr.
-----------------------
L. E. Shepherd, Jr.
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Schedule A
Compensation
The purpose of the Compensation is to motivate individual and company
performance and to hold the Employee accountable for performance within his
control while encouraging a cooperative approach.
Calendar year 2001
For the calendar year 2001, the Employee will earn $150,000 in Compensation if
NCRIC MSO achieves targeted revenue. This compensation is inclusive of all
benefits (excluding Employer paid benefit premiums as stated in paragraph 4 of
the agreement), professional dues and educational expenses.
The targeted revenue for NCRIC MSO in 2001 is $5.664 million. For every three
dollars and sixty-five cents ($3.65) in excess of targeted revenue, a dollar
($1.00) will be included in an incentive pool up to a maximum of $100,000. In
addition to his regular compensation ($150,000), the Employee is eligible for
one third of the incentive pool. This incentive pool will be paid as soon as
feasible after year-end reconciliation but no later than March 31, 2002.
If targeted revenue is below $5.664 million, the Employee's compensation will be
reduced. For revenues between $5.564 million and $5.664 million, the overall
compensation pool will decrease twenty-seven cents ($0.27) for every dollar
($1.00) below the revenue target. For revenues less than $5.564 million, the
overall compensation pool will decrease one dollar ($1.00) for every dollar
($1.00) below $5.564 million. The overall compensation pool can decrease to a
maximum of $100,000. The Employee's loss in compensation is one third of the
decrease in the incentive pool up to a maximum of $33,333.33.
For the remainder of the calendar year after this agreement goes into effect,
the Employee's monthly compensation will be determined as annual compensation of
$150,000, less any compensation received year to date (including professional
dues, benefits and educational expenses), less 50% of the potential decrease in
compensation if targeted revenue is not achieved ($16,666.67), divided by the
remaining number of months in the calendar year. The held back portion of
compensation will be paid as soon as feasible after year-end reconciliation but
no later than March 31, 2002. By signing this agreement the Employee agrees to
reimburse NCRIC MSO for any overpayment of compensation in the event the held
back portion of compensation is not sufficient. Repayment for over compensation
must be paid in full as soon as the overpayment is realized (at year-end
reconciliation). The
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Employee must have been employed through 2001 to be eligible for the held back
portion of compensation (with the exception of termination under paragraph 9 of
the employment agreement).
Calendar year 2002
Compensation Features
There are three main features of the Compensation program: account transition
and retention, new business development, and profitability.
1) The Employee is expected to manage his own client base, transition
accounts, and support consultants in the retention of clients. Over the
period of this agreement, the percent of accounts directly managed by
the Employee should change from 100% today to 0 % by December 31, 2002.
Immediately upon execution of this agreement, the Employee will work
with the President of MSO to determine a schedule for accounts to be
transitioned to other consultants. The Employee will work with the
President of MSO to identify the consultants to whom the accounts
should be transitioned. The transition process should commence as soon
as possible but no later than January 1, 2002. The transition should be
complete (as defined as having the new consultant be recognized as the
primary contact for the client and be operating as the primary
consultant for a period of 90 days) by December 31, 2002.
The Employee has the potential to earn compensation of $150,000 in 2002
regardless of whether he is directly managing the account,
transitioning the account to another consultant, or supporting the
consultant to ensure retention. This compensation is inclusive of all
benefits, professional dues and educational expenses.
2) A significant duty of the Employee is to develop new clients who
contract for management consulting business with NCRIC MSO. The new
business is to be managed by MSO consultants other than the Employee.
New business will result in Compensation of 10 % for every dollar in
new management consulting fees contracted with the new client for the
first year of the contract. Payment is made after year-end
reconciliation but no later than March 31, 2003.
3) Profitability of the Company is a shared responsibility of all
employees. The Employee should make every effort to ensure the
profitability of the Company. The Employee is eligible to participate
in the 2002 annual corporate incentive plan. If NCRIC MSO achieves its
targets, an incentive plan is distributed to eligible employees based
on a percent of the employee's base salary determined at the Company's
discretion. For purposes of this component, the Employee's base salary
for calculation purposes is the compensation received under component
1. The President of NCRIC MSO will establish targets for NCRIC MSO by
January 1, 2002.
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In order to be eligible to participate in the annual corporate
incentive plan, the Employee must successfully achieve the account
transition plan developed with the President of MSO. NCRIC MSO may use
confidential client surveys, confidential employee surveys, and the
President of MSO's discretion in determining successful transition.
If NCRIC MSO targets are met and the Employee is eligible, this portion
of compensation will be paid by year-end reconciliation but no later
than March 31, 2003.
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