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EXHIBIT 10.75
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MoU") is among the following parties:
Paracelsus Healthcare Corporation ("Paracelsus"),
Charles R. Miller ("Miller"),
James G. VanDevender ("VanDevender"),
Ronald R. Patterson ("Patterson"),
Park-Hospital GmbH ("Park"), and
the members of the Ad Hoc Committee of Former Shareholders of
Champion Healthcare Corporation ( the "Ad Hoc Committee")
RECITALS
WHEREAS this MoU is intended to be a binding agreement between the
parties with respect to the subject matters referenced herein;
WHEREAS Miller, VanDevender, and Patterson each have employment
agreements with Paracelsus dated July 17, 1996 ("Employment Agreements");
WHEREAS Park and the Ad Hoc Committee control a majority of the
outstanding shares of Paracelsus;
WHEREAS the parties to this MoU desire to retain the services of
Miller, VanDevender, and Patterson; Miller, VanDevender, and Patterson are
willing to continue to provide services to Paracelsus; and Miller, VanDevender,
and Patterson desire to ensure that their rights under their Employment
Agreements as specifically referenced below are protected;
WHEREAS the parties recognize that entering into this MoU will
facilitate a sale of Paracelsus by addressing issues related to the Employment
Agreements before completion of a transaction with a purchaser;
WHEREAS Miller, VanDevender, and Patterson have been joined as
defendants, along with Paracelsus and others in four shareholder actions
consolidated under the caption, IN RE PARACELSUS CORP. SEC. LITIG., Master File
No. H-96-3464 (EW) (the "Consolidated Action"); and two derivative actions
under the captions, CAVEN V. MILLER, No. H-96-CV-4291 (EW); and OROVITZ V.
MILLER, No. H-97-2752 (EW) (the "Derivative Actions") which are all now pending
in the United States District Court for the Southern District of Texas;
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WHEREAS Miller, VanDevender, Patterson, and Paracelsus have been joined
in a shareholder action filed in Texas state court under the caption, ESSEX
IMPORTS V. PARACELSUS, ET AL., No. 96-51864;
WHEREAS Miller, VanDevender, and Paracelsus have been joined in a
shareholder action in Delaware Chancery Court under the caption MOLINARI V.
MILLER, ET AL., C.A. No. 14945;
WHEREAS two shareholder actions have been filed against Paracelsus, but
not Miller, VanDevender, and Patterson in California state court under the
captions, GAONKAR V. PARACELSUS, ET AL., No. BC 158899; and PRESCOTT V.
PARACELSUS, ET AL., No. BC 158979, and a shareholder small claims lawsuit was
filed in South Orange County Municipal Court in California against Paracelsus
and others under the caption, HUTCHENS V. PARACELSUS, ET AL., No. SC38166
(collectively the "California Actions") (the Consolidated Action, the
Derivative Actions, ESSEX, MOLINARI, and the California Actions as well as any
other litigation arising from the merger of Paracelsus and Champion Healthcare
Corporation ("Champion") and the related public offerings shall be referred to
collectively as the "Litigation");
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND MUTUAL COVENANTS
HEREIN CONTAINED, the parties agree as follows:
1. The term "Executive" shall mean Miller, VanDevender, or
Patterson, and the term "Executives" shall mean Miller,
VanDevender, and Patterson.
2. No later than five (5) business days after the earlier of (i)
the execution of this MoU by both Park and the Ad Hoc Committee
or (ii) the last day the Executives can void the MoU pursuant to
para. 27 for failure of Park and the Ad Hoc Committee to sign,
Paracelsus shall pay to each Executive the total amounts, as set
forth in this paragraph, due to that Executive under
Paracelsus's Supplemental Executive Retirement Plan, effective
January 1, 1996, as amended; and each Executive, as a condition
precedent to such payment, shall deliver to Paracelsus a full
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and complete release of any obligations Paracelsus may have now
or in the future to that Executive arising out of or in any way
related to Paracelsus's Supplemental Executive Retirement Plan,
effective January 1, 1996, as amended. The total amounts due
each Executive under Paracelsus's Supplemental Executive
Retirement Plan, effective January 1, 1996, as amended, are as
follows:
SERP BENEFITS
Miller's Supplemental Executive Retirement Plan benefits $310,510
VanDevender's Supplemental Executive Retirement Plan benefits $104,969
Patterson's Supplemental Executive Retirement Plan benefits $ 85,793
3. No later than five (5) business days after the execution of this
MoU by Paracelsus and the Executives, Paracelsus and the
Executives shall create an escrow account (the "Escrow Account")
at a depository (the "Escrow Agent") acceptable to both
Paracelsus and the Executives. The following amounts shall be
paid to the Executives and deposited into the Escrow Account in
accordance with para. 5 of this MoU:
CONTRIBUTION FOR MILLER
Three times Miller's current annual salary $1,620,000
Three times 25 percent of Miller's target annual bonus $ 344,250
CONTRIBUTION FOR VANDEVENDER
Three times VanDevender's current annual salary $1,125,000
Three times 25 percent of VanDevender's target annual bonus $ 196,875
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CONTRIBUTION FOR PATTERSON
Three times Patterson's current annual salary $1,125,000
Three times 25 percent of Patterson's target annual bonus $ 196,875
4. An additional amount shall be deposited into the Escrow Account
(the "Additional Payment") in accordance with para. 5 of this MoU, which shall
be equal to three times 25 percent of each Executive's target annual bonus, as
listed below:
ADDITIONAL PAYMENT CONTRIBUTION
Miller's Additional Payment $ 344,250
VanDevender's Additional Payment $ 196,875
Patterson's Additional Payment $196,875
5. Paracelsus shall pay to the Executives the total of the amounts
referred to in para. 3 and 4 of this MoU in three (3) monthly
installments with the first installment being made on January 1, 1999, and the
remaining two installments on February 1, 1999, and March 1, 1999. Paracelsus
shall make these installment payments directly to the Executives subject to
their endorsing the payments directly over to the Escrow Account. The first
monthly installment shall be equal to 2/3 of the total of the amounts referred
to in para. 3 and 4 of this MoU. The final two monthly installments
shall be equal to 1/6 of the total amounts referred to in para. 3 and 4.
Interest on the funds held in the Escrow Account shall be payable to
Paracelsus.
6. Upon the later of (a) entry of orders dismissing with prejudice
all claims against each Executive in the Litigation and releasing him from all
other claims arising out of or related to the subject matter of those actions,
(b) the termination of the Executive's employment or his death or disability,
or (c) the payment to the Executive in accordance with para. 18 or 20 of this
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MoU, each Executive or, in the case of death or disability, the person
authorized by law to act on behalf of the Executive or his estate ("Successor")
shall relinquish and terminate -- in consideration for the release of that
Executive referred to in para. 15(c) of this MoU -- all rights he or his
Successor has to the Value Options described in para. 3(c)(i) of his
Employment Agreement. Until such time, each Executive agrees not to exercise
or sell, trade, assign, or otherwise dispose of any rights he has to the Value
Options described in para. 3(c)(i) of his Employment Agreement.
7. Paracelsus, Park, and the Ad Hoc Committee will take no action
to revoke or in any way impair the ability of each Executive to exercise the
Market Options described in para. 3(c)(ii) of his Employment Agreement.
Further, Paracelsus, Park, and the Ad Hoc Committee will not assign to any
third person or entity any claim they may have to revoke or impair the ability
of each Executive to exercise the Market Options described in para. 3(c)(ii)
of his Employment Agreement or assist any third person or entity in revoking or
impairing the ability to exercise such options. Market Options vested on the
date an Executive's employment terminates shall be exercisable for two years
after that date.
8. Paracelsus, Park, and the Ad Hoc Committee will take no action
to revoke or in any way impair the ability of each Executive to exercise the
options he held in Champion before the merger of Champion and Paracelsus
("Champion Options"). Further, Paracelsus, Park, and the Ad Hoc Committee will
not assign to any third person or entity any claim Paracelsus may have to
revoke or impair the ability of each Executive to exercise any Champion Options
or assist any third person or entity in revoking or impairing the ability to
exercise such options.
9. Upon the request of the Board of Directors of Paracelsus, each
Executive shall cooperate with Paracelsus and the Board of Directors in
securing replacement senior management, including a chief executive officer,
possibly before the Bonus Payment Date (as defined below), and effecting an
orderly transition of senior management, provided that such obligation shall
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not require any Executive to serve as an employee of Paracelsus beyond the
earlier of a Sale of Paracelsus (as defined below) or the Executive's Bonus
Payment Date.
10. Upon termination of each Executive's employment and if payment
is made to that Executive of all amounts referred to in para. 3 of this MoU to
which he is entitled to be paid pursuant to this MoU, that Executive shall not
engage in the actions described in para 10(b) of his Employment Agreement for
a period of twelve (12) months. Each Executive shall be bound by both para.
10(c) and the final paragraph of para. 10(b) of his Employment Agreement.
Each Executive's agreement to abide by the terms of this paragraph is
consideration for payment to him of a portion of the funds referred to in
para 3 of this MoU allocable to that Executive equal to one-half (1/2) of
that Executive's current annual salary.
11. Upon termination of each Executive's employment, unless that
Executive voluntarily terminates his employment before the earlier of the Sale
of Paracelsus or such Executive's Bonus Payment Date or if his employment is
terminated for Cause in accordance with para 21, Paracelsus will provide that
Executive with the insurance and other benefits described in para 5(3) of his
Employment Agreement for a period lasting either (i) thirty-six (36) months or
(ii) until the Executive is provided substantially equivalent benefits by a new
employer, whichever is shorter.
12. Upon termination of each Executive's employment, that Executive
agrees to comply with the obligations of para. 11 of his Employment Agreement
except that such obligations shall apply until the Confidential Information
becomes public.
13. Attached to this MoU is a form of release of Paracelsus of any
claims arising from or related to each Executive's employment by Paracelsus,
including but not limited to any claims arising from or related to his
Employment Agreement and to his service as a director of Paracelsus, except as
otherwise provided in this paragraph. A copy of Miller's Employment Agreement
is attached as Exhibit A hereto, a copy of VanDevender's Employment Agreement
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is attached as Exhibit B hereto, and a copy of Patterson's Employment Agreement
is attached as Exhibit C hereto, and all such Exhibits are hereby incorporated
herein by reference. The form of release, when executed, shall not release any
obligation created pursuant to the terms of this MoU; any obligation to
compensate or provide employment benefits to each Executive as provided in
para. 3(a), (b), and (d) of his Employment Agreement for his continued service
as an officer, director and/or employee of Paracelsus until the date of
termination of that Executive's employment; and any obligation Paracelsus may
have to indemnify each Executive. Each Executive or his Successor shall
execute this form of release and deliver the signed release to the Escrow Agent
as a condition precedent to receiving any funds held in the Escrow Account
referred to in para. 3 of this MoU allocable to that Executive.
14. Paracelsus shall execute and deliver to the Escrow Agent a
release in the form attached of each of the Executives of any claims arising
from or related to his employment by Paracelsus, including but not limited to
any claims arising from or related to his Employment Agreement and his service
as a director of Paracelsus except as otherwise provided in this paragraph.
Such release shall not release any obligation created pursuant to the terms of
this MoU or any obligation of the Executive to provide continued service as an
officer, director and/or employee of Paracelsus through the termination of that
Executive's employment. The Escrow Agent shall deliver the executed release to
each Executive or his Successor at the same time, and if, the funds in the
Escrow Account referred to in para. 3 of this MoU are released to such
Executive or his Successor.
15. As part of a final settlement of the Litigation that dismisses
and releases claims against Paracelsus and the Executives and subject to any
required court approval, (a) each Executive or his Successor shall execute a
release of Paracelsus, Park, and the Ad Hoc Committee of any claims made or
that could have been made in the Litigation or otherwise arising from the
merger of Paracelsus and Champion and the related public offerings; (b) each
Executive or his Successor shall execute a release of any party (from which the
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Executive or his Successor receives a reciprocal release) of any claims made or
that could have been made in the Litigation or otherwise arising from the
merger of Paracelsus and Champion and the related public offerings; and (c)
Paracelsus, Park, and the Ad Hoc Committee shall execute a release of each
Executive of any claims that Paracelsus, Park, or the Ad Hoc Committee made or
could have been made in the Litigation or otherwise arising from the merger of
Paracelsus and Champion and the related public offerings. Paracelsus, Park,
the Ad Hoc Committee, and the Executives agree for their own benefit to
cooperate and bargain in good faith with all necessary parties in an effort
promptly to achieve such a settlement of the Litigation.
16. Paracelsus shall not be required to take any action to include
any Executive as a recipient of any proceeds (including the redistribution of
common stock) of either a settlement of the Litigation or a settlement between
Park and the Ad Hoc Committee.
17. Paracelsus, Park, and the Ad Hoc Committee acknowledge that each
Executive has certain indemnification rights and agree that they will take no
action to impair any such rights. This MoU does not create any obligation on
the part of Paracelsus, Park and/or the Ad Hoc Committee to indemnify any
Executive, nor does this MoU expand or affect in any way any existing
obligations or rights of indemnification owed to any Executive. Each Executive
shall abide by any modification of their indemnification rights set out in any
settlement agreement concerning Great American Insurance Company Policy No.
DFX0009397.
18. Each Executive's "Bonus Payment Date" shall be the later of
either March 31, 1999, or the filing date of Paracelsus's Form 10-K for fiscal
year 1998, but in no event later than April 30, 1999. Each Executive shall
continue to serve in his present capacity at Paracelsus through the earlier of
a Sale of Paracelsus or his Bonus Payment Date. The duties to be performed by
each Executive through such date shall be of the same scope and level of
responsibility as provided in each Executive's Employment Agreement, including
those duties, as applicable, described in the Management Rights Agreement. If
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an Executive continues to be employed by Paracelsus on his Bonus Payment Date,
then on or after such date and on the execution and delivery to the Escrow
Agent of the release referred to in para. 13 of this MoU for that Executive,
(i) the Escrow Agent shall be authorized to pay immediately to that Executive
the funds contributed to the Escrow Account allocable to that Executive
referred to in para. 3 of this MoU, and (ii) the Escrow Agent shall be
authorized to deliver immediately to Paracelsus that Executive's signed release
of Paracelsus referred to in para. 13 of this MoU and to deliver immediately
to the Executive the release of that Executive referred to in para. 14 of this
MoU.
19. If an Executive continues to be employed by Paracelsus on the
effective date of a Sale of Paracelsus (as defined in this paragraph), whether
such day is before, on, or after the Bonus Payment Date, then on such date the
Escrow Agent shall be authorized to pay immediately to such Executive the funds
contributed to the Escrow Account allocable to that Executive referred to in
para. 4 of this MoU. For purposes of this MoU, a "Sale of Paracelsus" means
the sale by Paracelsus of substantially all of its assets to, or the
acquisition of more than 60% of the outstanding common stock of Paracelsus by,
a person or entity other than Park, Dr. Manfred G. Krukemeyer, Paracelsus-
Kliniken-Deutschland GmbH, the trustees of the estate of Dr. Hartmut
Krukemeyer, or an affiliate of any of them.
20. If the effective date of a Sale of Paracelsus occurs before the
Bonus Payment Date, then upon the execution and delivery to the Escrow Agent of
the release referred to in para. 13 of this MoU for each Executive who
continued to be employed by Paracelsus on such date, the Escrow Agent shall be
authorized to pay immediately to that Executive the funds in the Escrow Account
allocable to that Executive referred to in para. 3 of this MoU, and the Escrow
Agent shall be authorized to deliver immediately to the Executive the release
of that Executive referred to in para. 14 of this MoU. In addition,
Paracelsus shall immediately pay each Executive any portion of the funds
referred to in para. 3 not yet paid to the Executive, and, upon such payment,
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the Escrow Agent shall be authorized to deliver immediately to Paracelsus that
Executive's signed form of release of Paracelsus referred to in para. 13 of
this MoU.
21. Each Executive shall be compensated and receive employment
benefits in accordance with para. 3(a), (b), and (d) of his Employment
Agreement until that Executive's employment is terminated. Should Paracelsus
terminate the employment of an Executive for any reason other than for "Cause"
(as that term is defined in each Executive's Employment Agreement) before that
Executive's Bonus Payment Date, or if an Executive is unable to carry out his
employment duties with Paracelsus through his Bonus Payment Date due to death
or disability (as those terms are defined in the Executive's Employment
Agreements), the Escrow Agent, upon the receipt of an executed release referred
to in para. 13 of this MoU for that Executive, shall be authorized to pay to
that Executive or his Successor, within ten (10) days of receipt of such signed
release, the funds then held in the Escrow Account allocable to him referred to
in para. 3 of this MoU and the Escrow Agent shall be authorized to deliver to
the Executive or his Successor the release of the Executive referred to in
para. 14 of this MoU. In addition, Paracelsus shall pay to that Executive or
his Successor within such ten (10) day period any portion of the funds referred
to in para. 3 of this MoU not yet paid to the Executive and the Escrow Agent
shall be authorized to deliver to Paracelsus that Executive's signed release of
Paracelsus referred to in para. 13 of this MoU. If Paracelsus terminates the
employment of an Executive for "Cause" as that term is defined in that
Executive's Employment Agreement before his Bonus Payment Date, that Executive
will not be entitled to receive any of the funds held in the Escrow Account
allocable to him. Such termination for "Cause" must be based upon actions or
events that occurred after the effective date of the merger of Paracelsus and
Champion.
22. If an Executive voluntarily terminates his employment before the
earlier of the Sale of Paracelsus or such Executive's Bonus Payment Date or if
an Executive's employment is terminated for Cause in accordance with para 21,
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the Escrow Agent shall be authorized immediately to pay to Paracelsus any funds
held in the Escrow Account allocable to that Executive not otherwise expressly
authorized by the terms of this MoU to be paid to the Executive. At such time,
the Escrow Agent shall also be authorized to return to Paracelsus the release
of that Executive referred to in para 14 of this MoU and to return to the
Executive his release of Paracelsus referred to in para 13 of this MoU unless
otherwise expressly authorized under the terms of this MoU. After the Escrow
Agent pays all amounts authorized to be paid to the Executives, it shall
immediately pay to Paracelsus the interest amount in the Escrow Account
referred to in para 5 of this MoU.
23. Each Executive or Paracelsus may terminate for any reason that
Executive's employment with effect after the Bonus Payment Date on giving 30
days advance written notice. Upon termination of an Executive's employment at
any time and provided that payment is made to that Executive of all amounts
referred to in para. 3 of this MoU to which he is entitled to be paid pursuant
to this MoU, that Executive will cease to be an officer, director, and employee
of Paracelsus, its affiliates, and any entity in which the Executive holds such
a position at the request of Paracelsus.
24. Each Executive shall not exercise any rights he may have now or
in the future under para. 4(iii)(E), 4(iii)(F), and 4(iii)(H) of his
Employment Agreement.
25. The parties agree that Paracelsus will withhold federal, state,
and local income and employment taxes from all payments Paracelsus makes to the
Executives under this MoU. All such amounts withheld shall be paid to the
Internal Revenue Service to the extent required by law. All amounts stated in
this MoU are before reduction to reflect such withholding taxes.
26. Each Executive agrees that, as a condition precedent to
Paracelsus's making any payment to the Executive for deposit into the Escrow
Account, he will provide Paracelsus with such consents and statements as
Paracelsus reasonably determines to be necessary or advisable to enable
Paracelsus to receive a refund of or credit for any taxes withheld in
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connection with the payment to that Executive for deposit into the Escrow
Account (including without limitation portions relating to the Executive's
share of FICA and Medicare taxes) if all or any portion of the Escrow Account
funds are paid over to Paracelsus under para 22 of this MoU. Each Executive
further agrees to provide any additional consents, statements or documents as
Paracelsus reasonably determines to be necessary or advisable to enable
Paracelsus to receive such a refund or credit. No Executive will claim a
refund or credit of, or otherwise assert any right to receive, any amount
Paracelsus withholds with respect to any payment to the Executive for deposit
into the Escrow Account except to the extent that such withheld amount relates
to an amount the Executive actually receives from the Escrow Account.
27. Unless this MoU is executed by Park and the Ad Hoc Committee no
later than the same day that Paracelsus executes the MoU, each Executive may
withdraw from this MoU, subject to the terms of this para. 27. If any
Executive chooses to exercise this right, any funds deposited in the Escrow
Account allocable to that Executive shall become immediately payable to
Paracelsus and that Executive and Paracelsus will be deemed to have reverted to
their respective statuses as of the date immediately before executing this MoU.
Failure of Park or the Ad Hoc Committee to execute this MoU shall not
constitute "Good Reason" to terminate employment under any of the Executives'
Employment Agreements. The Executives must exercise any right they have under
this paragraph no later than two (2) business days after the last date for Park
and the Ad Hoc Committee to sign this MoU.
28. Resolution of Rights: Legal Fees; No Mitigation:
(a) Except for the obligations referenced in para. 10
and 12 of this MoU, 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. Paracelsus shall bear the expenses of such arbitration.
(b) If any contest or dispute shall raise hereunder,
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Paracelsus shall advance and reimburse each Executive, on a current basis all
reasonable 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 para. 10 and 12)
determine that Paracelsus has prevailed as to the material issues raised in
determination of the dispute.
(c) Paracelsus' obligation to make any payments provided for
in this MoU 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 Paracelsus may have against the Executive
or others. In no event shall any Executive be obligated to seek other
employment or take other action by way of mitigation of the amounts payable to
the Executive under any of the provisions of this MoU.
29. This MoU may be executed and delivered in counterparts or copies
by the parties to this MoU. Each counterpart when signed and delivered to the
other parties to this MoU shall be deemed an original and, taken together, the
counterparts shall constitute one and the same agreement.
30. This MoU shall be binding on the Successors, assigns, heirs,
estates, estate beneficiaries, agents, and attorneys of the Executives and the
successors, assigns, agents, and attorneys of Paracelsus.
PARACELSUS HEALTHCARE CORPORATION
Date: November 25, 1998 By: /s/ Christian A. Lange
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Its: Director
PARK-HOSPITAL GmbH
Date: By:
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Its:
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AD HOC COMMITTEE OF FORMER SHAREHOLDERS
OF CHAMPION HEALTHCARE CORPORATION
Date: By:
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Its:
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Date: November 18, 1998 /s/ JAMES G. VANDEVENDER
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James G. VanDevender
Date: November 18, 1998 /s/ CHARLES R. MILLER
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Charles R. Miller
Date: November 18, 1998 /s/ RONALD R. PATTERSON
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Ronald R. Patterson