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EXHIBIT 10.46
PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 17, 1996, between Paracelsus Healthcare
Corporation, a California corporation (the "Company"), and Ronald R. Patterson
(the "Executive").
In consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of the closing of the proposed merger transaction
among the Company, Champion Healthcare Corporation, a Delaware corporation
("Champion") and PC Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("PC Merger Sub"), whereby Champion will become a
wholly owned subsidiary of the Company (the "Merger"), this Agreement shall
supersede that certain employment agreement (the "Prior Agreement") between
Champion and the Executive, dated as of August 4, 1995.
2. TERM OF EMPLOYMENT; DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the
Agreement and Plan of Merger by and among the Company, Champion and PC Merger
Sub dated as of April 12, 1996, as amended and restated May 29, 1996, and as
such agreement may be amended from time to time (the "Merger Agreement")), the
employment of the Executive shall be governed by the terms and conditions set
forth in the Prior Agreement. The term of this Agreement (the "Term"), and
Executive's employment with the Company hereunder, shall commence at the
Effective Time and, unless earlier terminated in accordance with the terms
hereof, shall continue until the third anniversary of the Effective Time (such
initial term of the Agreement referred to as the "Initial Term"); provided,
however, that the Term shall automatically be renewed for one additional period
of three years at the end of the Initial Term, unless either the Company or the
Executive provides at least one year's notice to the other of its intention not
to renew the Term; and provided, further, that if the Merger Agreement is
terminated in accordance with its terms prior to the Effective Time or if the
Merger is abandoned or otherwise does not close, (x) this Agreement shall
automatically terminate without further obligation by either party hereto, (y)
the terms and conditions set forth in this Agreement shall not apply and (z)
the employment of the Executive shall continue to be governed by the terms and
conditions set forth in the Prior Agreement.
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During the Term, the Executive shall be employed as the Executive Vice
President and President, Healthcare Operations of the Company serving at the
will of the Board of Directors of the Company (the "Board") with the
traditional duties, responsibilities and authority of such office in companies
similar in size to the Company. The Executive agrees that he shall perform his
duties hereunder faithfully and to the best of his abilities and in furtherance
of the business of the Company and its subsidiaries and shall devote
substantially all of his business time, energy and attention to the business of
the Company and its subsidiaries.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY - During the Term, the Company shall pay to the
Executive an annual base salary (the "Base Salary") at an initial rate of
$350,000 per year, payable in accordance with the Company's normal payroll
practices or as the Company and Executive may otherwise agree. The Base Salary
shall be reviewed by the Company annually and shall be subject to discretionary
increase by the Company from time to time, but shall not be decreased from the
rate in effect at any time and from time to time during the Term.
(b) ANNUAL PERFORMANCE BONUS - Executive shall be entitled to
participate in the Paracelsus Healthcare Corporation Executive Officer
Performance Bonus Plan or any similar or successor annual bonus plan of the
Company (the "Performance Bonus Plan") and to receive an annual performance
bonus upon the achievement of one or more annual performance goals (the
"Performance Goals") in accordance with the terms of the Performance Bonus
Plan; provided, that Executive's annual target bonus under the Performance
Bonus Plan (the "Annual Target Bonus") shall not be less than 70% of the Base
Salary in effect at the time the Performance Goals for such plan year are
established.
(c) LONG-TERM INCENTIVE - The Executive shall be eligible to
participate in any long-term incentive compensation and/or stock option plans
maintained from time to time by the Company. In addition, pursuant to prior
action of the Stock Option Committee of the Board, Executive has previously
been granted (i) an option (the "Value Option") to purchase 180,000 shares of
Company common stock, no stated par value (the "Common Stock"), at an exercise
price of $.01 per share with a term of 10 years from the date of grant and (ii)
an option (the "Market Option") to purchase an additional 240,000 shares of
Common Stock at an exercise price equal to the fair market value (as defined in
the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan (the "1996
Stock Incentive Plan")) of the Common Stock on the date of the Effective Time
with a term of 10 years from the date of grant. The Value Option will be fully
vested on grant and
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will become fully exercisable at the Effective Time, and the Market
Option will generally vest and become exercisable in equal annual
installments of 25% on each of the first four anniversaries of the
Effective Time; provided, that neither the Value Option nor the Market
Option will become exercisable in whole or in part in the event the
Merger Agreement is terminated in accordance with its terms prior to the
Effective Time or if the Merger is abandoned or otherwise does not
close; and provided, further, that the Value Option and the Market
Option shall each be subject to the terms of the 1996 Stock Incentive
Plan and the stock option agreements to be entered into in connection
with the grant of such options.
(d) BENEFITS, PERQUISITES AND EXPENSES. - During the Term, the
Executive shall be eligible to participate in employee benefit and fringe
benefit plans and programs generally available to the executive officers of the
Company and such additional benefits as the Board may from time to time
provide. In addition, Executive shall be entitled to receive the personal
benefits described in Exhibit A hereto. Reimbursement for business expenses,
including travel and entertainment, shall be limited to reasonable and
necessary expenses incurred by Executive in connection with performance of
duties on behalf of the Company 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 Audit Committee of the
Board, including periodic audits by the Internal Audit Department of the
Company and/or the Audit Committee.
(e) RETIREMENT BENEFITS. - Effective as of the Effective Time of
the Merger, the Executive shall be entitled to participate in the Paracelsus
Healthcare Corporation Supplemental Executive Retirement Plan or any similar or
successor plan (the "SERP") and in any tax-qualified and any other supplemental
pension plans generally available to the executive officers of the Company;
provided, that employment with Champion and its subsidiaries shall be taken
into account for purposes of eligibility, vesting and benefit accrual under the
SERP, but not for purposes of determining whether a "Post-Participation Change
in Control," as defined in the SERP, has occurred.
(f) SIGN-ON BONUS. - In connection with the commencement of
Executive's employment with the Company, as soon as practicable after the
Effective Time, the Company shall provide Executive a lump sum cash payment in
the amount of $500,000.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of any amounts required under Section 5, the Executive's
employment with the Company may be terminated (a)
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by the Board with or without Cause (as defined herein), (b) by the
Executive for or without Good Reason (as defined herein), (c) by reason
of the Executive's death or Disability (as defined herein) or (d) by the
mutual written consent of the parties hereto. For purposes of this
Agreement:
(i) "Cause" means (A) acts of embezzlement, theft and fraud
established by a preponderance of the evidence; (B) actions which have had or
will likely have a material adverse financial effect on the Company as a whole
for an extended period of time, where appropriate evidence exists that such
actions are directly attributable to the (I) gross management negligence or
repeated ineptitude of the Executive and/or (II) deliberate refusal of the
Executive to follow the instructions or directions of the Board; (C) conviction
of or a plea of guilty or nolo contendere to a felony; (D) violation of the
noncompete or confidentiality provisions of this Agreement, provided that no
such violation will be deemed to have occurred if, within 30 days following
receipt by Executive of a notice from the Board identifying the violation, the
Executive (I) cures the violation and (II) establishes that the violation was
unintentional and not reasonably likely to result in harm to the Company, in
each case to the reasonable satisfaction of the Board; (E) material
incapacitation or repeated absence from work due to reckless and self abusive
behavior or conduct, such as alcoholism and drug abuse, which renders Executive
incapable of performing his duties; provided, that physical or mental
disability due to injury or disease shall not be grounds for termination for
Cause; or (F) material repeated incompetence in performing the duties of the
Executive's office, provided that such incompetence is: (I) supported by
written documentation of such incompetence, (II) occurs after the Executive has
been previously counseled by the Board both orally and in writing with respect
to specific examples of such incompetence and has been provided the opportunity
to respond in kind, and (III) determined to be incurable and to be of such a
nature as to have had or which would have been reasonably likely at the time of
such commission to have a material, adverse effect on the Company as a whole.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate, then
constitute Cause, after which period no Cause with respect to such specific set
of facts shall be deemed to exist; provided, that the repetition or
reoccurrence of the same or a similar set of facts shall constitute a separate
ground for termination for Cause;
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180) days or
more within any period of 12 consecutive months
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as a result of the Executive's incapacity due to mental or physical
illness; provided, that during any period prior to the termination of
Executive's employment by reason of Disability in which Executive is
absent from the full-time performance of his duties with the Company due
to Disability, the Company shall continue to pay Executive his Base
Salary at the rate in effect at the commencement of such period of
Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base
Salary, or Annual Target Bonus in effect from time to time; (B) a material
reduction in the aggregate level of participation in and/or compensation and
benefit opportunities under all other compensation and employee benefit plans
in which Executive is entitled to participate from time to time; provided,
however, that changes affecting the participation in or benefits under such
plans (other than the Performance Bonus Plan, the SERP and the benefits
described in Exhibit A) with respect to similarly situated executives of the
Company shall not constitute Good Reason hereunder; (C) a reduction in the
Executive's titles, duties or authority with the Company; (D) the relocation of
the principal executive offices of the Company to a location that increases the
Executive's one-way commute thereto by more than 25 miles; (E) the Executive no
longer reports to (I) Mr. Miller or (II) in the event Mr. Miller's employment
with the Company terminates as a result of Mr. Miller's death, "Disability" (as
defined in Mr. Miller's employment agreement) or termination for "Cause" (as
defined in Mr. Miller's employment agreement), Mr. Miller's successor; or (F)
the notification by the Company of its intention not to renew this Agreement
pursuant to Section 2;
(iv) "Change of Control" means the occurrence of any one of the
following events:
(A) any "person" (as such term is defined in Section 3(a)(9)
of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an Acquiring Person
(as such term is defined in the Company's Shareholder Protection Rights
Agreement to be adopted at the Effective Time) or any person that is not bound
by the Shareholder Agreement becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the undiluted total voting power of the
Company's then outstanding securities eligible to vote for the election of
members of the Board (the "Company Voting Securities"); provided, however, that
no event described in the immediately preceding clause shall be deemed to
constitute a Change in Control by virtue of any of the following: (I) an
acquisition of Company Voting
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Securities by the Company and/or one or more direct or indirect
majority-owned subsidiaries of the Company; (II) an acquisition of
Company Voting Securities by any employee benefit plan sponsored or
maintained by the Company or any corporation controlled by the Company;
(III) an acquisition by any underwriter temporarily holding securities
pursuant to an offering of such securities; or (IV) any acquisition by
the Executive or any "group" (as such term is defined in Rule 3d-5 under
the Exchange Act) of persons including the Executive; or
(B) individuals who, at the beginning of any period of
twenty-four (24) consecutive months, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof;
provided, however, that any person becoming a director subsequent to the
beginning of such twenty-four (24) month period, whose election, or nomination
for election, by the Company's shareholders was approved by either (i) the
Board consistent with the terms of the Shareholder Agreement to be entered into
in connection with the Merger during the period in which the Shareholder
Agreement remains in effect or (ii) a vote of at least 75% of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination), shall be, for purposes of this
paragraph (B), considered as though such person were a member of the Incumbent
Board; provided, further, that no individual initially elected or nominated as
a director of the Company as a result of an actual or threatened election
contest with respect to directors or any other actual or threatened
solicitation of proxies or consents by or on behalf of any person other than
the Board shall be deemed to be a member of the Incumbent Board; or
(C) there is consummated a merger or consolidation of the
Company or a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company,
represent immediately after such merger or consolidation at least 60% of the
combined voting power of the then outstanding voting securities of either the
Company or the other entity which survives such merger or consolidation or any
parent of such other entity; or
(D) the stockholders of the Company approve (i) a plan of
complete liquidation or dissolution of the Company or (ii) an agreement for the
sale or disposition by the Company of all or substantially all the Company's
assets.
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5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other
than by reason of death or Disability (i) by the Company (other than for Cause)
or (ii) by the Executive for Good Reason, then the Company shall pay or provide
to the Executive (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such
termination of employment ("Termination Date"), a lump-sum cash amount equal to
the sum of (i) the Executive's unpaid Base Salary through the Termination Date;
(ii) any accrued but unpaid annual bonus under the Performance Bonus Plan in
respect of the annual bonus period preceding the bonus period in which the
Termination Date occurs; (iii) any unpaid reimbursable business expenses
properly incurred through the Termination Date; and (iv) a bonus payment equal
to the Executive's Annual Target Bonus in the year of termination, multiplied
by a fraction the numerator of which is the number of months in the bonus year
of termination in which the Executive has worked at least one day and the
denominator of which is 12;
(2) within thirty (30) days following the Termination Date, a
lump-sum cash amount equal to the greater of (A) the Executive's then Base
Salary payable over the remainder of the Term plus a bonus equal to the
Executive's Annual Target Bonus in the year of termination multiplied by a
fraction the numerator of which is the number of complete months remaining in
the Term and the denominator of which is 12, or (B) 2.5 times the sum of: (i)
the Executive's annual rate of Base Salary as of the Termination Date plus (ii)
the Annual Target Bonus for the year in which the Termination Date occurs (in
each such case, Executive's Base Salary and Target Bonus being determined
without taking into account any reductions thereto constituting Good Reason);
provided, however, that the Executive shall not be entitled to any severance
benefits from the Company or under any Company severance plan, policy or
arrangement other than as specified in this Agreement;
(3) for a period terminating on the earlier of (A) the
commencement of the provision of substantially equivalent benefits by a new
employer, or (B) the later of (I) the last day of the Term, or (II) thirty (30)
months following the Termination Date, the Company shall continue to keep in
full force and effect (or otherwise provide) all policies of medical, accident,
disability and life insurance with respect to the Executive and his dependents
with substantially the same level of coverage, upon substantially the same
terms and otherwise substantially to the same extent as such policies shall
have been in effect immediately prior to the Termination Date, and, as
applicable, the Company and the Executive shall share the costs of the
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continuation of such insurance coverage in the same proportion as such costs
were shared immediately prior to the date of termination; and
(4) for purposes of determining "final average compensation"
(or making any similar calculation) and years of service (for purposes of
eligibility, vesting and benefit accrual) under any tax-qualified or
supplemental defined benefit retirement plan (including without limitation the
SERP), Executive shall be deemed to have remained employed by the Company
hereunder through the end of the Term and to have received his then current
Base Salary and Annual Target Bonus through the end of the Term; provided that
to the extent such benefits cannot be accrued under and paid from any
tax-qualified pension plan, such benefits shall be accrued under and paid from
the SERP or other supplemental plan;
(5) all options to purchase Common Stock held by the
Executive shall immediately become fully vested and exercisable and shall
remain exercisable until the earlier of (A) the date that is 24 months
following the Termination Date and (B) the expiration of the stated term of
such options; provided, that the Value Option shall remain exercisable until
the expiration of its stated term;
(b) If the employment of the Executive shall be terminated (i) by
reason of the Executive's death or Disability, (ii) by the Company for Cause,
(iii) by the Executive without Good Reason, or (iv) by the mutual written
consent of the parties hereto (each a "Nonqualifying Termination"), then the
Company shall pay to the Executive (or the Executive's beneficiary or estate)
within thirty (30) days following the Termination Date a lump sum cash amount
equal to the sum of the Executive's unpaid Base Salary through the Termination
Date plus any bonus payments which have been earned or become payable, to the
extent not theretofore paid, plus any unpaid reimbursable business expenses
properly incurred through the Termination Date. In addition, the Executive (or
the Executive's beneficiary or estate) shall have no less than ninety (90) days
following the termination of his employment pursuant to a Nonqualifying
Termination to exercise any outstanding options to the extent vested and
exercisable as of the Termination Date; provided, that the Value Option shall
remain exercisable until the expiration of its stated term.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
(a) Notwithstanding anything in this Agreement to the contrary, in
the event that any payment or distribution by the Company, by any affiliate of
the Company or by any person whose actions result in a Change in Control of the
Company (to the extent the Company approves of the arrangements pursuant to
which the payment by such person is made to the Executive) to or for the
benefit of the
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Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section 6)
(a "Payment") would be subject to the excise tax imposed by Section 4999
of the Code, or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes) including, without
limitation, any income and employment taxes and Excise Tax, imposed upon
the Gross-Up Payment but before deduction for any federal, state or
local income or other tax upon the Payments, the Executive will retain a
net amount equal to the sum of (i) the Payments and (ii) an amount equal
to the product of any deductions (or portion thereof) disallowed because
of the inclusion of the Gross-Up Payment in the Executive's adjusted
gross income for federal income tax purposes and the highest applicable
marginal rate of federal income taxation for the calendar year in which
the Gross-Up Payment is to be made. For purposes of determining the
amount of the Gross-Up Payment, the Executive shall be deemed to (1) pay
applicable federal income taxes at the highest applicable marginal rates
of federal income taxation (including surcharges) for the calendar year
in which the Gross-Up Payment is to be made, (2) pay applicable state
and local income taxes at the highest applicable marginal rate of
taxation (including surcharges) for the calendar year in which the
Gross-Up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and
local taxes and (3) have otherwise allowable deductions for federal
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross
income.
(b) Subject to the provisions of Section 6(a), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the public
accounting firm that is retained by the Company as of the date immediately
prior to the Change in Control (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
fifteen (15) business days of the receipt of notice from the Company or the
Executive that there has been a Payment, or such earlier time as is requested
by the Company (collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the Executive may appoint another
nationally recognized public accounting firm reasonably acceptable to the
Company to make
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the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All reasonable
fees and expenses of the Accounting Firm shall be borne solely by the Company
and, subject to applicable law and obligations to the Company's stockholders,
the Company shall enter into any agreement reasonably requested by the
Accounting Firm that is generally recognized as standard in connection with the
performance of the services hereunder. The Gross-Up Payment under this Section
6 with respect to any Payment shall be made no later than thirty (30) days
following the date of such Payment. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall furnish the Executive with a
written opinion to such effect, and to the effect that failure to report the
Excise Tax, if any, on the Executive's applicable federal income tax return
should not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of uncertainty in the application of Section 4999 of
the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") or Gross-Up Payments are made by the Company which should not
have been made ("Overpayment"), consistent with the calculations required to be
made hereunder. In the event that the Executive thereafter is required to make
payment of any additional Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) shall be promptly paid by the Company to or for the benefit of the
Executive. In the event the amount of the Gross-Up Payment exceeds the amount
necessary to reimburse the Executive for his Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b)(2)
of the Code) shall be promptly paid by the Executive to or for the benefit of
the Company. The Executive shall cooperate, to the extent his reasonable
expenses in connection therewith are reimbursed by the Company, with any
reasonable requests by the Company in connection with any contests or disputes
with the Internal Revenue Service in connection with the Excise Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law,
the Company is required to withhold therefrom.
8. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties
hereto shall, without the consent of the other, assign, or
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transfer this Agreement or any rights or obligations hereunder;
provided, that in the event of the merger, consolidation, transfer or
sale of substantially all of the assets of the Company with or to any
other individual or entity, this Agreement shall, subject to the
provisions hereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the
promises, covenants, duties and obligations of the Company hereunder,
and all references herein to the "Company" shall refer to such
successor.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts remain payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to such person or persons appointed
in writing by the Executive to receive such amounts or, if no person is so
appointed, to the Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES; NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes
hereunder shall be settled by final, binding arbitration, conducted before a
panel of three (3) arbitrators in Texas, in accordance with the rules of the
American Arbitration Association then in effect. Judgment on the arbitration
award may be entered in any court having jurisdiction. The Company shall bear
the expenses of such arbitration.
(b) If any contest or dispute shall arise under this Agreement
involving termination of the Executive's employment with the Company or
involving the failure or refusal of the Company to perform fully in accordance
with the terms hereof, the Company shall advance and reimburse the Executive,
on a current basis, all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute; provided, that the
Executive agrees to return any advanced or reimbursed expenses to the extent
the arbitrators (or the Court, in the case of a dispute described in Section 10
or 11) determine that the Company has prevailed as to the material issues
raised in determination of the dispute.
(c) The Company's obligation to make any payments provided for in
this Agreement to the Executive and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take other action by way of mitigation of the amounts
payable to the
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Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
10. NONCOMPETITION.
(a) DISCLOSURE. - The Executive has disclosed to the Board, in
writing, all healthcare related interests, investments, or business activities,
whether as proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other capacity
or manner whatsoever. The Executive shall notify the Board promptly, in
writing, of any changes in or additions to such interests, activities or
investments permitted in accordance with the terms of this Agreement, within 15
days of such change or addition.
(b) PROHIBITED ACTIVITY. - Without the written consent of a
majority of the Independent Directors, the Executive may not engage in any of
the following actions during the period that is (A) prior to the Executive's
termination of employment with the Company, (B) within two years following the
termination of his employment with the Company during the Initial Term if such
termination is by the Company for Cause or by the Executive (other than for
Good Reason) and (c) within one year following his termination of employment
during the Term but after the Initial Term if such termination is by the
Company for Cause or by the Executive (other than for Good Reason):
(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, within a radius of 30 miles from any site,
facility, or location which is owned, managed or operated by or affiliated with
the Company or any of its subsidiaries and affiliates, including physician
practices of any kind. For purposes of this Agreement, "Primary Business"
shall mean the delivery of integrated healthcare services in markets where the
Company or its subsidiaries own hospitals and/or skilled nursing facilities
("SNFs"), with the hospital serving as the hub of the local delivery system in
conjunction with its physician medical staff. In addition to inpatient acute
care, psychiatric care, and skilled nursing care, these services can include
(A) individual physician practices and/or physician based organizations such as
primary care and specialty clinics, physician-hospital organizations ("PHOs")
or medical service organizations ("MSOs"), or physician medical groups and (B)
ambulatory programs such as home health care, ambulatory surgery, psychiatric
services, occupational and sports medicine centers, psychiatric after-care and
day care programs, and other diagnostic, rehabilitative and treatment services.
Some of these services, sites and facilities may be located in satellite areas
for the purpose of extending the hub hospital's geographic service area
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and to serve as access points and/or referral sources for either the
local delivery system or the hub hospital's geographic service area and
to serve as access points and/or referral sources for either the local
delivery system or the hub hospital. 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 the
Term or to exclude any business or service in which the Company ceases
to engage. The definition of "Primary Business" shall also include any
business or service into which, as of the Termination Date, the Company
definitively intends to expand regardless of whether such expansion
actually occurs after the Executive's termination. For purposes of the
preceding sentence, the date on which a modification of the definition
of "Primary Business" shall be effective shall be the date on which the
Executive is provided written notice of such modification (the "Notice
Date"); provided, however, that no such modification as to which notice
is provided on or after the Termination Date shall be effective against
the Executive; and provided, further, that no such modification shall be
effective with respect to any interests, investments or business
activities engaged in by Executive prior to the Notice Date of such
modification and properly disclosed prior to such Notice Date pursuant
to Section 10(a).
(ii) participate or serve, either directly or indirectly,
whether as a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, 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 him or by any competitor of the Company on whose
behalf he is acting as an agent, representative or employee, or convey any
confidential information or trade secrets regarding other employees of 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;
PROVIDED, HOWEVER, that neither (i) the "beneficial ownership" by
Executive, either individually or as a member of a "group," as such terms are
used in Rule 13d under the Exchange Act, as a passive investment, of not more
than five percent (5%) of the voting stock of any publicly held corporation,
nor (ii) the beneficial ownership by Executive of any interest described in the
first sentence of Section 10(a) and properly and timely disclosed in accordance
with
14
the terms therewith, shall alone constitute a violation of this
Agreement.
In the event that the Executive engages in the conduct proscribed by
this Section 10, the Executive agrees to repay any lump-sum severance amount
received pursuant to Section 5 of this Agreement, and all outstanding stock
options held by the Executive shall expire as of the date of Executive's
commencement of such proscribed conduct. It is further expressly agreed that
the Company will or would suffer irreparable injury if Executive 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 Executive further consents and stipulates to the entry of
such preliminary or permanent injunctive relief in such a court prohibiting
Executive 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 Executive has violated this Section 10.
(c) UNENFORCEABLE PROVISIONS. - It is the desire and the intent of
the parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy.
Accordingly, if this Section 10 or any portion thereof shall be adjudicated to
be invalid or unenforceable whether because of the duration and scope of the
covenants set forth herein or otherwise, the length and scope of the
restrictions set forth in this Section 10 shall be reduced to the extent
necessary so that this covenant may be enforced to the fullest extent possible
under applicable law.
11. CONFIDENTIAL INFORMATION. Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until expiration
of the applicable period described in section 10(b) or until such information
shall have become public other than by Executive's unauthorized disclosure,
disclose to others or use, whether directly or indirectly, any Confidential
Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to a
member of the public seeking to obtain such information and that was learned by
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records (including computer records) of the documents
15
containing such Confidential Information. Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records,
lists, data, drawings, prints, notes and written information (and all copies
thereof) furnished by the Company, it subsidiaries or affiliates or prepared by
the Executive during the term of his employment by the Company, its
subsidiaries and affiliates.
In the event that the Executive engages in any conduct proscribed by
this Section 11, the Executive agrees to repay any lump-sum severance amount
received pursuant to Section 5 of this Agreement, and all outstanding stock
options held by the Executive shall expire as of the date of Executive's
commencement of such proscribed conduct. It is further expressly agreed that
the Company will or would suffer irreparable injury if Executive were to
disclose or threaten to disclose Confidential Information regarding the Company
or any subsidiary or affiliate in violation of this Agreement or otherwise fail
to comply with the provisions of this Section 11, and that the Company would,
by reason of such disclosure or threatened disclosure or other failure to
comply, be entitled to preliminary or permanent injunctive relief in a court of
appropriate jurisdiction, and Executive further consents and stipulates to the
entry of such preliminary or permanent injunctive relief in such a court
prohibiting Executive from disclosing Confidential Information in violation of
this Agreement or otherwise requiring Executive to comply with the provisions
of this Section 11 upon an appropriate finding by such court that Executive has
violated this Section 11.
12. NOTICE. For the purposes of this Agreement, any notices, demands
and all other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given upon (a) transmitter's
confirmation of a receipt of facsimile transmission, (b) confirmed delivery by
a standard overnight carrier or (c) the expiration of five business days after
the day when mailed by certified or registered mail, postage prepaid, addressed
as follows (or at such other address as the parties hereto shall specify to
like notice):
If to Executive: Ronald R. Patterson
c/o Paracelsus Healthcare Corporation
515 West Greens Road, Suite 800
Houston, Texas 77067
Telecopy No. (713) 873-6686
16
With a copy to: Wayne Whitaker
Michener, Larimore, Swindle, Whitaker, Flowers,
Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4135
Telecopy No.: (817) 335-6935
If to Company: Paracelsus Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Robert C. Joyner, Senior
Vice President and General Counsel
with a copy to: Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 990071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson
13. AMENDMENT, WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibit A set forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
15. GOVERNING LAW; VENUE; VALIDITY. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Texas without
regard to the principle of conflicts of laws and, at the election of the
Executive, the venue of any dispute arising under this Agreement shall be
Texas. The invalidity or unenforceability of any provision of this Agreement
shall not affect
17
the validity or enforceability of any other provision of this
Agreement, which other provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify
the stricken terms as narrowly as possible to give as much effect as possible
to the intentions of the parties under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
PARACELSUS HEALTHCARE CORPORATION
By: \s\ R.J. MESSENGER
-------------------------------------
Name: R.J. Messenger
Title: Chief Executive Officer
\s\ RONALD R. PATTERSON
-------------------------------------
Ronald R. Patterson
18
EXHIBIT A
During the Term of the Agreement, the Company shall provide Executive with
the following life insurance and disability coverages:
(1) The Company shall maintain for Executive's benefit life insurance
coverage with a face amount equal to three (3) times the amount of Executive's
Base Salary as in effect from time to time; PROVIDED, HOWEVER, that if the
Company shall be unable to obtain the full amount of such life insurance
coverage at a reasonable cost, the Company may alternatively provide Executive
with a lump-sum death benefit, payable within ninety (90) days following the
date of Executive's death, in such amount as will, when added to any life
insurance coverage actually obtained by the Company, provide Executive's
beneficiary(ies) with a net amount, after payment of any Federal and state
income taxes, equal to the net, after-tax amount such beneficiary(ies) would
have received had the Company obtained the full amount of life insurance
coverage provided for above. Executive shall have the right to name and to
change from time to time the beneficiary(ies) under such life insurance
coverage (and death benefits, if any). Such life insurance coverage (and death
benefit, if any) shall be in addition to any death benefits which may be
payable under any accidental death and dismemberment plan, any separate
business travel accident coverage, or any pension plan in which the Executive
may participate, and such coverage shall also be in addition to any life
insurance which Executive himself purchases.
(2) LONG-TERM DISABILITY - In the event the Executive becomes disabled
(as defined in the long-term disability plan presently maintained by the
Company), the Executive is to receive the disability benefits in an amount
equal to 60% of his then salary. Any amount payable under any salary
continuation plan (including any salary continuation provided under this
agreement) or disability plan maintained by the Company, and any amount payable
as a Social Security disability benefit or similar benefit to Executive or his
immediate family shall be counted towards the Company's fulfillment of such
obligation. Disability benefits will be payable monthly commencing thirty (30)
days following disability and will continue until Executive is no longer
disabled or, if earlier, until he reaches age 65.
During the Term of the Agreement, the Company shall also provide Executive
with the following additional fringe benefits:
(1) VACATIONS AND HOLIDAYS - Executive shall be entitled to such paid
vacation time as may be reasonably taken at Executive's discretion so long as
such vacation time does not interfere with the efficient discharge of the
Executive's duties and responsibilities. Executive shall be entitled to all
holidays as delineated annually in the Company's official holiday schedule.
19
(2) TAX RETURN PREPARATION ASSISTANCE; FINANCIAL ADVICE- will provide
the Executive with the assistance of the Company's regular auditors for the
preparation of Executive's United States Federal and State tax returns without
charge to Executive. In addition, the Company shall reimburse Executive for
the costs incurred by Executive for financial planning services in an amount
not to exceed $5,000 annually.
(3) ANNUAL PHYSICAL EXAMINATION - The Company shall reimburse Executive
100% of all costs incurred by Executive in obtaining an annual comprehensive
physical examination to be conducted by a physician; clinic, or medical group
of the Executive's choice and which is located within reasonable proximity to
Executive's place of Employment.
20
FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO PARACELSUS HEALTHCARE CORPORATION EMPLOYMENT AGREEMENT,
dated as of July 17, 1996, between Paracelsus Healthcare Corporation, a
California corporation (the "Company") and Ronald R. Patterson (the
"Executive")
RECITALS:
WHEREAS, the Company and the Executive entered into that certain
Paracelsus Healthcare Corporation Employment Agreement dated as of July 17,
1996, (the "Employment Agreement"), and
WHEREAS, the parties desire to amend the Employment Agreement to clearly
reflect that Executive will not be forced to relocate.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each party, the parties
intending to be legally bound hereby agree as follows:
1. Paragraph 4(iii)(D) is hereby deleted in its entirety, and the
following is added in its place:
"(D) The Constructive Relocation of Executive, defined as (I)
reassignment of the executive, (II) relocation of the principal executive
offices of the Company, or (iii) assignment of duties, such that any of the
foregoing, either individually or in combination would require Executive to
either (a) effectively relocate Executive's primary residence or (b) increase
Executive's one-way commute by more than 25 miles from Executive's current
primary residence."
2. All other terms and conditions not changed hereby shall remain in
full force and effect.
21
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Paracelsus Healthcare Corporation Employment Agreement as of the date and year
first written above.
PARACELSUS HEALTHCARE CORPORATION
By: \s\ R.J. MESSENGER
-------------------------------------
Name: R.J. Messenger
Title: Chief Executive Officer
\s\ RONALD R. PATTERSON
-------------------------------------
Ronald R. Patterson