Ex-10.56



 






	 	 	 
	 

c/o MedCath Corporation

	 	 






Re:   Accelerated Vesting of Your MedCath Stock Options



Dear                                         :



This letter amends and restates the prior letter regarding the accelerated vesting of your options
to ensure that the terms approved by the Compensation Committee of the Board of Directors are
correctly reflected in these option acceleration arrangements.



The accelerated vesting of the Company’s stock options was approved by the Compensation Committee
(the “Amendment”) solely in response to an accounting change that began to apply to MedCath
beginning on October 1, 2005. The Amendment was not intended to take away or add benefits to
option holders when compared to the option plan and vesting arrangements prior to this accelerated
vesting.



A summary of the options that were vested by the Amendment is attached to this letter as
Exhibit A.




Accelerated Vesting of Options



Under the Amendment, all of your unvested MedCath stock options became vested and immediately and
fully exercisable effective as of September 30, 2005. This means that you are free to exercise
your options at any time. However, if you exercise an option prior to the date it would have
originally vested, the MedCath stock you receive will be subject to the sale restriction described
below.




Sale Restriction if Your Employment Continues to the Originally Scheduled Vesting Date



While you remain employed, you may not sell the MedCath stock you acquired upon exercise until the
date the option would have vested if it had not been accelerated by the Amendment.




Sale Restriction if Your Employment Terminates Prior to the Originally Scheduled Vesting Date



If you do not remain employed through the originally scheduled vesting date, then the sale
restriction will apply to the stock you acquired in connection with the exercise of your option
(whether your option is exercised before or after your employment termination date) until the later
of (i) three years from your employment termination date or (ii) the date the option would have
vested if it had not been accelerated by the Amendment (and you had remained employed through that
date) (the “Restriction Period”) in the following two situations:





First, if you exercise an option while you are employed by MedCath prior to its
originally scheduled vesting date and your employment terminates for any reason prior to the
originally



 









 






scheduled vesting date, then you may not sell the MedCath stock you acquired during the
Restriction Period.




Second, if your employment with the Company terminates for any reason and thereafter
you exercise an option that would not have vested as of your termination date absent
acceleration by the Amendment, then you may not sell the MedCath stock you acquired during
the Restriction Period. This situation may arise because in most cases you may exercise
vested stock options during a limited period following your termination of employment. For
example, if you resign, your options remain exercisable for 90 days. The restriction will
not apply to any options exercised during the 90 day period that originally would have
vested prior to your termination, but it will apply to any options exercised during the 90
day period that would have been forfeited upon your termination if the Compensation
Committee had not been accelerated the vesting of your options.



Change in Control of the Company



The sale restriction would cease to apply in connection with a change in control (as defined in
your Option Award Agreement) of the Company.




Scope of the Sale Restriction



The sale restriction prohibits any direct or indirect sale, pledge, transfer, contract or other
transaction or arrangement involving any MedCath stock that is subject to the restriction and
prohibits any other transaction that is intended to give a holder any benefits of a sale of such
stock. Because a cashless exercise involves the simultaneous exercise of an option and the sale of
some or all of the shares being purchased by the exercise of the option, you would not be allowed
to engage in a cashless exercise of an option if the shares you are acquiring in connection with
the option exercise would be subject to the sale restriction. In addition, you may not enter into
any type of hedging transaction or contract with respect to any MedCath stock that is subject to
the sale restriction.




Enforcement of Sale Restriction 



MedCath has the right to cause the certificates representing shares that are subject to the sale
restriction to bear a legend to ensure compliance with the sale restriction and to give
instructions to its stock transfer agent to stop the registration of the transfer of any shares
that are subject to the sale restriction.




Conversion of Some Incentive Stock Options to Nonqualified Stock Options



The Internal Revenue Code limits the amount of “incentive stock options” or “ISOs” that may vest in
any calendar year. If the limitation is exceeded, then the options that vest in excess of the
limit become “nonqualified options” or “NQSOs.” The primary difference between ISOs and NQSOs is
that you do not recognize taxable compensation income upon the exercise of ISOs. Instead, taxable
income is recognized at the time the stock acquired in connection with an ISO exercise is sold,
subject to certain other Internal Revenue Code rules and limitations. The full vesting of your
options may have caused a portion of your ISOs to vest in excess of the 2005 calendar year limit
and to become NQSOs. If any your options converted from ISO to NQSO status due to the accelerated
vesting, the change is shown in the attached Exhibit. The conversion has no impact unless you




 









 







decide to exercise your options, and if you decide to exercise a converted option, you should
realize that the tax consequences of the cashless exercise of an ISO are substantially identical to
the exercise of an NQSO and therefore the impact may be minimal. It is always a good idea to
consult your accountant or tax advisor prior to the exercise of any stock option to be sure you
fully understand the tax consequences of the exercise, as well as any sale of the shares.



To indicate your acceptance of the terms of this letter, please sign and date the enclosed copy of
this letter and return it to Phil Song as soon as possible. Please file the original copy of this
letter with your copy of the award agreement(s) for your options.



Thank you for your prompt attention to this matter.



Very truly yours,




John T. Casey,

Chairman and Chief Executive Officer

MedCath Corporation



ACCEPTED EFFECTIVE AS OF SEPTEMBER 30, 2005: