EXHIBIT 10.1
July 26, 2004
Re: Employment Agreement between Stephen N. Kahane and VitalWorks Inc.
("VitalWorks") effective January 1, 2004 ("Agreement").
Dear Dr. Kahane:
On behalf of the compensation committee of VitalWorks, this will confirm our
agreement to modify and clarify the Agreement as follows:
1) Replace "December 31, 2004" in section 2 with "December 31, 2005" so that
the initial term of the Agreement shall expire on December 31, 2005.
2) Paragraph 3F of the Agreement is amended to clarify that any options
granted prior to August 21, 2000 shall terminate ten years from the date
such option was granted.
3) Options. To clarify the treatment of stock options granted through the
effective date of this letter agreement (including those granted pursuant
to Amended Exhibit 1 attached), and notwithstanding anything to the
contrary elsewhere in the Agreement, any other document, or in any stock
option plan, the following shall apply for all such options:
a) upon your termination for Cause (as defined in section 3A of the
Agreement), all unvested stock options are canceled;
b) upon your termination for Cause (as defined in section 3A of the
Agreement), all vested stock options shall have a exercise period,
and shall expire, ninety (90) days from date of termination; and
c) upon your voluntary termination, as described in section 3G of the
Agreement, all vested stock options will continue x) for ten (10)
years from date of grant for non performance based options including
those options granted on August 21, 2000 as adjusted, and y) for two
(2) years from date of termination for all performance based
options;
d) As to the PERFORMANCE BASED STOCK OPTIONS ONLY (referred to in
Exhibit 1 as Option Grant #1 and Option Grant #3):
i) While you are employed, all vested options will continue for
ten (10) years from date of grant. Upon termination* all
vested options shall expire five (5) years from date of
termination of employment. Upon your death or Total and
Permanent Disability, as defined in section 3E of the
Agreement, all vested options shall expire two (2) years from
date of death/Total and Permanent Disability.
ii) For unvested options:
i. Unvested Option Grant #1 options shall vest upon Change in
Control, as defined in the Agreement;
ii. If the applicable goals are met before you are terminated* and
the stock options vest as a result thereof- the exercise
period for those options shall continue for five (5) years
from date of termination;
iii. Unvested stock options will not vest if termination* of your
employment occurs before or after the target measuring period
and/or Share Goal period, and the applicable goals for the
target measuring period and/or the Share Goal are not met;
iv. Upon your voluntary termination, as described in section 3G of
the Agreement, all unvested stock options shall be canceled
and unexercisable; and
v. Upon your death or Total and Permanent Disability, as defined
in section 3E of the Agreement, all unvested stock options
shall be canceled and unexercisable.
* for `non renewal', `good reason' and `termination without cause'- as set forth
in paragraph 3C (a) through (c) of the Agreement.
In the event of any conflict between the terms in subparagraphs 3a through c
above and those terms in subparagraph 3d above, the terms in subparagraphs 3a
through c above shall control and prevail. IN NO EVENT SHALL THE EXERCISE PERIOD
FOR ANY OPTION EXTEND BEYOND 10 YEARS FROM THE DATE OF GRANT OF SUCH OPTION.
4) Exhibit 1 to the Agreement is replaced by the Amended Exhibit 1 attached
to this letter.
5) You have submitted your resignation as Chief Strategy Officer of
VitalWorks effective September 1, 2004, and the Board of Directors has
appointed you president and chief executive officer of VitalWorks
effective September 1, 2004.
The terms of this letter will be effective July 26, 2004. All other terms and
conditions of the Agreement shall remain unchanged. Please confirm your consent
with the amended terms set forth above by signing the enclosed copy of this
letter and returning it to me. Please feel free to call me if you have any
questions.
Sincerely,
Kenneth R. Adams
Chairman, Compensation Committee
Agreed to by:
_______________________________
Stephen N. Kahane
_______________________________
Date
AMENDED EXHIBIT 1
TO EXECUTIVE'S EMPLOYMENT AGREEMENT ("EMPLOYMENT AGREEMENT")
VITALWORKS INC. ("COMPANY")
EFFECTIVE JULY 26, 2004
("Effective Date")
Executive: Stephen Kahane
Position: Vice Chairman, President and Chief Executive Officer
Auto Allowance: $18,000.00 annual; paid semi-monthly
Status: Exempt
Manager: Board of Directors
Optional Benefits: Health, dental, life, and disability
401(k) savings plan
Employee stock purchase plan
5 weeks vacation
Annual Salary: 2004: $300,000 effective July 26, 2004; paid semi-monthly;
2005: $325,000
EXECUTIVE INCENTIVE COMPENSATION PLAN:
A. PLAN:
Cash Bonus #1: 2004: $70,000 at 100% of Goals**;
Option Grant #1**- PERFORMANCE BASED STOCK OPTIONS: 115,000 shares
Option Grant Date: April 26, 2004
VITALWORKS STAND ALONE. VitalWorks Stand Alone shall mean the consolidated
Company excluding the AMICAS, Inc. subsidiary.
OPTION GRANT #1. You will receive option rights to purchase up to 115,000
shares of Company common stock priced at the market value per share of
the Company's common stock at the close of the NASDAQ National Market on
the Option Grant Date which was April 26, 2004. All option rights shall
be subject to the terms and conditions of the Company's 2000 Broad-Based
Stock Plan and the stock option certificate. All 115,000 option shares
shall vest and become exercisable on the sixth anniversary of the Option
Grant Date. However, subject to attainment of Goal(s), a certain
percentage of these shares shall vest and become exercisable effective
December 31, 2004 ("Option Acceleration").
CALCULATION OF % OF TOTAL BONUS $/OPTION ACCELERATION RELATING TO GOAL
ATTAINMENT. If the Goal attainment is between the Minimum and Mid-Point
or between the Mid-Point and Target, the % will be determined by straight
line interpolation. If the Goal attainment is at or below Minimum, the %
will be zero. If the Goal attainment is above Target, the % will be the
Target %, however, if income before income taxes (VitalWorks Stand Alone)
exceeds $xx, you will receive an Additional Bonus, limited to $118,000,
equal to 5% of the excess over $xx.
ACCOUNTING. Revenues for the 2004 fiscal year ("Incentive Period") shall be
determined in conformity with generally accepted accounting principles
("GAAP") by the Company and its independent auditors. Income before
income taxes for the Incentive Period shall exclude the effects on the
statements of operations, if any, of the following:
- - Pending or threatened litigation, claims or assessments, related to a
period prior to March 6, 2001 including the Jones and ParkStone matters,
- - Income/credit related to the 2000 Restructuring Plan accruals,
- Impairment in the value of intangible assets,
- Pending class action lawsuit for the class period of January
24, 2002 to October 23, 2002,
all determined in conformity with GAAP by the Company and its independent
auditors. For example, since GAAP requires the accrual of all costs and
expenses applicable to the Incentive Period, all employee incentives
(excluding stock-based incentives) are deductions in arriving at income
before income taxes.
B. ADDITIONAL COMPENSATION
Option Grant #2: You will receive option rights to purchase up to
250,000 shares of Company common stock priced at the market value
per share of the Company's common stock at the close of the NASDAQ
National Market on the grant date of option grant #2- July 26, 2004.
Vesting: Option shares shall vest and become exercisable in twelve
equal quarterly installments beginning three months from grant date
of option grant #2.
Incentive Stock Options ("ISOs"): Using the Company's 1996 Stock
Option Plan, to the extent permitted, option shares shall be ISOs.
Terms: Except as set forth below and in your Agreement, these option
shares shall terminate ten years from the grant date of Option Grant
#2 and, other than as described in your Agreement and herein, shall
be subject to the terms and conditions of the Company's 1996 Stock
Option Plan. Upon termination of employment for any reason including
death or Total and Permanent Disability, but excluding any
termination by the Company for Cause or your voluntary termination,
all unvested Option Grant #2 options shall immediately fully vest
and your right to exercise any and all vested Option Grant #2 stock
options shall not terminate until ten years from the date of grant.
Upon termination of employment by the Company for Cause or your
voluntary termination all unvested Option Grant #2 stock options
shall be canceled. Upon a Change in Control all unvested Option
Grant #2 stock options shall fully vest and the exercise period
shall terminate ten years from the date of grant.
C. ADDITIONAL PERFORMANCE BASED COMPENSATION
1. OPTION GRANT #3- PERFORMANCE BASED STOCK OPTIONS:
You will receive option rights to purchase up to 450,000 shares of
Company common stock priced at the market value per share of the
Company's common stock at the close of the NASDAQ National Market on
the Option Grant #3 Date which shall be July 26, 2004. All these
option rights shall be subject to the terms and conditions of the
Employment Agreement, and to the extent it does not conflict with
the Employment Agreement, the Company's 2000 Broad-Based Stock Plan
except for the vesting of such options upon Change in Control (as
defined in the Employment Agreement) which shall be governed by the
terms herein. All 450,000 option shares will vest and become
exercisable on the sixth anniversary of the Option Grant #3 Date.
However, subject to attainment of Share Goals (described below), the
vesting of a certain percentage of these shares will accelerate. If
there is a Change in Control (as defined in the Employment
Agreement) on or before June 30, 2005, 50% of the option shares will
immediately vest (225,000 option shares) and the remaining option
shares shall terminate. If there is a Change in Control after June
30, 2005, all of these option shares shall immediately vest. If you
are terminated pursuant to paragraph 3C of the Employment Agreement
in either 2005 or 2006, and the Share Goal for the year you were
terminated is thereafter achieved, the cash bonus set forth below
for the applicable Share Goal year only shall be due and unvested
Grant #3 option shares for the applicable Share Goal year only shall
vest as set forth below and you shall have five (5) years from the
date of your termination to exercise such options as to these vested
option shares.
2. SHARE GOALS:-
2005: Subject to the attainment of an Average Stock Price
(defined as the average daily closing VitalWorks Inc. stock price on
the NASDAQ National Market for the applicable calendar year) of
$4.00 to $5.00 per share for the calendar year 2005, a percentage
(determined by straight
line interpolation) of 225,000 of the option shares will vest and
become exercisable effective December 31, 2005 (if acceleration of
all 225,000 shares is not earned in 2005, there will be a carry over
to 2006 of any remaining unvested option shares). Example: if the
Average Stock Price for 2005 equates to $4.50, vesting would
accelerate with respect to 50% or 112,500 option shares of the
option grant as of December 31, 2005; the balance of 112,500 option
shares would rollover to 2006.
2006: Subject to the attainment of an Average Stock Price of
$5.00 to $6.00 per share for the calendar year 2006, a percentage
(determined by straight line interpolation) of the sum of (i) the
option shares that remained unvested as of December 31, 2005 plus
(ii) an additional 225,0000 will vest and become exercisable
effective December 31, 2006. Example: if there are 337,500 option
shares remaining as described in the example above (225,000
+112,500), and if the Average Stock Price for 2006 equates to $5.50,
vesting will accelerate with respect to an additional 168,750 option
shares of the option grant as of December 31, 2006. There shall be
no carryover for 2007. Any remaining unvested option shares would
cliff vest on the sixth anniversary of the Option Grant #3 Date.
If necessary (e.g. stock split), the Share Goals shall be
adjusted in a manner similar to the terms of section 13 of the 2000
Broad-Based Stock Plan.
3. CASH BONUS #2:
2005: up to $250,000 may be earned subject to Share Goals for
2005 described above except there will be no rollover to the
following year nor cliff vesting. (e.g. if the Average Stock Price
for 2005 equates to $4.50, a $125,000 bonus will be paid)
2006: up to $250,000 may be earned subject to Share Goals for
2006 described above except there will be no cliff vesting.
All bonuses will be paid within thirty (30) days of the end of
the applicable calendar year.
D. OTHER TERMS
1 EFFECTIVENESS. This Amended Exhibit 1 is effective on the Effective Date
provided it is signed by the Executive and the Chairman of the
Compensation Committee of the Board of Directors. Except as may be set
forth in the Employment Agreement, this plan is not a contract of
employment and does not guarantee continued employment for any period.
None of the incentive amounts specified in this plan may be earned until
the end of the applicable time period. Earned incentive amounts are
payable only upon review and approval by the Compensation Committee. There
will be no incentive amounts earned for partial-year results upon the
voluntary or involuntary termination of the Executive's employment before
December 31, 2005, unless otherwise specified in the Employment Agreement
with the Company. This plan does not amend or supersede the Employment
Agreement.
2. COMPANY DISCRETION. Except with respect to the calculation and amount
of cash bonuses, the Option Grants, the Share Goals and the related Option
Accelerations and only to the extent it does not conflict with the
Employment Agreement, the Compensation Committee reserves the right to
revise this plan at any time as a result of its sole determination that a
significant change in circumstances or extraordinary or unusual event,
transaction (e.g., an acquisition), charge and/or credit has occurred or
was incurred, that was not anticipated or factored into this plan when
this plan was signed.
_______________________ ____ _______________________________ _____
Stephen Kahane Date Compensation Committee Chairman Date