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EXHIBIT 10.49
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
as of the 19th day of November, 1996, by and between Medaphis Corporation, a
Delaware corporation (the "Company"), and David E. McDowell (the "Employee").
STATEMENT OF BACKGROUND INFORMATION
The Company renders to hospitals, physicians, and/or other healthcare
organizations and providers: (a) billing services, accounts receivable
management services, collection services, electronic claims services, financial
management services, and practice and facilities management services; (b)
eligibility verification and certification for Medicaid, Medicare and other
healthcare assistance programs; (c) filing and other medical claims
securitization services: (d) medical coverage information services: and (e)
medical and insurance claims monitoring and tracking services (collectively the
"Processing Business").
The Company also provides subrogation and related recovery services
for healthcare payors, including health maintenance organizations, indemnity
insurers. Blue Cross and Blue Shield organizations, third-party
administrators, self-funded employee health welfare benefit plans, and
provider hospital organizations (the "Subrogation Business").
The Company also: (a) develops, markets and licenses to hospitals,
integrated healthcare delivery systems, and other healthcare providers and
other end users (collectively "Providers"), (i) strategic, operational and
financial information systems and services and decision support tools for
healthcare providers, (ii) software systems which provide claims and
reimbursement services and electronic claims processing, and (iii) software
applications which assist Providers with automated scheduling and resource
management (the items discussed in Sections (a)(i), (a)(ii) and (a)(iii) of
this paragraph are referred to as "Systems"), which Systems include, but are
not limited to, nurse scheduling and management information systems, operating
room patient scheduling and surgery information systems, enterprise wide
patient scheduling and resource management systems, enterprise-wide employee
scheduling and management information systems and related software interfaces
to other information systems: and (b) provides to Providers installation and
support services related to the Company's Systems (the "Systems Business").
The Company also renders professional services with respect to the
development of computer software, algorithms, designs, documentation, and
related materials, and the development, design, deployment, and operation of
local and wide area computer networks, all in conjunction with the sale,
design, deployment, operation and maintenance of custom computer
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processing systems for improvement of operational efficiency or functionality,
through the use of image storage and processing, work flow technology, optical
character recognition or other related technologies (the "System Integration
Business") (the Processing Business, the Subrogation Business, the Systems
Business, the Systems Integration Business and any other distinct business
segment in which the Company engages during Employee's employment are
collectively referred to as the "Business").
The Compensation Committee (the "Committee") of the Board of Directors
of the Company (the "Board") has determined to create certain long-term
retention incentives to reward Employee for successful performance with the
Company.
The Committee has determined that it would be in the best interest of
Medaphis and its stockholders if Employee were employed by Medaphis for a term
of five years.
Employee acknowledges the Company's ownership of its goodwill, and the
necessity of the restrictive covenants contained in this Agreement to protect
the Company's interest in such material asset.
STATEMENT OF AGREEMENT
In consideration of the mutual covenants, promises and conditions set
forth in this Agreement, the parties agree as follows:
1. Employment. The Company employs Employee and Employee accepts
such employment upon the terms and conditions set forth in this Agreement. For
purposes of Sections 6, 7 and 8 of this Agreement, "employment" shall mean any
period of time during which the Company is paying the Employee salary under
Section 5(b) of this Agreement, whether or not the Employee is currently
performing services for the Company at the time of such payment. For all other
purposes under this Agreement, "employment" shall have its customary meaning.
2. Duties of Employee. Employee agrees to perform and discharge
the usual duties of a Chairman of the Board of Directors and Chief Executive
Officer of a similarly sized organization, including, without limitation, those
presently set forth in the Bylaws of the Company, and such other duties as may
be reasonably assigned by the Board, and to comply with all of the Company's
policies, standards and regulations. Employee's title shall be Chairman of the
Board of Directors and Chief Executive Officer, and Employee shall report to
the Board. All of Employee's time, attention and energies which are devoted
to business endeavors will be devoted to the Business, and Employee will not,
during the term of this Agreement, be engaged (whether or not during normal
business hours) in any other business or professional activity, whether or not
such activity is pursued for gain, profit or other pecuniary advantage, without
the prior written consent of the Board, which consent will not be unreasonably
withheld. This Section will not be construed to prevent Employee from: (a)
investing personal assets in
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businesses which do not compete with the Company in such form or manner that
will not require any services on the part of Employee in the operation or the
affairs of the companies in which such investments are made and in which
Employee's participation is solely that of an investor; (b) purchasing
securities in any corporation whose securities are listed on a national
securities exchange or regularly traded in the over-the-counter market,
provided that Employee at no time owns, directly or indirectly, in excess of
one percent of the outstanding stock of any class of any such corporation
engaged in a business competitive with that of the Company; or (c)
participating in conferences, preparing and publishing papers or books or
teaching, participating on the board of directors of other companies ("Other
Boards") or providing limited advisory services, so long as these activities
are not contrary to the Company's interests, and, with regard to participation
on Other Boards or the provision of limited advisory services, so long as the
Board approves Employee's participation on any such Other Boards or approves
the provision of such limited advisory services, which approval will not be
unreasonably withheld.
3. Term. The term of this Agreement will be for a period of five
years commencing on November 19, 1996 and expiring on the fifth anniversary of
that date, subject to earlier termination as provided for in Section 4.
4. Termination and Suspension.
(a) By the Company. Notwithstanding anything contained in Section
3 to the contrary, the Company has the right to terminate this Agreement and
all of its obligations under this Agreement immediately if the Board takes
action to terminate after any of the following events occurs:
(i) Employee materially breaches any of the terms or
conditions set forth in this Agreement and fails to cure such
breach within ten (10) days after Employee's receipt from the
Company written notice of such breach, which notice describes
in reasonable detail the Company's belief that Employee is in
breach hereof (notwithstanding the foregoing, no cure period
shall be applicable to breaches by Employee of Sections 6, 7
or 8 of this Agreement);
(ii) Employee commits any act in bad faith materially
detrimental to the business or reputation of the Company;
(iii) Employee engages in illegal activities or is
convicted of any crime involving fraud, deceit or moral
turpitude; or
(iv) Employee dies or becomes mentally or physically
incapacitated or disabled so as to be materially unable to
perform Employee's duties under this Agreement. Without
limiting the generality of the foregoing. Employee's
inability to adequately perform services under this Agreement
for a period of ninety (90) consecutive days will be
conclusive evidence of such mental or physical
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incapacity or disability, unless such inability to
adequately perform services under this Agreement is
pursuant to a mental or physical incapacity or
disability covered by the Family Medical Leave Act,
in which case such ninety-day period shall be
extended to a one hundred fifty-day period.
(b) By Employee or by the Company other than for Cause. If
Employee terminates this Agreement pursuant to any of clauses (i) - (v) below
or if the Company terminates this Agreement other than pursuant to Section 4(a)
hereof, the Company obligations hereunder to pay Employee the annual salary
under Section 5(b), to provide for the continued vesting of stock option awards
under Section 5(c) hereof and to provide for health insurance benefits to
Employee under Section 5(d) hereof shall continue in accordance with the terms
hereof through November 19, 2001:
(i) the Company materially breaches any of the terms or
conditions set forth in this Agreement and fails to cure its
breach within ten (1O) days after its receipt from Employee of
written notice of such breach, which notice describes in
reasonable detail Employee's belief that the Company is in
breach hereof;
(ii) without Employee's express written consent, the
Company assigns to Employee duties, or significantly reduces
Employee's assigned duties, in a manner inconsistent with
Employee's position with the Company;
(iii) without Employee's express written consent, the
Company requires Employee's relocation outside of the
metropolitan Atlanta, Georgia area.
(iv) the Company fails to obtain the assumption of this
Agreement by any successors to the Company; or
(v) a Change in Control Event (as defined herein) occurs,
and Employee's employment is terminated by Employee or the
Company, for whatever reason, within one hundred twenty (120)
calendar days thereafter. Upon a Change in Control Event, the
applicable provisions of Section 4(e) shall apply. For
purposes of this Agreement a "Change in Control Event" shall
mean the occurrence of any of the following:
(1) the adoption of a plan of merger or
consolidation of the Company with any other
corporation as a result of which the holders of the
outstanding voting stock of the Company as a group
would receive less than 50% of the voting stock of
the surviving or resulting corporation;
(2) the adoption of a plan of liquidation or the
approval of the dissolution of the Company;
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(3) the sale or transfer of substantially all of
the assets of the Company;
(4) the following individuals cease for any
reason to constitute a majority of the number of
directors then serving: individuals who, on the date
hereof, constitute the Board and any new director
(other than a director whose initial assumption of
office is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of the Company) whose appointment or
election by the Board or nomination for election by
the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors on the date hereof or whose appointment,
election or nomination for election was previously so
approved or recommended; or
(5) any individual, entity, group (within the
meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, and the rules
promulgated thereunder), or other person acquires in
a single transaction or a series of transactions more
than 30% of the outstanding shares of the Company's
common stock.
(c) Suspension By the Company. If Employee is indicted for any
felony, the Company may immediately suspend Employee without compensation. If
the indictment is dropped, or if Employee is acquitted (the dropping of an
indictment and an acquittal each referred to as an "Acquittal Event"), the
Company shall, within ten (10) days after it receives written notice of any
Acquittal Event, remit to Employee all amounts otherwise payable pursuant to
this Agreement but withheld during the suspension period, together with
interest from each due date paid at the then-current prime rate plus two
percentage points, as reported in The Wall Street Journal. Upon any such
Acquittal Event, the Company's payment obligations to Employee under this
Agreement shall resume and shall continue throughout the remainder of the term
of this Agreement, subject to the terms and conditions of this Agreement, but
the Company shall have the option whether to ask Employee actually to return to
work and to publicly associate with the Company. At the Company's request in
this circumstance, Employee will refrain from working at or for the Company
(notwithstanding his continuing compensation under this Agreement) and will
refrain from representing to any person or entity that he is associated with
the Company.
(d) No Duty to Mitigate. If Employee terminates his employment
under and in accordance with this Agreement or if the Company wrongfully
terminates Employee's employment under this Agreement. Employee shall not be
required to mitigate the amount of any payment contemplated by this Agreement
(whether seeking new employment or in any other manner).
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(e) Gross-Up. Upon a Change in Control Event and a termination of
this Agreement by Employee pursuant to Section 4(b)(v), the Company will pay to
Employee (in lieu of an obligation to make further payments to Employee under
or on account of Section 5(b) and to provide benefits to Employee under or on
account of Section 5(d)) the salary that would have been payable to Employee
under this Agreement from the date of termination until November 18, 2001. The
amounts payable to Employee under the previous sentence of this Section 4(e)
shall be paid by the Company in periodic payments or in a lump sum, at the
option of Employee. If any payment or other benefit (a "Termination Payment")
received or to be received by Employee in connection with a Change in Control
Event (whether or not this Agreement is terminated) or Employee's termination
of employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, with any person whose actions
result in a Change in Control Event or with any person affiliated with the
Company or such person) is or will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall pay to Employee, a Gross-Up Payment (as defined) to
the extent provided by the second paragraph of this Section 4(e).
A Gross-Up Payment (as defined) shall be payable pursuant to this
Section 4(e) on and subject to the following terms and conditions:
(1) At the time the applicable Termination Payment is made, an
additional amount (the "Gross-Up Payment") shall be paid by the Company such
that the net amount retained by Employee, after deduction of any Excise Tax on
such Termination Payment and any federal, state and local income tax,
employment tax and Excise Tax on the Gross-Up Payment, shall be equal to the
amount or value of such Termination Payment. For purposes of determining
whether any such Termination Payment will be subject to the Excise Tax, all
Termination Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 80G(b)(1) of the Code shall be treated as being
subject to the Excise Tax,unless in the opinion of tax counsel reasonably
acceptable to Employee and selected by the accounting firm which, immediately
prior to the Change in Control Event, was the Company's independent
auditors, such payments (in whole or in part) do not constitute "parachute
payments" within the meaning of Section 28OG of the Code or represent
reasonable compensation for services actually rendered in excess of the "base
amount" allocable to such reasonable compensation. The full amount of the
Gross-Up Payment shall be treated as being subject to the Excise Tax. The
value of any non-cash benefits or any deferred payment or benefit shall be
determined in accordance with the principles of Sections 28OG(d)(3) and (4)
of the Code.
(2) For purposes of determining the amount of any Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
applicable Termination Payment or Gross-Up Payment is made, and shall be deemed
to pay state and local income taxes at the highest marginal
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rates of taxation in the state and locality of his residence on the date the
applicable Termination Payment or Gross-Up Payment is made, net of the maximum
reduction in federal income taxes that could be obtained from deduction of such
state and local taxes.
(3) If the Excise Tax or income tax payable with respect
to a Gross-Up Payment as finally determined exceeds the amount taken into
account or paid to Employee at the time the applicable Termination Payment or
Gross-Up Payment is made (including by reason of any payment the existence or
amount of which cannot be determined at the time of the applicable Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable by Employee with respect to such excess)
at the time that the amount of such excess is finally determined.
5. Compensation and Benefits.
(a) Signing Incentive. As a material inducement to Employee to
enter into this Agreement (including, without limitation, the covenants set
forth in Sections 6, 7 and 8 of this Agreement), the Company will pay Employee,
within five (5) days after Employee's execution of this Agreement, Five Hundred
Thousand Dollars.
(b) Annual Salary. For all services rendered by Employee under
this Agreement, the Company will pay Employee a base salary of a minimum of
Three Hundred Thousand Dollars per annum in equal bi-weekly installments. Such
annual salary may be increased by the Committee.
(c) Stock Option Awards. Employee shall be entitled to receive
under the Amended and Restated Medaphis Corporation Non-Qualified Stock Option
Plan (1) options to purchase 600,000 shares of the Company's common stock for
an exercise price equal to the closing price of the Company's Common Stock on
the Nasdaq National Market on November 19, 1996, which options shall have an
effective grant date of November 19, 1996 and shall vest ratably over five
years, and (2) performance options to purchase 210,000 shares of the Company's
Common Stock for an exercise price equal to the closing price of the Company's
Common Stock on the Nasdaq National Market on November 19, 1996, which
performance options shall have an effective grant date of November 19, 1996 and
shall vest ratably as follows: (i) 1/3 based on 100% appreciation in the market
price of the Company's Common Stock above the closing price of the Company's
Common Stock on the Nasdaq National Market on November 19, 1996, (ii) 1/3
based on 200% appreciation in the market price of the Company's Common Stock
above the closing price of the Company's Common Stock on the Nasdaq National
Market on November 19, 1996, and (iii) 1/3 based on 300% appreciation in the
market price of the Company's Common Stock above the closing price of the
Company's Common Stock on the Nasdaq National Market on November 19, 1996. In
any event, the 210,000 performance stock options will vest on November 19, 2001
and all stock options contemplated by this Section 5(c) shall vest upon a
Change in Control Event. In addition to any other rights provided Employee
under the Amended and Restated Medaphis Corporation Non-Qualified Stock Option
Plan or in the stock options agreement evidencing the
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