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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of June 8, 2000,
is by and between PhyCor, Inc., a Tennessee corporation (the "Company"), and
Thompson S. Dent (the "Executive").
WHEREAS, the Company and the Executive have entered into that certain
Employment Agreement, dated as of August 30, 1991, as amended and restated as of
March 25, 1994 and August 1, 1997; and
WHEREAS, the Company desires to employ the Executive to serve as
Chairman of the Board, Chief Executive Officer and President and the Executive
desires to hold such positions under the terms and conditions of this Agreement;
and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
the Company.
NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:
1. Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth herein.
2. Term.
(a) Subject to termination pursuant to Section 10 hereof, the term
of the employment by the Company of the Executive pursuant to this Agreement (as
the same may be extended, the "Term") shall commence on June 8, 2000 (the
"Effective Date"), and terminate on the fourth anniversary thereof or later as
described in Section 2(b) below.
(b) Commencing not later than one hundred twenty (120) days prior to
the fourth anniversary of the Effective Date, the parties will negotiate the
terms of an extension of the Term for a period of two (2) additional years
following the expiration of the otherwise applicable Term. In the event the
terms of an extension of the Term are not renegotiated in such manner, the Term
shall automatically be extended for one (1) period of two (2) additional years
following the expiration of the otherwise applicable Term on the terms described
herein unless, not later than sixty days (60) prior to such fourth anniversary
date, either party hereto shall have notified the other party hereto in writing
that such extension shall not take effect.
3. Position; Location. During the Term, the Executive shall serve as
Chairman of the Board, Chief Executive Officer and President of the Company,
supervising the conduct of the business and affairs of the Company and
performing such other duties as the Board of Directors of the Company (the
"Company Board") shall determine, which duties shall not be materially
inconsistent with the duties to be performed by executives holding similar
offices in similarly-sized healthcare corporations. The Executive shall report
directly to the Company Board. The Company agrees to nominate the Executive for
a position on the Company Board during each election of directors held during
the Term, and the Executive agrees to serve, without any additional compensation
(other than customary director fees paid or benefits conferred as and to the
extent paid to or conferred on members of the board of directors who are members
of management), as a director
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on the Company Board and the board of directors of any subsidiary of the
Company, and/or in one or more executive officer positions with any subsidiary
of the Company. The parties acknowledge and agree that during the Term (i) the
Executive's principal office will not be moved to a location more than 20 miles
from the Company's current location at 30 Burton Hills Boulevard, Nashville,
Tennessee without his approval and (ii) the Company shall maintain, in the
organizational documents thereof, indemnification provisions providing for the
maximum indemnification permitted by applicable law of the Executive by the
Company for actions taken in his capacity as an officer, director or employee
thereof.
4. Duties. During the Term, the Executive shall devote his full time
and attention during normal business hours to the business and affairs of the
Company.
5. Salary and Bonus.
(a) During the Term, the Company shall pay to the Executive a base
salary at the rate of $500,000 per year. Commencing on or before the first
anniversary of the Effective Date, the Compensation Committee of the Company
Board (the "Compensation Committee") shall review the base salary annually and
may increase (but not decrease) such amount from time to time as it may deem
advisable (such salary, as the same may be increased, the "Base Salary"). The
Base Salary shall be payable to the Executive in substantially equal
installments in accordance with the Company's normal payroll practices.
(b) For the year ending December 31, 2000, and for each year
thereafter during the Term, the Executive shall be eligible to receive an annual
cash bonus in such amount up to one hundred percent (100%) of the then-current
Base Salary as the Compensation Committee may deem advisable.
(c) In the event that as of March 31, 2001 the total amount of
principal indebtedness outstanding under the Company's Amended and Restated
Revolving Credit Facility, as the same may be amended or replaced after the date
hereof (excluding amounts outstanding under or allocable to undrawn letters of
credit and the Company's synthetic lease and giving effect to a deemed
dollar-for-dollar reduction in principal indebtedness outstanding as and to the
extent the Company repurchases or redeems outstanding debt or equity securities
of the Company after the date hereof), is less than $50 million, or in the event
that at any time prior to March 31, 2001 the total amount of principal
indebtedness outstanding thereunder shall equal zero, the Company will pay
Executive, by not later than ten (10) days following March 31, 2001 or such
earlier date on which the principal indebtedness outstanding shall equal zero, a
bonus equal to the following: 0.035 multiplied by the difference between 50.0
million and such principal amount outstanding under the Credit Facility as of
the close of business on March 31, 2001 or such earlier date on which the
principal indebtedness outstanding shall equal zero (the "Bonus Payment"). The
Bonus Payment shall be credited against any amounts that may become due and
payable to the Executive pursuant to Section 10 hereof, other than (i) the
provisions of Section 10(j), (ii) Base Salary and benefits to be paid or
provided to the Executive under Section 10 through the Date of Termination,
(iii) any benefits to be provided pursuant to clause 9(i) following the Date of
Termination (including in respect of COBRA coverage) and (iv) rights to which
the Executive may otherwise be entitled pursuant to any pension, profit sharing,
savings or other retirement plan. In the event the Bonus Payment exceeds any
amount that may become due and payable to the Executive pursuant to Section 10
hereof (limited as provided above), the Executive shall return such excess
amount (the "Excess Amount") to the Company as promptly as practicable after the
Date of Termination or expiration of the Term, as applicable;
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provided that the Excess Amount shall be reduced by an amount equal to the
difference between (A) the tax cost to the Executive resulting from the payment
of the Excess Amount in the tax year in which the Bonus Payment was received,
less (B) the tax savings to the Executive resulting from any deductibility of
the Excess Amount in the tax year in which such Excess Amount is returned, as
such tax savings are estimated in good faith by the Executive (it being agreed
that in the event the actual tax savings to the Executive are greater or less
than the estimated tax savings, as finally determined at the time of the filing
by the Executive of his personal tax return for the tax year in question, the
parties will make any additional payments consistent with such final
determination as promptly as practicable after the date of the filing of such
return); provided further that the Executive agrees to recognize income and
claim deductions in the tax year in which any such Excess Amount may be required
to be returned in good faith consistent with past practices. For purposes of
determining the tax cost and the tax savings to the Executive in connection with
the Excess Amount, such costs or savings, as the case may be, shall be
determined by computing the Executive's tax liability with and without
consideration of the Excess Amount.
6. Grant of Options or Warrants.
(a) Reference is made to the Company's 1999 Incentive Stock Plan, as
amended from time to time (the "Stock Option Plan"). On a date to be mutually
agreed upon by the Executive and the Compensation Committee, but not later than
March 1, 2001, the Company shall grant the Executive non-qualified options under
the Stock Option Plan to purchase 4,000,000 shares of common stock of the
Company ("Common Stock"), as such number of shares may be adjusted for stock
splits, combinations and similar recapitalizations occurring prior to the date
of grant thereof (the "Options"), at an exercise price per share equal to the
fair market value of the Company's Common Stock (as defined in the Stock Option
Plan) on the date of grant, which options shall vest fifty percent (50%) upon
the date of grant, twenty-five percent (25%) upon the first anniversary of the
Effective Date and twenty-five percent (25%) upon the second anniversary of the
Effective Date and shall be exercisable for a period of ten (10) years after the
date of grant thereof. If the number of shares of Common Stock contemplated for
issuance in the preceding sentence is not available for issuance under the Stock
Option Plan, then, as and to the extent not so available and in substitution
therefor, the Company shall be permitted to issue the Executive non-plan options
or warrants to purchase shares of Common Stock at an exercise price per share
equal to the exercise price described above with regard to the grant of options.
To the extent required under applicable law or the Nasdaq (or other
then-applicable) market listing requirements, the Company covenants and agrees
to submit the above-described grant of options or warrants or an amendment to
the Stock Option Plan authorizing such grant thereunder to the shareholders of
the Company for their approval at the first special or regularly scheduled
meeting of the shareholders to occur following the date of this Agreement and to
solicit proxies regarding the same, the proxy statement delivered in connection
with such solicitation to include a recommendation of the Company Board that the
shareholders vote to approve such grant or amendment.
(b) In the event the shareholders of the Company shall fail to
approve the grant of options or warrants or an amendment to the Stock Option
Plan authorizing such grant thereunder as described in Section 6(a) above, the
Company shall, in lieu of the grant of options or warrants in the event such
grant has not occurred or in consideration for the cancellation thereof if such
grant has occurred, grant the Executive a number of stock appreciation rights
(each, an "SAR" and, collectively, the "SARs") equal to the number of shares of
Common Stock, calculated as described in Section 6(a) above, issuable upon
exercise of all options or warrants described therein. The SARs shall vest fifty
percent (50%) upon the date of grant (or effective date of the day of grant as
provided
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below if other than the date of grant), twenty-five percent (25%) upon the first
anniversary of the Effective Date and twenty-five percent (25%) upon the second
anniversary of the Effective Date and shall be exercisable for a period of ten
(10) years after the date of grant (or effective date of the day of grant as
provided below if other than the date of grant). Each SAR shall be exercisable
for an amount equal to the fair market value of one (1) share of Common Stock on
the date of such exercise less the grant price of such SAR. The grant price of
each SAR shall be equal to the fair market value of the Company's Common Stock
(as defined in the Stock Option Plan) on the date of grant in the event the
above-described grant of options or warrants has not occurred or the exercise
price per share of Common Stock issuable on exercise of such options or warrants
if such grant has occurred. The grant of SARs described in this Section 6(b)
shall occur (i) on a date to be mutually agreed upon by the Executive and the
Compensation Committee, but not later than March 1, 2001, in the event the
above-described grant of options or warrants has not occurred or (ii) on the day
following the day on which the shareholders of the Company fail to approve the
grant of options or warrants or an amendment to the Stock Option Plan
authorizing such grant, effective as of the date of the grant of such options or
warrants, if such grant has occurred.
(c) Thereafter during the Term, the Executive shall be eligible to
participate in the Stock Option Plan or, to the extent more favorable to the
Executive, other equity plan established by the Company Board for the Company's
senior executive officers, as the same may be amended from time to time
(provided that no such amendment shall materially diminish the benefits to
Executive thereunder), as and to the extent other senior executive officers
participate in the same.
7. Vacation, Holidays and Sick Leave. During the Term, the Executive
shall be entitled to paid vacation, paid holidays and sick leave in accordance
with the Company's standard policies for its senior executive officers; provided
that the Executive shall during each year of the Term be entitled to at least
six (6) weeks of such vacation, which shall not accrue from year to year.
8. Business Expenses. The Executive shall be reimbursed for all
reasonable business expenses incurred by him in connection with his employment
(including, without limitation, expenses for travel and entertainment incurred
in conducting or promoting business for the Company) upon timely submission by
the Executive of receipts and other documentation in accordance with the
Company's normal expense reimbursement policies. The Executive shall receive a
cell phone allowance of $200 during each month of the Term.
9. Other Benefits. During the Term, the Executive shall be eligible to
participate fully in all health and other employee benefit arrangements
available to senior executive officers of the Company generally; provided that
(i) the Company agrees in any event to provide major medical (including
dependent coverage) and disability coverage in amounts substantially consistent
with such coverage at similarly-sized healthcare corporations and (ii) the
Company agrees to maintain and make employer contributions on behalf of the
Executive to a 401(k) savings program and such other retirement plans as may be
adopted from time to time by the Company Board.
10. Termination of Agreement. The Executive's employment by the Company
pursuant to this Agreement shall not be terminated prior to the end of the Term
hereof except as set forth in this Section 10.
(a) By Mutual Consent. The Executive's employment pursuant to this
Agreement may be terminated at any time by the mutual written agreement of the
Company and the Executive.
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(b) Death. The Executive's employment pursuant to this Agreement
shall be terminated upon the death of the Executive, in which event the
Executive's spouse or heirs shall receive, when the same would have been paid to
the Executive (whether or not the Term shall have expired during such period),
(i) all Base Salary and benefits to be paid or provided to the Executive under
this Agreement through the Date of Termination (as defined in Section 10(h)
hereof) and (ii) Base Salary at the then-current rate of Base Salary and
benefits to be provided pursuant to clause 9(i) above through the date six (6)
months after the Date of Termination, provided that the foregoing payments shall
not be deemed a waiver of rights to which the Executive may otherwise be
entitled pursuant to any pension, profit sharing, savings or other retirement
plan. In the case of health and medical continuation coverage ("COBRA"), the
Company will make all COBRA premium payments on behalf of the Executive and his
dependents (and the Company will continue to pay that portion of the coverage
then-currently paid by the Company) until the earlier to occur of the date of
cessation of benefits as provided above or the end of the maximum period of
COBRA eligibility under then-applicable law.
(c) Disability. The Executive's employment pursuant to this
Agreement may be terminated by written notice to the Executive by the Company or
to the Company by the Executive in the event that (i) the Executive becomes
unable to perform his duties as set forth in Section 3 by reason of physical or
mental illness or accident for any ninety (90) consecutive day period or (ii)
the Company receives written opinions from both a physician for the Company and
a physician for the Executive that the Executive will be so disabled. In the
event the Executive's employment is terminated pursuant to this Section 10(c),
the Executive shall be entitled to receive, when the same would have been paid
to the Executive (whether or not the Term shall have expired during such
period), (i) all Base Salary and benefits to be paid or provided to the
Executive under this Agreement through the Date of Termination and (ii) Base
Salary at the then-current rate of Base Salary and benefits to be provided
pursuant to clause 9(i) above through the date two (2) years after the Date of
Termination; provided that the foregoing payments shall not be deemed a waiver
of rights to which the Executive may otherwise be entitled pursuant to any
pension, profit sharing, savings or other retirement plan, and provided further
that amounts payable to the Executive under this Section 10(c) shall be reduced
by the proceeds of any short or long-term disability payments to which the
Executive may be entitled during such period under policies maintained at the
expense of the Company as and to the extent such disability payments compensate
the insured for lost wages resulting from the disability. In the case of COBRA,
the Company will make all COBRA premium payments on behalf of the Executive and
his dependents (and the Company will continue to pay that portion of the
coverage then-currently paid by the Company) until the earlier to occur of the
date of cessation of benefits as provided above or the end of the maximum period
of COBRA eligibility under then-applicable law.
(d) By the Company for Cause. The Executive's employment pursuant to
this Agreement may be terminated by written notice to the Executive ("Notice of
Termination") upon the occurrence of any of the following events (each of which
shall constitute "Cause" for termination): (i) the Executive engages in any
neglect of duties which remains uncorrected for a period of thirty (30) days
after receipt by the Executive of written notice from the Company setting forth
the details of such neglect or material misconduct, in either case which
materially and adversely affects the business or the affairs of the Company,
(ii) the conviction of the Executive of a felony that is determined by the
Company Board, acting reasonably in the interests of the Company's shareholders,
to adversely affect the Company or its reputation, (iii) the Executive knowingly
commits an act of dishonesty to the detriment of the Company or engages in fraud
or embezzlement against the
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Company or (iv) any material breach of the Executive of this Agreement which
breach remains uncorrected for a period of fifteen (15) days after receipt by
the Executive of written notice from the Company setting forth the details of
such breach. In the event the Executive's employment is terminated pursuant to
this Section 10(d), the Executive shall be entitled to receive, in a lump sum
payable on or prior to the Date of Termination, all Base Salary and benefits to
be paid or provided to the Executive under this Agreement through the Date of
Termination and no more, provided that the foregoing payments shall not be
deemed a waiver of rights to which the Executive may otherwise be entitled
pursuant to any pension, profit sharing, savings or other retirement plan.
(e) By the Company Without Cause. The Executive's employment
pursuant to this Agreement may be terminated by the Company at any time without
Cause by delivery of a Notice of Termination to the Executive. In the event that
the Executive's employment is terminated pursuant to this Section 10(e), the
Executive shall be entitled to receive, in a lump sum payable on or prior to the
Date of Termination, (i) all Base Salary and benefits to be paid or provided to
the Executive under this Agreement through the Date of Termination, (ii) an
amount equal to three hundred percent (300%) of the Executive's Base Salary at
the then-current rate of Base Salary and (iii) the amount of $250,000 in respect
of unearned bonuses, provided that the foregoing payments shall not be deemed a
waiver of the Executive's rights relating to pension, profit sharing, savings or
other retirement plans. The sum of the amounts described in clauses (ii) and
(iii) above are hereafter referred to as the "Severance Amount." Additionally,
and notwithstanding any other provision of the Stock Option Plan or any grant of
options thereunder to the contrary, in the event that the Executive's employment
is terminated pursuant to this Section 10(e), all of the Executive's options to
purchase shares of capital stock of the Company unvested as of the Date of
Termination (if any) shall immediately vest and become exercisable on the Date
of Termination and all of the Executive's options to purchase shares of capital
stock of the Company that are vested as of the Date of Termination or become
vested pursuant to the provisions of this Section 10(e) may be exercised by the
Executive at any time within ninety (90) days following the Date of Termination.
(f) By the Executive for Good Reason. The Executive's employment
pursuant to this Agreement may be terminated by the Executive by written notice
of his resignation ("Notice of Resignation"), which Notice of Resignation shall
specifically reference this Section 10(f), delivered within twelve (12) months
after the occurrence of any of the following events (each of which shall
constitute "Good Reason" for resignation) during the Term: (i) any Change of
Control (as defined below) shall occur, (ii) the removal of the Executive from
or the failure to appoint the Executive to the position of Chairman of the
Board, Chief Executive Officer or President of the Company, (iii) the removal of
the Executive from or the failure to nominate the Executive for election to the
Company Board, (iv) any material reduction by the Company of the Executive's
duties or responsibilities or the assignment to the Executive of duties
materially inconsistent with such position or (v) any breach by the Company of
this Agreement (including, without limitation, the provisions of Section 3),
which breach, in the case of a breach under this Agreement, remains uncorrected
for a period of thirty (30) days after receipt by the Company of written notice
from the Executive. Notwithstanding the provisions of clause (i), (ii), (iii) or
(iv) above, in the event the Executive is elected as Chairman of the Board and
Chief Executive Officer and a member of the board of directors of any entity
which acquires control of more than 50% of the voting securities of the Company
or, if such entity is a subsidiary of another entity, the ultimate parent of
such subsidiary, with responsibility for operating revenues equal to or greater
than the Company's operating revenues during such fiscal year, and is provided
with a written employment agreement by the entity or, if such entity is a
subsidiary of another entity, the ultimate parent of such subsidiary, on at
least as favorable terms as those contained in this Agreement, the appointment
to such position shall not constitute Good Reason for
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purposes of this Agreement unless any other of the foregoing events
constituting Good Reason shall occur as a result thereof or in connection
therewith. In the event that the Executive resigns for Good Reason pursuant to
this Section 10(f), the Executive shall be entitled to receive, in a lump sum
payable on or prior to the Date of Termination, (i) all Base Salary and benefits
to be paid or provided to the Executive under this Agreement through the Date of
Termination and (ii) the Severance Amount as described in Section 10(e),
provided that the foregoing payments shall not be deemed a waiver of rights to
which the Executive may otherwise be entitled pursuant to any pension, profit
sharing, savings or other retirement plan. Additionally, and notwithstanding any
other provision of the Stock Option Plan or any grant of options thereunder to
the contrary, in the event that the Executive's employment is terminated
pursuant to this Section 10(f), all of the Executive's options to purchase
shares of capital stock of the Company unvested as of the Date of Termination
(if any) shall immediately vest and become exercisable on the Date of
Termination and all of the Executive's options to purchase shares of capital
stock of the Company that are vested as of the Date of Termination or become
vested pursuant to the provisions of this Section 10(f) may be exercised by the
Executive at any time within ninety (90) days following the Date of Termination.
For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred (A) at such time as any Person (as defined in Section 13(d)(3)
or 14(d)(2) of the Securities and Exchange Act of 1934, as amended form time to
time (the "Exchange Act")) or "group" of Persons (as defined in Section 13(d) of
the Exchange Act), other than Warburg, Pincus Equity Partners, L.P. and its
affiliated entities, directly or indirectly acquires beneficially or of record
more than 50% of the outstanding voting securities of the Company (by operation
of law or otherwise) or (B) upon a sale of all or a significant portion of the
assets of the Company, other than a sale or series of sales by the Company of
medical clinics to the physician groups on whose behalf such clinics are managed
by the Company.
(g) By the Executive For Any Reason. The Executive's employment
pursuant to this Agreement may be terminated by the Executive at any time during
the Term by delivery of a notice to such effect to the Company, which notice
shall specifically reference this Section 10(g). In the event that the
Executive's employment is terminated pursuant to this Section 10(g), the
Executive shall receive all Base Salary and benefits to be paid or provided to
the Executive under this Agreement through the Date of Termination and no more,
provided that the foregoing payments shall not be deemed a waiver of rights to
which the Executive may otherwise be entitled pursuant to any pension, profit
sharing, savings or other retirement plan.
(h) Date of Termination. The Executive's Date of Termination shall
be (i) if the Executive's employment is terminated pursuant to Section 10(b),
the date of his death; (ii) if the Executive's employment is terminated pursuant
to Section 10(c), the last day of the ninety (90) day period referred to in
Section 10(c)(i) or the date of delivery of the last physician's opinion
referred to in Section 10(c)(ii), as the case may be; (iii) if the Executive's
employment is terminated pursuant to Section 10(d), the date on which a Notice
of Termination is given; (iv) if the Executive's employment is terminated
pursuant to Section 10(e), immediately effective upon delivery of the Notice of
Termination; (v) if the Executive's employment is terminated pursuant to Section
10(f), five (5) days after the date the Notice of Resignation is given and (vi)
if the Executive's employment is terminated pursuant to Section 10(g), sixty
(60) days after the date the Notice of Resignation is given, unless the
termination shall result from a breach of the Company's obligations pursuant to
any agreement other than this Agreement to which the Company and the Executive
are parties, in which case the Executive's Date of Termination shall be the date
the Notice of Resignation is given.
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(i) Failure to Extend Term; Expiration of Maximum Term. In the event
the Company provides the Executive notice of its intent not to extend the Term
for an additional two (2) year period as provided in Section 2(b), or upon the
expiration of the additional two (2) year period provided for in Section 2(b),
the Executive shall be entitled to receive, in a lump sum payable on or prior to
the last day of the Term, (i) all Base Salary and benefits to be paid or
provided to the Executive under this Agreement through the last day of the Term
and (ii) the Severance Amount as described in Section 10(e), provided that the
foregoing payments shall not be deemed a waiver of rights to which the Executive
may otherwise be entitled pursuant to any pension, profit sharing, savings or
other retirement plan. In the event the Executive provides the Company notice of
his intent not to extend the Term for an additional two (2) year period as
provided in Section 2(b), the Executive shall be entitled to receive, in a lump
sum payable on or prior to the last day of the Term, (i) all Base Salary and
benefits to be paid or provided to the Executive under this Agreement through
the last day of the Term, (ii) an amount equal to one hundred fifty percent
(150%) of the Executive's Base Salary at the then-current rate of Base Salary
and (iii) the amount of $125,000 in respect of unearned bonuses, provided that
the foregoing payments shall not be deemed a waiver of rights to which the
Executive may otherwise be entitled pursuant to any pension, profit sharing,
savings or other retirement plan. Additionally, and notwithstanding any other
provision of the Stock Option Plan or any grant of options thereunder to the
contrary, upon the occurrence of any failure to extend the Term by either party
or the expiration of the additional two (2) year period provided for in Section
2(b), all of the Executive's options to purchase shares of capital stock of the
Company unvested as of the last day of the Term (if any) shall immediately vest
and become exercisable on the last day of the Term, and all of the Executive's
options to purchase shares of capital stock of the Company that are vested as of
the last day of the Term or become vested pursuant to the provisions of this
Section 10(i) may be exercised by the Executive at any time within ninety (90)
days following the last day of the Term.
(j) Tax Reimbursement Payment.
(i) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by or
on behalf of the Company to or for the benefit of Executive as a result
of a change in control, as defined in Section 280G of the Internal
Revenue Code (the "Code"), (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, a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties are incurred
by 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 Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such
that after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(ii) Subject to the procedures of subsection (iii) below regarding
contest and payment of claims, the initial determination with respect
to Excise Tax liability described in this Section 10(j), including
whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
or law firm selected
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by the Executive, subject to the consent of the Company, which consent
shall not be unreasonably withheld (the "Tax Firm"); provided, however,
that the Tax Firm shall not determine that no Excise Tax is payable by
the Executive unless it delivers to Executive a written opinion (the
"Tax Opinion") that failure to pay the Excise Tax and to report the
Excise Tax and the payments potentially subject thereto on or with
Executive's applicable federal income tax return will not result in the
imposition of an accuracy-related or other penalty on Executive. All
fees and expenses of the Tax Firm shall be borne solely by the Company.
Within fifteen (15) business days of the receipt of notice from
Executive that there has been a Payment, or such earlier time as is
requested by the Company, the Tax Firm shall make all determinations
required under this Section 10(j), shall provide to the Company and
Executive a written report setting forth such determinations, together
with detailed supporting calculations, and, if the Tax Firm determines
that no Excise Tax is payable, shall deliver the Tax Opinion to the
Executive. Any Gross-Up Payment, as determined pursuant to this Section
10(j), shall be paid by the Company to Executive within fifteen (15)
days of the receipt of the Tax Firm's determination. Subject to the
other provisions of this Section 10(j), any determination by the Tax
Firm shall be binding upon the Company and the Executive with respect
to their respective tax reporting positions; provided, however, that
the Executive shall only be bound to the extent that the determinations
of the Tax Firm hereunder, including the determinations made in the Tax
Opinion, are reasonable and reasonably supported by applicable law. The
parties acknowledge, however, that as a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Tax Firm hereunder or as a result of a contrary
determination by the Internal Revenue Service, it is possible that
Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that it is ultimately
determined in accordance with the procedures set forth in subsection
(iii) below that the Executive is required to make a payment of any
Excise Tax, the Tax Firm shall reasonably determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Executive. In
determining the reasonableness of the Tax Firm's determinations
hereunder and the effect thereof, the Executive shall be provided a
reasonable opportunity to review such determinations with the Tax Firm
and the Executive's tax counsel. The Tax Firm's determinations
hereunder, and the Tax Opinion, shall not be deemed reasonable until
the Executive's reasonable objections and comments thereto have been
satisfactorily accommodated by the Tax Firm.
(iii) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
thirty (30) calendar days after Executive actually receives notice in
writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid;
provided, however, that the failure of Executive to notify the Company
of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under
this Section 10(j) except to the extent that the Company is materially
prejudiced in the defense of such claim as a direct result of such
failure. The Executive shall not pay such claim prior to the expiration
of the 30-day period following the date on which he gives such notice
to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company
does not notify the Executive in writing prior to the expiration of
such 30-day period that it desires to contest such claim, the Executive
may assume defense of the claim or
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present the claim to the Company for payment, which amount shall be
paid by the Company to Executive within thirty (30) days of such
presentment for payment. If the Company elects not to contest such
claim and the Executive assumes the defense thereof, the Company may
participate in any proceedings relating to such claim. If the Company
notifies the Executive in writing prior to the expiration of such
30-day period that it desires to contest such claim, the Executive
shall:
(1) give the Company any information reasonably
requested by the Company relating to such claim;
(2) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
selected by the Company and reasonably acceptable to
Executive; and
(3) cooperate with the Company in good faith in order
effectively to contest such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this subsection
(iii), the Company shall have the right, at its sole option, to assume
the defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance. Furthermore, the Company's right to assume the
defense of and control the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and the
Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other
taxing authority.
(iv) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to this Section 10(j), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of subsection (iii) above) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to subsection
(iii) above, a determination is made that the Executive is not entitled
to a refund with respect to such claim and the Company does not notify
the Executive in writing of its
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intent to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance shall, to
the extent of such denial, be forgiven and shall not be required to be
repaid and the amount of forgiven advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
11. Representations.
(a) The Company represents and warrants that this Agreement has
been authorized by all necessary corporate action of the Company and is a valid
and binding agreement of the Company enforceable against both in accordance with
its terms.
(b) The Executive represents and warrants that he is not a party to
any agreement or instrument which would prevent him from entering into or
performing his duties in any way under this Agreement.
12. Assignment; Binding Agreement. This Agreement is a personal
contract and the rights and interests of the Executive hereunder may not be
sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except
as otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall inure to the benefit of and be enforceable by the Executive and
his personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Executive should die while
any amount would still be payable to him hereunder had the Executive continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to his devisee, legatee or other
designee or, if there is no such designee, to his estate.
13. Confidentiality; Non-Competition.
(a) For purposes of this Section 13, the "Company" shall be
construed to include the Company and its parents, subsidiaries and affiliates
engaged in the Business, including any divisions managed by the Executive.
(b) (i) The Executive recognizes that the Executive's position with
the Company requires considerable responsibility and trust, and, in reliance on
the Executive's loyalty, the Company may entrust the Executive with highly
sensitive confidential, restricted and proprietary information involving Trade
Secrets and Confidential Information.
(ii) For purposes of this Agreement, a "Trade Secret" is any
scientific or technical information, design, process, procedure,
formula or improvement that is valuable and not generally known to
competitors of the Company. "Confidential Information" is any data or
information, other than Trade Secrets, that is important, competitively
sensitive, and not generally known by the public, including, but not
limited to, the Company's initial business plan, business prospects,
training manuals, product development plans, bidding and pricing
procedures, market strategies, internal performance statistics,
financial data, confidential personnel information concerning employees
of the Company, supplier data, operational or administrative plans,
policy manuals, and terms and conditions of contracts and agreements.
The terms "Trade Secret" and "Confidential Information" shall not apply
to information which is (a) already in the Executive's possession at
the time of employment (unless such information was used in connection
with formulating the Company's initial business plan, obtained by the
Executive from the Company or was obtained by the Executive in the
course
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of Executive's employment by the Company), (b) received by the
Executive from a third party with no restriction on disclosure, or (c)
required to be disclosed by any applicable law.
(iv) Except as required to perform the Executive's duties
hereunder, the Executive will not use or disclose any Trade Secrets or
Confidential Information of the Company during employment, at the time
after termination of employment and prior to such time as they cease to
be Trade Secrets or Confidential Information through no act of the
Executive in violation of this Section 13.
(v) Upon the request of the Company and, in any event, upon
the termination of employment hereunder, the Executive will surrender
to the Company all memoranda, notes, records, drawings, manuals or
other documents pertaining to the Company's business or Executive
employment (including all copies thereof). Executive will also leave
with the Company all materials involving any Trade Secrets or
Confidential Information of the Company. All such information and
materials, whether or not made or developed by the Executive, shall be
the sole and exclusive property of the Company, and the Executive
hereby assigns to the Company all of the Executive's right, title and
interest in and to any such and all of such information and materials.
(c) For a period of twenty-four (24) months following the
Executive's Date of Termination under any circumstance or failure to renew this
Agreement under any circumstance, the Executive will not directly or indirectly
(i) operate, develop or own any interest other than the ownership of less than
5% of the equity securities of a publicly traded company, in any business which
has significant activities (viewed in relation to the business of the Company,
its subsidiaries or affiliates), or has announced intentions to focus
significant resources, relating to the ownership, management or operation of
multi-specialty medical clinics, physician group practices, independent practice
associations, or other similar entities (a "Business"); (ii) compete with the
Company or its subsidiaries and affiliates in the operation or development of
any Business within the United States of America; (iii) be employed by any
business which owns, manages, or operates a Business; (iv) interfere with,
solicit, disrupt or attempt to disrupt any past, present or prospective
relationship, contractual or otherwise, between the Company, or its subsidiaries
or affiliates, and any customer, client, supplier or employee of the Company, or
its subsidiaries or affiliates; or (v) solicit any employee of the Company, or
its subsidiaries or affiliates, to leave their employment with the Company or
its subsidiaries or affiliates, as the case may be, or hire any such employee to
work for a Business. The definition of Business set forth above is intended to
include entities that own, manage and operate multiple clinics, practices, IPAs,
physician organizations, etc., and does not restrict the Employee from
employment (i) with a single clinic, group, IPA, etc., provided such employment
is not primarily focused upon the acquisition and management of multiple
physician organizations similar to the operations of the Company or (ii) with an
enterprise that owns, manages or operates multiple entities as a single business
enterprise in a single market. The Executive shall not be entitled to circumvent
the provisions of this Section 13(c) by entering into a relationship with a
Business as a consultant, director, advisor, or otherwise, which has the effect
of competing with the Company, its affiliates or subsidiaries.
(d) The Executive acknowledges that the services to be rendered by
him to the Company are of a special and unique character, which gives this
Agreement a peculiar value to the Company, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a breach or threatened breach by him of any of the provisions contained in
this Section 13 may cause the Company irreparable injury. The Executive
therefore agrees that the
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Company may be entitled, in addition to any other right or remedy, to a
temporary, preliminary and permanent injunction, without the necessity of
proving the inadequacy of monetary damages or the posting of any bond or
security, enjoining or restraining the Executive from any such violation or
threatened violations.
(e) If any one or more of the provisions contained in this Section
13 shall be held to be excessively broad as to duration, activity or subject,
such provisions shall be construed by limiting and reducing them so as to be
enforceable to the fullest extent permitted by law.
14. Certain Benefit Arrangements. Reference is made to that certain
Rabbi Trust Agreement (the "Rabbi Trust Agreement"), dated December 30, 1999, by
and among the Company and the Executive. Reference is also made to that certain
Split-Dollar Agreement (the "Split-Dollar Agreement") by and between the Company
and the Executive. Finally, reference is made to that certain Split-Dollar
Collateral Assignment (the "Collateral Assignment") by and between the Company
and the Executive. The Company and the Executive agree as follows:
(a) Promptly following the execution of this Agreement, but in no
event more than five (5) business days thereafter, the Company shall execute and
deliver to the Executive and Security Life of Denver Insurance Company (the
"Insurer") a Release (the "Release"), in form and substance satisfactory to the
Executive and the Insurer, pursuant to which the Company shall release all of
its rights in and to the insurance policy which is the subject of the
Split-Dollar Agreement (the "Policy"), including, without limitation, the
Company's collateral assignment rights therein. Thereafter the Policy, and all
rights to proceed therefrom and cash surrender value thereof, shall be the sole
property of the Executive.
(b) Contemporaneous with the execution and delivery of the Release,
the Company shall pay to the Insurer all outstanding principal and related
accrued interest arising under an existing policy loan, the aggregate amount of
which the Company estimates to be $72,000, which payment shall not be deducted
or offset against amounts held for the benefit of the Executive in the trust
which is the subject of the Rabbi Trust Agreement (the "Trust") or the cash
surrender value of the Policy.
(c) Promptly following the execution of this Agreement, but in no
event more than five (5) business days thereafter, the Company shall make a
distribution to the Executive of his accrued benefits under the PhyCor, Inc.
Supplemental Executive Retirement Plan (the "SERP"). Such distribution shall be
in a lump sum payment the aggregate amount of which shall be not less than
$936,750. The Executive acknowledges that the foregoing distribution shall be in
full payment and settlement of all amounts and benefits otherwise due, payable
or owing to the Executive under the SERP, and the SERP shall be amended and
terminated by the Company in a manner consistent with the foregoing.
(d) The Executive acknowledges that the above-described payments
will be subject to reduction by the Company to satisfy all applicable federal,
state and local withholding obligations.
15. Expenses. The Company agrees to pay on the Executive's behalf all
reasonable legal fees and related costs incurred by him in connection with the
negotiation and execution of this Agreement.
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16. Entire Agreement. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersedes any other undertakings and agreements, whether oral or in writing,
previously entered into by them with respect thereto. The Executive represents
that, in executing this Agreement, he does not rely and has not relied upon any
representation or statement not set forth herein made by the Company with regard
to the subject matter or effect of this Agreement or otherwise.
17. Amendment or Modification Waiver. No provision of this Agreement
may be amended or waived, unless such amendment or waiver is agreed to in
writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of any breach by another party hereto of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.
18. Notices. Any notice to be given hereunder shall be in writing and
shall be deemed given when delivered personally, sent by courier or facsimile or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice hereunder in writing:
To the Executive at:
c/o PhyCor, Inc.
30 Burton Hills Boulevard, Suite 400
Nashville, TN 37215
Facsimile: (615) 665-7444
With a copy to:
Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, TN 37219
Facsimile: (615) 742-4539
Attention: L. Webb Campbell
To the Company at:
PhyCor, Inc.
30 Burton Hills Boulevard, Suite 400
Nashville, TN 37215
Facsimile: (615) 665-7444
With a copy to:
Waller Lansden Dortch & Davis, PLLC
511 Union Street, Suite 2100
Nashville, TN 37219
Facsimile: (615) 244-6804
Attention: J. Chase Cole
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Any notice delivered personally or by courier under this Section 18
shall be deemed given on the date delivered and any notice sent by facsimile or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date transmitted by facsimile or mailed.
19. Severability. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
20. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
21. Governing Law; Venue. This Agreement will be governed by and
construed in accordance with the laws of the State of Tennessee, without regard
to the principles of conflicts of law thereof. All claims, disputes or
interpretations which may arise out of the interpretation, performance or breach
of this Agreement shall be submitted exclusively to the jurisdiction of the
state courts of the State of Tennessee or the federal district courts located in
Nashville, Tennessee.
22. Headings. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
23. Withholding. All payments to the Executive under this Agreement
shall be reduced by all applicable withholding required by federal, state or
local law.
24. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above to be effective as of the Effective
Date.
PHYCOR, INC.
By: /s/ Tarpley B. Jones
----------------------------------------
Name: Tarpley B. Jones
--------------------------------------
Title: EVP & CFO
-------------------------------------
/s/ Thompson S. Dent
--------------------------------------------
Thompson S. Dent
16
