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Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1996, by and among BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"), BMC HEALTH PLANS, INC., a Tennessee
corporation ("BMC") and VINCENT W. WONG, an Arizona resident ("Executive").
W I T N E S S E T H:
WHEREAS, BMC and Executive mutually desire that Executive be employed
in accordance with the terms and conditions hereof as BMC's President and Chief
Executive Officer;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. EMPLOYMENT. BMC hereby employs Executive, and Executive hereby
accepts employment from BMC as President and Chief Executive Officer. Executive
shall perform services for BMC for the period and upon the terms and conditions
set forth in the Agreement and shall hold such other positions with BMC or any
Affiliate as BMC may specify from time to time. "Affiliate" means a person that,
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
2. TERM. Subject to the provisions for termination set forth
herein, the term of Executive's employment under the Agreement shall commence as
of the date hereof and shall continue up to and including January 31, 1999 (the
"Initial Term"). Following the expiration of the Initial Term, BMC may extend
the Agreement for an additional term of three (3) years.
3. POSITION AND DUTIES.
3.1 SERVICES. During the term of the Agreement, Executive
shall perform such duties as are customary to Executive's office and as are
designated by the Company's Chief Executive Officer or the Board of Directors
from time to time. Executive also shall serve, for any period for which
Executive is elected, as a member of the Board of Directors of BMC andlor any of
its Affiliates without additional compensation.
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3.2 PERFORMANCE OF DUTIES. Executive shall serve BMC
faithfully and to the best of Executive's ability and devote such time,
attention, skill and effort as is required to effectively discharge Executive's
duties hereunder. Executive shall provide services to BMC on an exclusive basis
and shall not be employed or otherwise provide services to any other entity
without the prior written consent of BMC, which consent shall not be
unreasonably withheld. Executive shall undertake such reasonable travel to the
corporate headquarters of the Company in Cookeville, Tennessee and to such other
locations in which the Company does, or proposes to do, business as shall be
necessary to perform Executive's duties hereunder.
4. COMPENSATION; BENEFITS.
4.1 BASE SALARY. During the Initial Term and any renewal
thereof, BMC shall pay to Executive as compensation for all personal services to
be rendered by Executive under the Agreement, a base salary ("Base Salary"), in
accordance with BMC's customary payroll practices, reduced by applicable
federal, state and local withholding taxes, of one hundred eighty thousand and
no/100 dollars ($180,000) per annum, subject to the following adjustment (the
"Base Salary Adjustment"): Beginning on January 1, 1997 and each January 1
thereafter during the term of the Agreement, the Base Salary shall be increased
by the product of (i) a fraction, the numerator of which is the Extension CPI
Index, and the denominator of which is the Beginning CPI Index, times (ii) the
Base Salary. "Beginning CPI Index" means the U.S. Consumer Price Index for all
Urban Consumers, U.S. City Average (Base year 1982-84=100), published most
immediately preceding January 1, 1996 by the U.S. Department of Labor, Bureau of
Labor Statistics. "Extension CPI Index" means the CPI Index published most
immediately preceding January 1, 1997 and each successive January 1st thereafter
during the term hereof. In the event the CPI Index is changed or discontinued,
the most nearly comparable price index of the U.S. government for computing the
foregoing calculation of the Base Salary Adjustment, after converting said new
index so that the same shall correspond with the changed or discontinued CPI
Index. In addition, in reviewing and setting Executive's Base Salary, the Board
or Compensation Committee, as the case may be, shall consider results of
operations, financial condition, prospects, salary levels for similarly sized
companies in BMC's industry for comparable executive positions, Executive's
performance and other criteria deemed relevant by BMC in assessing Executive's
compensation.
4.2 EXECUTIVE BONUS. In addition to the Base Salary
described in Section 4.1, the Company shall pay Executive an annual
performance-based bonus ("Incentive Compensation") in cash not later than ninety
(90) days after the audit of the books of the Company for such annual period has
been completed by the Company's independent accountants, consisting of the
following two components and determined in accordance with the following:
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(a) On all earnings before interest, depreciation and
taxes (EBIDT) of BMC in the annual fiscal period for which the
Incentive Compensation is being calculated:
PERCENTAGE OF
BASE SALARY (AS ADJUSTED)
ANNUAL EBIDT ------------------------
------------
Less than $100,000 0%
$100,000 to $200,000 5%
$200,001 to $300,000 10%
$300,001 to $500,000 15%
$500,001 to $750,000 20%
$750,001 to $1,000,000 25%
$1,000,001 to $1,250,000 30%
$1,250,001 to $1,500,000 35%
$1,500,001 to $1,750,000 40%
$1,750,001 to $2,000,000 45%
Over $2,000,000 50%
(b) On cumulative total enrollment in the Managed Care
plans at the completion of the annual fiscal period for which the
Incentive Compensation is being calculated:
PERCENTAGE OF
BASE SALARY (AS ADJUSTED)
NUMBER OF MEMBERS ------------------------
-----------------
Less than 5,000 0%
5,001 to 10,000 5%
10,001 to 20,000 10%
20,001 to 30,000 15%
30,001 to 40,000 20%
40,001 to 50,000 25%
50,001 to 60,000 30%
60,001 to 70,000 35%
70,001 to 80,000 40%
80,001 to 90,000 45%
Over 90,000 50%
4.3 PARTICIPATION IN DEFERRED COMPENSATION AND STOCK OPTION PLANS.
Executive shall be entitled to participate in all employee qualified and
non-qualified deferred compensation plans or supplemental income plans or
programs maintained by
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the Company, including any Section 401(k) plan adopted by the Company, according
to the terms and conditions thereof. Executive shall also be entitled to
participate in the Company's 1995 Stock Option Plan, according to the terms and
conditions of said plan.
4.4 OTHER INSURANCE PLANS. Executive shall be entitled to
participate in any and all plans, arrangements or distributions maintained by
BMC pertaining to or in connection with any pension, life, health insurance,
disability insurance or similar benefits provided by BMC to its employees, as
determined by the Board of Directors pursuant to the governing instruments which
establish and determine eligibility and other rights of the participants and
beneficiaries under such plans or other benefit programs. To the extent
permitted under any applicable group or individual disability policy, the
premium payable by BMC for Executive's benefit shall be reported as income to
Executive on Forms W-2 or 1099.
4.5 VACATION AND SICK LEAVE. Executive will be entitled to
participate in the vacation and sick leave benefit program of BMC to the extent
that Executive's position, title, salary and other qualifications make him
eligible to participate. Vacation time and sick leave may not be accumulated
after the end of any year and, to the extent unused, shall have no economic
value to Executive. Executive's use of vacation time shall be subject to the
prior approval of BMC. Executive shall be entitled to receive vacation time of
up to three weeks per year.
4.6 EXPENSES. BMC will pay or reimburse Executive for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Executive in the performance of duties under the Agreement, subject to the
presentment of appropriate vouchers in accordance with BMC's policies and
procedures as adopted from time to time.
4.7 OFFICE FACILITIES. BMC shall provide Executive with a
furnished office in Scottsdale, Arizona, together with such staff, equipment and
materials as may be reasonably necessary for Executive to fulfill his duties
under this Agreement.
5. CONFIDENTIALITY; RETURN OF MATERIALS.
5.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges
that (i) Executive's services to BMC and its Affiliates will be of a special,
unique, extraordinary and intellectual character, (ii) Executive's position with
BMC or its Affiliates will place Executive in a position of confidence,
responsibility and trust with respect to the operations of BMC and its
Affiliates, and (iii) in reliance on Executive's ethical responsibility and
loyalty, BMC and its Affiliates have entrusted and expect to entrust Executive
with highly sensitive, confidential, restricted and proprietary information
involving Trade Secret Information (as hereinafter defined). Executive
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acknowledges that Executive is legally and ethically responsible for protecting
and preserving the proprietary rights of BMC and its Affiliates for use only for
the benefit of BMC and its Affiliates, and these responsibilities may impose
limitations on Executive's ability to pursue some kinds of business
opportunities that might interest Executive after the termination of Executive's
employment.
5.2 DEFINITION OF "TRADE SECRET INFORMATION". For purposes of the
Agreement, "Trade Secret Information" means information, whether or not in
written or tangible form, in the possession of BMC or its Affiliates and
considered by BMC or its Afffiliates to be proprietary, valuable and
confidential, from which BMC or any of its Afffiliates derives economic value,
actual or potential, by such information not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use, and is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy. Trade Secret
Information includes, without limitation, (a) any data or information acquired
by Executive during Executive's employment by BMC or its Affiliates relating to
the products, services, business methods, customer accounts or operations of BMC
or any Affiliate or any customer or business partner of BMC or its Afffiliates,
and (b) the techniques and business methods for (i) applying scientific
literature to merge resources and clinical language used in defining medical
payments for purposes of quality management, (ii) utilizing concurrent case
review activity to merge resources and clinical language used in defining
medical payments for the purpose of quality management, (iii) developing and
managing health care provider organizations and providing services thereto, (iv)
developing reimbursement and at-risk systems under capitation, prepayment,
indemnity and other forms of compensatory arrangements, and (v) managing the
delivery, reporting and financing of health care services in managed care and
managed cost settings, including the systems, techniques, strategies and methods
used to compete successfully in these lines of business and the Managed Care
Business generally.
5.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET
INFORMATION. Except as authorized by BMC or any Affiliate, Executive shall not,
during the term of the Agreement and for so long after the termination of
employment as the information or data remains Trade Secret Information, directly
or indirectly divulge, furnish or make accessible to anyone or use in any way
(other than in the ordinary course of business of BMC or its Affiliates) the
Trade Secret Information.
5.4 RETURN OF MATERIALS. Upon the request of BMC or any Affiliate
and, in any event, upon the termination of Executive's employment, Executive
shall return to BMC and leave at the disposal of BMC all copies of memoranda,
notes, records, drawings, manuals, computer programs, documentation, diskettes
and other documents or media, in Executive's possession or control, pertaining
in any way to the business, practices or techniques of BMC or its Afffiliates.
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5.5 DURATION. The restrictions contained in this Section 5 shall
inure to the benefit of BMC and each of its Affiliates and shall survive the
termination of the Agreement.
6. RESTRICTIONS ON COMPETITION.
6.1 PREMISES. BMC has invested prior to the date hereof and
expects to continue to invest considerable time, effort, and capital in
developing the business of BMC and its Affiliates and enhancing the value and
desirability of the skills of its executives and technical personnel. This
investment, together with the compensation payable to Executive pursuant to
Article 4, reflect BMC's expectation of receiving a considerable return from the
exclusive use of Executive's services and know-how in the future, free from any
risk that BMC's competitors may attempt to induce Executive to leave BMC and
wrongfully gain the benefit of BMC's investment. The partial restraint set forth
in Section 6.2 hereof does not, and cannot, provide complete protection for
BMC's investment, but BMC and Executive believe that, in combination with the
other provisions of the Agreement, it is a fair and reasonable measure permitted
under applicable law to protect BMC's interests, giving due regard to both the
interests of Executive and the interests of BMC. Executive hereby (i) agrees
that the restrictions contained within Section 6 are reasonable and necessary
for the protection of the goodwill of the business of BMC during the term of the
Agreement and thereafter and that the limitations as to period of time and
geographic area contained in Section 6.2 are reasonable and necessary for the
protection of BMC's business; and (ii) acknowledges that BMC would not have
entered into the Agreement but for these restrictions.
6.2 COVENANT NOT TO COMPETE; SOLICIT. Subject to receipt by
Executive of the compensation payable pursuant to Article 4 and Section 8.5,
during the term of the Agreement and for a period equal to two (2) years from
the earlier of the date of expiration or termination of the Agreement (at any
time for any reason), Executive shall not:
(a) directly or indirectly, for himself, as an owner,
partner, principal, shareholder, officer, director, employee, or
independent contractor engage in the development, management or
operation of any Managed Care Plan (i) within two hundred (200) miles
from any city, town where BMC has established a Managed Care Plan or
(ii) in any state in which a Managed Care Plan established by BMC has
contracted with state Medicaid agencies for the delivery of health care
services within such state; or
(b) attempt, directly or indirectly, to solicit or entice
(i) any employee or consultant of BMC to terminate his or her
employment or consultancy with BMC or to become employed by or
associated with any person, firm or
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corporation other than BMC, or approach any such employee or associate
of any of the foregoing purposes or authorize or assist in the taking
of any such action by any third party; (ii) any existing customer,
business partner or client of BMC to terminate or reduce its
relationship with BMC; or (iii) any prospective customer, business
partner or client of BMC to refrain from doing business with BMC.
6.3 INTERPRETATION. If Executive violates the restrictive covenant
in Section 6.2 and BMC brings legal action for injunctive or other relief, BMC
shall not, as a result of the time involved in obtaining the relief, be deprived
of the benefit of the full period of the restrictive covenant. Accordingly,
unless Executive contests the alleged violation in a court of law and is the
prevailing party in a nonappealable decision of the applicable court, the
restrictive covenant shall be deemed to have the two-year post- employment
duration specified in Section 6.2 hereof computed from the date the relief is
granted but reduced by the period when the restriction began to run and the date
of the first violation by Executive. Notwithstanding the foregoing, however, to
the extent this provision is invalid or unenforceable under the laws of any
applicable jurisdiction, the remainder of Section 6 shall be interpreted, status
quo ante, as if Section 6.3 had never been included herein and was an absolute
nullity.
6.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges and
agrees that a violation of any of the provisions contained in Section 6.2 will
cause irreparable damage to BMC, the exact amount of which may be impossible to
ascertain and that, for such reason, among others, BMC shall be entitled to
injunctive relief, both pendente lite and permanently, against Executive to
restrain any further violation of such provisions, and Executive hereby (i)
consents to any initiation by BMC in a court of competent jurisdiction of any
action to enjoin immediately any breach of the Agreement, and (ii) hereby
releases BMC from the requirement of posting any bond in connection with
temporary or interlocutory injunctive relief, to the extent permitted by law.
This provision with respect to injunctive relief shall not, however, diminish
the right of BMC to pursue any other rights and remedies BMC may have against
Executive, including, but not limited to, the recovery of damages.
6.5 DURATION. The restrictions contained in this Section 6 shall
inure to the benefit of BMC and each of its Affiliates and shall survive the
termination of the Agreement.
7. TERMINATION OF EMPLOYMENT. The Agreement shall terminate prior to its
expiration upon the earliest to occur of any of the following events:
7.1 FOR CAUSE. Upon written notice by BMC to Executive, which
shall specify the "cause" for termination. For purposes hereof, "cause" shall
include, without
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limitation: Conviction of a felony; habitual drunkenness; and/or material breach
of the Agreement. If thirty (30) days after receipt by Executive of written
notice thereof from BMC, to correct, cease, or otherwise alter any material
breach of the Agreement, or other willful action that recklessly affects BMC's
business, Executive has not reasonably corrected the alleged "cause," the
Agreement may be terminated. If Executive disputes that "cause" exists for the
termination of Executive's employment, the decision with respect to the
existence of "cause" for termination shall be made by an arbitrator selected in
accordance with the rules of the American Arbitration Association.
7.2 DEATH. Upon Executive's death.
7.3 DISABILITY. Upon BMC's written notice, at BMC's sole option,
upon Executive's disability. "Disability" shall have the definition ascribed in
BMC's group disability policy if coverage under the policy is conditioned on
using such definition. If no such policy exists or if coverage is not
conditioned on using such definition, then, for purposes of the Agreement,
"Disability" means the inability of Executive to perform Executive's duties with
reasonable accommodation by BMC for ninety (90) days in any one hundred eighty
(180) consecutive day period.
8. SEVERANCE.
8.1 DEATH. If Executive's employment is terminated pursuant to
Section 7.2 as a result of Executive's death, the following provisions shall
apply:
(a) BMC shall pay to Executive's personal representative
the Base Salary (as adjusted) through the end of the calendar month in
which Executive's death occurs.
(b) BMC shall pay to Executive's personal representative
(i) the earned but unpaid Incentive Compensation for the calculation
period ended prior to the date of Executive's death and (ii) a pro rata
share (based on the number of days in the period during which Executive
was alive) of Executive's Incentive Compensation for the calculation
period in which Executive died provided that more than three (3) months
of such calculation period has elapsed as of Executive's death. If
Executive's death occurs during the first three (3) months of an
Incentive Compensation calculation period, no Incentive Compensation
shall be payable with respect to such period.
8.2 DISABILITY. If Executive's employment is terminated pursuant
to Section 7.3 as a result of Executive's Disability, the following provisions
shall apply:
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(a) BMC shall maintain any health insurance coverage
provided to Executive hereunder until the expiration of the Initial
Term or any applicable renewal term for Executive and Executive's
dependents, or, if BMC's benefit insurer does not permit such
continuation, pay to Executive the amount of the health insurance
premium BMC would have paid to provide such insurance to Executive and
Executive's dependents. Nothing herein shall affect any rights to
continuation coverage of Executive or Executive's dependents with
respect to any insurance coverage as provided by law.
(b) BMC shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's beneficiaries
until the expiration of the Initial Term or any applicable renewal
term.
(c) BMC shall pay to Executive the Base Salary (as
adjusted) through the end of the calendar month immediately prior to
the initiation of periodic payments under BMC's group disability
policy.
(d) BMC shall pay to Executive (i) the earned but unpaid
Incentive Compensation for the calculation period ended prior to the
date of employment termination and (ii) a pro rata share (based on the
number of days in the period during which Executive is not disabled) of
Executive's Incentive Compensation for the calculation period in which
Executive was terminated from employment provided that more than three
(3) months of such calculation period has elapsed as of the date of
termination. If Executive's employment termination occurs during the
first three (3) months of an Incentive Compensation calculation period,
no Incentive Compensation shall be payable with respect to such period.
8.3 TERMINATION FOR CAUSE. If Executive's employment is terminated
for "cause" pursuant to Section 7.1, the following provisions shall apply:
(a) BMC shall pay to Executive the Base Salary (as
adjusted) through the date of termination.
(b) Executive shall forfeit all accrued but unpaid
Incentive Compensation and all unvested options under the Company's
1995 Stock Option Plan. The foregoing sentence is not a penalty, but is
intended to constitute liquidated damages to compensate BMC for
damages, which may be difficult to measure, suffered by BMC as a result
of Executive's conduct. Nothing contained in this Section 8.3 shall be
deemed to limit BMC's ability to obtain equitable relief.
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(c) Health insurance coverage provided to Executive
hereunder for Executive and Executive's dependents and any life
insurance coverage provided to Executive hereunder on Executive's life,
payable to Executive or, as designated by Executive, Executive's
beneficiaries shall terminate as of the last day of the month in which
Executive's employment terminates. Nothing herein shall affect any
rights to continuation coverage of Executive or Executive's dependents
with respect to any insurance coverage as provided by law.
8.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment is
terminated by mutual agreement, the parties hereto shall structure a mutually
acceptable severance benefits program which shall be documented in a Termination
Agreement to be executed by the parties immediately prior to Executive's
resignation from employment.
8.5 OTHER. If Executive's employment is terminated for reasons
other than death, "cause," mutual agreement or Disability, Executive shall be
entitled to receive as severance, the Base Salary, as last adjusted by the Base
Salary Adjustment, for the six (6) month period following Executive's severance
of employment, and all unvested stock options granted pursuant to the Company's
1995 Stock Option Plan shall accelerate and become vested.
9. MISCELLANEOUS.
9.1 GOVERNING LAW. The Agreement shall be deemed to have been
executed in the State of Tennessee and shall be governed and construed as to
both substantive and procedural matters in accordance with the laws of the State
of Tennessee, but excepting (i) any State of Tennessee rule which would result
in judicial failure to enforce the arbitration provisions of Section 9.4 hereof
or any portion thereof and (ii) any State of Tennessee rule which would result
in the application of the law of a jurisdiction other than the State of
Tennessee.
9.2 PRIOR AGREEMENTS. The Agreement, together with any Option
Award Agreement, contains the entire agreement of the parties relating to the
subject matter hereof and supersedes all prior agreements and understandings
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of the
Agreement which are not set forth herein.
9.3 AMENDMENT. The Agreement may not be amended, modified,
superseded, canceled or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived, except by
written instrument executed by the parties hereto or, in the case of a waiver,
by the party to be charged with such waiver.
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9.4 ARBITRATION. Any controversy or claim arising out of or
relating to the Agreement, or the breach hereof, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, in the county in which the principal office of BMC is located, and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction over the parties hereto. The dispute shall be resolved by a
panel of three arbitrators if the dollar amount in question that is being
arbitrated exceeds fifty thousand dollars ($50,000). The parties hereto shall
have full rights to pursue equitable remedies in furtherance of enforcing the
Agreement without interference from any arbitration proceedings.
9.5 SEVERABILITY. To the extent any provision of the Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of the Agreement shall be unaffected and not
in limitation of business activities covered by, any provision of the Agreement
be in excess of that which is valid and enforceable under applicable law, then
such provision shall be construed to cover only that duration, extent or
activities which may validly and enforceably be covered. Executive acknowledges
the uncertainty of the law in this respect and expressly stipulates that the
Agreement be given the construction which renders its provisions valid and
enforceable to the maximum extent possible under applicable law.
9.6 ASSIGNMENT. The Agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party, except
that BMC may, without the consent of Executive, assign its rights and
obligations under the Agreement to any corporation, firm or other business
entity with or into which BMC may merge or consolidate, or to which BMC may sell
or transfer all or substantially all of its assets, or of which fifty percent
(50%) or more of the equity investment and of the voting control is owned,
directly or indirectly, by, or is under common ownership with BMC. After any
such assignment by BMC,BMC shall be discharged from all further liability
hereunder, and such assignee shall thereafter be deemed to be BMC for the
purposes of all provisions of the Agreement including this Section 9.
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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed as of the day and year first above written.
BIRMAN MANAGED CARE, INC.
a Tennessee corporation
By:_____________________________________
David N. Birman, M.D.
Chairman and Chief Executive Office
[CORPORATE SEAL]
BMC HEALTH PLANS, INC.,
a Tennessee corporation
By:_____________________________________
Vincent W. Wong
President and Chief Executive Officer
EXECUTIVE:
__________________________________(SEAL)
VINCENT W. WONG
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