1
Exhibit 10.6
COVENANT NOT TO COMPETE
AND
SEVERANCE AGREEMENT
THIS COVENANT NOT TO COMPETE AND SEVERANCE AGREEMENT (this "Agreement"),
dated this 19th day of July, 1996, is made and entered into by and between
MEDIFAX, INC., a Missouri corporation (the "Company."), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an
individual resident of the State of Ohio (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and the Executive have entered into that certain
Transfer Agreement and Plan of Section 351 Exchange, dated July 19, 1996 (the
"Transfer Agreement"), pursuant to which the Company, in a series of related
transactions, has acquired all of the outstanding capital stock of Medical
Records Corp., an Ohio corporation of which the Executive was the founder and
formerly a significant shareholder, President and Treasurer:
WHEREAS, the Company desires to employ the Executive as its Chairman of
the Board of Directors and a member of its Office of the Chief Executive on an
at will basis, and the Executive desires to serve the Company in such
capacities.
WHEREAS, as an inducement to the Company to consummate the transactions
contemplated by the Transfer Agreement, the Executive is willing to agree, on
the terms and conditions hereinafter set forth, to refrain from competing with
the Company for the period of time specified herein; and
WHEREAS, the execution and delivery of this Agreement by the Company and
the Executive is a condition precedent to the obligations of the Company under
the Transfer Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and in the Transfer Agreement, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
l. EMPLOYMENT. The Company hereby employs the Executive as its Chairman
of the Board of Directors and a member of its Office of the Chief Executive at
an annual base salary of $175,000, and the Executive hereby accepts such
employment with the Company, on an at will basis on the terms and conditions
hereinafter set forth. The Company also agrees to approve an annual performance
bonus plan for the benefit of Executive based on the achievement of certain
performance criteria.
2. SEVERANCE. (a) If the Company terminates Executive's employment
hereunder "for cause" (as hereinafter defined), all obligations of the Company
to provide compensation and benefits to Executive shall immediately cease, other
than Executive's right to receive his prorated salary and reimbursement of
expenses incurred in accordance with Company policy through the date of such
termination. The Company's election to terminate Executive's employment for
cause
2
shall be without prejudice to any remedy the Company may have against the
Executive for the breach or non-performance of any of the provisions of this
Agreement. For purposes of this Agreement, "for cause" shall mean:
(i) Executive's drug or alcohol abuse (as determined by
majority vote of a committee of three physicians, one of whom shall be
appointed by the Executive, the second shall be appointed by the
Company, and the third shall be appointed by the mutual consent of such
physicians);
(ii) termination of the Executive's employment by the Company
because of the Executive's inability to perform his duties due to
disability or incapacity for a period of 120 or more days, whether or
not consecutive, occurring within any period of twelve consecutive
months;
(iii) Executive is indicted or convicted for the commission of a
felony;
(iv) failure by the Executive to obey the reasonable and lawful
orders of the Board of Directors or to perform any duties material to
his responsibilities as an executive officer of the Company, if such
failure is not corrected within 30 days after written notice has been
given to the Executive by the Board;
(v) the resignation, retirement or termination of Executive's
employment by the Execution for any reason other than as set forth in
subparagraph (c) below, - at any time on or prior to December 31, 1997;
or
(vi) the death of the Executive.
(b) In the event Executive's employment is terminated by the Company
"without cause" (as hereinafter defined), the Company shall pay the Executive
severance compensation equal to the sum of one year's base salary at the
Executive's then current level, plus an amount equal to any performance bonus
paid to Executive during the twelve months immediately preceding the date of
termination or accrued by the Company at the direction of the Board of Directors
for payment to Executive of a performance bonus for services rendered during
such period (collectively the "Severance Payment"); provided, however, if
Executive is terminated without cause within one year of the date of this
Agreement, the calculation of the Severance Payment shall not include any
performance bonuses paid to Executive prior to the consummation of the
transactions contemplated in the Transfer Agreement, but shall include an amount
equal to any bonus paid after the date of this Agreement, on an annualized
basis, and; provided, further, however, if Executive accepts other employment or
provides consulting or advisory services within twelve months of the date of
termination of his employment, any salary or consulting or advisory fees earned
or received by Executive shall offset dollar-for-dollar the Severance Payment.
Executive covenants and agrees to immediately notify the Company upon obtaining
other employment or if he provides any such consulting or advisory services
within twelve months of the date of such termination. Subject to the foregoing,
the Severance Payment shall be paid to Executive in twelve substantially equal
installments (less legally required deductions) in accordance with the Company's
regular payroll cycle for the one year period following the date of termination.
No interest shall accrue on or be paid with respect to any portion of such
Severance Payment.
-2-
3
(c) For purposes of this Agreement, the term "without cause" shall mean
termination of Executive's employment by the Company for any reason other than
those enumerated in Section 2(a) above as constituting "for cause" including,
without limitation, (i) the Company's failure to pay Executive's base salary in
accordance with its regular payroll practices, if such failure is not corrected
within three business days of the Company's receipt of written notice thereof,
(ii) reduction of Executive's annual rate of base salary as set forth in Section
1 hereof, (iii) Executive's resignation or retirement after December 31, 1997,
(iv) the constructive termination of Executive as the result of actions taken by
the Company that result in the removal of Executive from the Board of Directors
or as an executive officer of the Company or any material change by the Company
in Executive's functions, duties or responsibilities, if such action is not
corrected within thirty days of the Company's receipt of written notice from
Executive that a constructive termination has occurred; provided, however, the
parties hereto agree that any changes in Executive's functions, duties or
responsibilities as a result of the termination of the Office of the Chief
Executive shall not constitute constructive termination so long as Executive is
appointed to serve as Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, President or Chief Operating Officer of the Company; and (v)
a decision by the Company to move the Company's principal office to a city other
than Cleveland, Ohio, unless Executive elects to continue in the employment of
the Company.
3. NONCOMPETITION. (a) Executive agrees that while employed by the
Company and for a three year period following the termination of such
employment, Executive will not, without the prior written consent of the Board
of Directors of the Company, directly or indirectly: (i) own, manage, operate,
control or participate in, or be associated with as a director, officer,
shareholder, partner, joint venture, employee, consultant or otherwise, any
business which provides medical transcription services or any other services
provided or performed by the Company during the term of Executive's employment,
which compete, directly or indirectly, with the Company in any city or other
geographic area where any business is carried on by the Company or any of its
subsidiaries within the twelve month period immediately preceding the
termination of his employment (a "Prohibited Business"); (ii) become financially
interested in any person or entity engaged in any such Prohibited Business;
(iii) employ or solicit any employee of the Company either to work for him
personally or on behalf of any other person or entity whether or not engaged in
a Prohibited Business; or (iv) solicit any client or customer of the Company
with which Executive had substantial contact or oversight responsibility within
the twelve month period immediately preceding the termination of his employment
for the provision of services constituting a Prohibited Business.
Notwithstanding the foregoing, Executive shall not be deemed to be engaged in a
Prohibited Business solely by reason of his ownership of not more than 5% of any
class of securities registered under the Securities Act of 1933, as amended,
even if the issuer of such class of securities is engaged in a Prohibited
Business.
(b) In connection with the foregoing provisions of this Section 3, the
Executive represents that his experience, capabilities and circumstances are
such that such provisions will not prevent him from earning a livelihood The
Executive further agrees that the limitations set forth in this Section 3
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its subsidiaries. It is understood and agreed that the
covenants made by the Executive in this Section 3 shall survive the expiration
or termination of this Agreement
(c) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 3 would be
inadequate and, therefore, the
-3-
4
Executive agrees that the Company and any of its subsidiaries shall be entitled
to seek injunctive relief in addition to any other available nights and remedies
in cases of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting the Company or any of
its subsidiaries from pursuing any other rights and remedies available for any
such breach or threatened breach.
4. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive hereby
covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design,
development, production, marketing and servicing with respect to its businesses
and that as part of the Executive's employment by the Company the Executive is
(or may be) expected to make new contributions and inventions of value to the
Company.
(b) The Executive's employment hereunder creates a relationship of
confidence and trust between the Executive and the Company with respect to
certain information pertaining to the business of the Company and its
subsidiaries or pertaining to the business of any client or customer of the
Company or its subsidiaries which may be made known to the Executive by the
Company or any of its subsidiaries or by any client or customer of the Company
or any of its subsidiaries or learned by the Executive during the period of his
employment by the Company.
(c) The Company possesses and will continue to possess information that
has been created, discovered or developed by, or otherwise become known to it
(including, without limitation, information created, discovered or developed by,
or made known to, the Executive during the period of his employment or arising
out of his employment) or in which property rights have been or may be assigned
or otherwise conveyed to the Company, which information has commercial value in
the business in which the Company is engaged and is treated by the Company as
confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies and data, whether or not
patentable or registerable under copyright or similar statutes made, developed
or created by the Executive (whether at the request or suggestion of the
Company, any of its subsidiaries, or otherwise, whether alone or in conjunction
with others, and whether during regular hours of work or otherwise) during the
period of his employment by the Company which may pertain to the business,
products, or processes of the Company or any of its subsidiaries (collectively,
hereinafter referred to as "Inventions"), will be promptly and fully disclosed
by the Executive to an appropriate executive officer of the Company (other than
the Executive) and shall be the Company's exclusive property, and the Executive
will promptly execute and/or deliver to an appropriate executive officer of the
Company (other than the Executive) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any inventions made, developed or created by him as
aforesaid.
(e) The Executive will keep confidential and will hold for the Company's
sole benefit any Invention which is to be the exclusive property of the Company
under this Section 4 for which no patent, copyright, trademark or other right or
protection is issued.
-4-
5
(f) The Executive also agrees that he will not; without the prior
written consent of the Board of Directors of the Company (i) use for his benefit
or disclose at any time during his employment by the Company, or thereafter,
except to the extent required by the performance by him of his duties as an
employee of the Company, any confidential or proprietary information obtained
or developed by him while in the employ of the Company with respect to any
Inventions or with respect to any customers, clients, suppliers, products,
employees, financial affairs, or methods of design, distribution, marketing,
service, procurement or manufacture of the Company or any of its subsidiaries,
or any confidential matter, except information which at the time is generally
known to the public other than as a result of disclosure by him not permitted
hereunder or the disclosure of which is required by law or by Court Order, or
(ii) take with him upon leaving the employ of the Company any document or paper
relating to any of the foregoing or any physical property of the Company or any
of its subsidiaries.
(g) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 4 would be
inadequate and, therefore, agrees that the Company and its subsidiaries shall be
entitled to seek injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its subsidiaries from pursuing any other rights and remedies available
for any such breach or threatened breach.
(h) The Executive agrees that upon termination of his employment by the
Company for any reason, the Executive shall forthwith return to the Company all
documents and other property in his possession belonging to the Company or any
of its subsidiaries.
(i) Without limiting the generality of Section 4 hereof, the Executive
hereby expressly agrees that the foregoing provisions of this Section 4 shall be
binding upon the Executive's heirs, successors and legal representatives.
5. SUCCESSORS BOUND; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the Executive, the Company, and their respective
successors, assigns, heirs, executors, legal representatives and administrators.
Any attempted assignment of this Agreement by the Executive shall be void.
6. SEVERABILITY. In the event that any one or more of the provisions of
this Agreement or any word, phrase, clause, sentence, or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent permitted
under applicable laws.
7. NOTICES. All notices, demands or other communications required to be
or otherwise given or made hereunder shall be in writing and shall be deemed
given if delivered personally, or mailed overnight delivery service or by
registered or certified mail (return receipt requested),
-5-
6
-6-
7
12. GOVERNING LAW. This Agreement shall be construed and interpreted
according to the substantive laws of the State of Ohio without giving effect to
the conflicts of laws provisions thereof.
13. FEES AND EXPENSES. If legal action (including a request for
injunctive relief) is commenced by either party to enforce or defend its rights
under this Agreement, the prevailing party in such action shall be entitled to
recover its costs and reasonable attorneys' fees in addition to any other relief
granted.
[Intentionally blank]
-7-
8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MEDIFAX, INC
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President
EXECUTIVE:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-8-
