Document:

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:Ex-10.57

 

October 27, 2005

Mr. O. Edwin French

President

French Healthcare Consulting, Inc.

P.O. Box 535, 6011 Riverside Drive

Secretary, MD 21664

     Re: Consulting Services Agreement

Gentlemen:

     This letter agreement (this “Agreement”) confirms that MedCath Corporation
(“MedCath”) has retained French Healthcare Consulting, Inc. (“FHC”) to provide
consulting services and that FHC has agreed to provide such services, all in accordance with the
following terms.

     1. Consulting Services. During the Term of this Agreement (as defined in paragraph 3
below), FHC agrees to provide to MedCath hospital management consulting services to assist MedCath
in managing its affiliated hospitals. FHC shall diligently consult and communicate with MedCath
regarding the services performed. FHC represents that it has substantial experience in providing
such services to other clients of FHC.

     2. Fees. As compensation for the consulting services to be provided during the Term,
MedCath agrees to pay FHC $40,000 per month in monthly installments within 30 days of receipt of
invoices from FHC.

     3. Term. Unless terminated earlier as provided herein, this Agreement will have a
“Term” commencing as of October 25, 2005 and continuing to and including December 31, 2005.
This Agreement may be renewed thereafter for additional thirty (30) day periods upon our mutual
written agreement. Partial months shall be prorated by the actual number of calendar days served
by this Agreement divided by the number of calendar days during the month with such percentage then
applied to the fee in 2 above. Notwithstanding the foregoing, this Agreement may be terminated by
MedCath immediately FHC or its employees who perform the services hereunder:

     (a) Fails or refuses to comply with the policies, standards and regulations of
MedCath or the Federal and State laws and regulations applicable to services
provided under this Agreement;

     (b) Conducts himself in an unprofessional, unethical or fraudulent manner;

     (c) Commits a felony;

 

 

French Healthcare Consulting, Inc.

October 27, 2005

Page 2

     (d) Commits any offense involving moral turpitude, including fraud, theft or
embezzlement; or

     (e) Commits any breach of the terms of this Agreement that is not cured upon
notice to you.

     4. Confidentiality, Non-Solicitation, and Non-Disclosure Agreements.

     (a) Confidentiality. During the Term of this Agreement, MedCath will furnish
FHC with and provide FHC employees access to proprietary and confidential information
relating to MedCath’s business and financial affairs (including the business and financial
affairs of all affiliates and operations of MedCath) including, without limitation,
financial statements and data; summaries and projections; customer information; vendor
information; pricing; technology; employment practices; marketing strategies and reports;
planning and operational materials; plans and specifications; contracts and agreements;
manuals and data; information subject to the attorney-client privilege and attorney work
product doctrine or other privilege recognized at law; possible trade secrets; and other
information (“Confidential Information”) to assist FHC in providing consulting
services to MedCath under the terms of this Agreement. The term “Confidential Information”
also includes, without limitation, business plans of MedCath; the terms of all documents and
agreements; the legal structure of all MedCath entities or of any acquisition, management,
or joint venture transaction to which any MedCath entity is a party; all financial
statements; all plans and designs for hospitals; reimbursement procedures; credentialing
information; utilization information; the types of procedures, the number of procedures, and
the charges for procedures performed at any hospital owned by MedCath; relationships with
vendors; the identity of all investors in MedCath or in any joint venture developing or
managing a hospital and the amounts invested; and the terms of all agreements to which
MedCath is a party.

     As a condition to and in consideration of MedCath’s furnishing Confidential Information
to FHC, FHC agrees that (i) Confidential Information will not be used other than in
connection with providing services under the terms of this Agreement and that Confidential
Information will not be disclosed by FHC or any of its employees to any person (except as
permitted by this Agreement) and will be kept confidential by FHC, (ii) FHC will make all
necessary and appropriate efforts to safeguard Confidential Information from disclosure to
anyone other than as permitted hereby and (iii) FHC will immediately report to MedCath any
use or disclosure of Confidential Information not permitted by this Agreement.

     The term “Confidential Information” does not include any Confidential Information
disclosed which (i) at the time of disclosure or thereafter is generally available to and
known by the public (other than as a result of a disclosure in violation of this Agreement);
(ii) was available to FHC on a nonconfidential basis from a source other than any MedCath
entity, provided that such source is not and was not bound by a
confidentiality agreement with any MedCath entity; or (iii) has been independently acquired
or developed by FHC without violating any of its obligations under this Agreement.

 

 

French Healthcare Consulting, Inc.

October 27, 2005

Page 3

     In the event that FHC becomes legally compelled (by deposition, interrogatory, request
for documents, order, subpoena, civil investigative demand, or similar process issued by a
court of competent jurisdiction or by a governmental body) to disclose any of the
Confidential Information, FHC will give prompt prior written notice of the requirement to
MedCath so that MedCath has a reasonable opportunity to seek a protective order or other
appropriate remedy or waive in writing compliance with the terms of this Agreement. In the
event that such protective order or other remedy is not obtained, and regardless of whether
or not compliance with the provisions hereof is waived, then it is agreed that only that
portion of the Confidential Information which subjects FHC to legal compulsion shall be
disclosed and reasonable efforts shall be made to obtain assurance that confidential
treatment will be accorded such information.

     By FHC’s execution of this Agreement, FHC agrees that upon request by MedCath and upon
the termination or expiration of this Agreement FHC will immediately return to MedCath all
Confidential Information and other MedCath property including, without limitation, all
originals, copies, computer data, or other records or information in any form whatsoever,
and will not retain summaries or copies thereof in any form whatsoever (whether prepared by
MedCath or FHC) and FHC shall provide a written certification thereof to MedCath. It is
understood and agreed that Confidential Information and any work product created by FHC
derived or based on the Confidential Information will remain at all times the property of
MedCath.

     (b) Non-Solicitation. FHC further agrees not to hire or solicit, directly or
indirectly, the employment of or hire any employee of MedCath until the expiration of a
period of one year after the termination of this Agreement.

     (c) Enforcement. FHC agrees that the foregoing restrictions are fair and
reasonable. If there is a breach or threatened breach of the provisions of this paragraph
4, in addition to other remedies at law or equity, MedCath will be entitled to injunctive
relief. FHC’s obligations under this paragraph 4 will survive the termination or expiration
of this Agreement.

     5. Assignment. Neither this Agreement nor any interest therein may be assigned by FHC
without the prior written consent of MedCath. Subject to the previous sentence, this Agreement
will be binding upon and inure to the benefit of the successors, heirs, and assigned of the parties
hereto.

     6. Reimbursement for Expenses. MedCath will reimburse FHC for its reasonable travel
and lodging expenses which are first approved in writing by MedCath. To the greatest extent
possible, all travel, rental car, and lodging arrangements will be made by or through MedCath to
obtain any corporate rate available to MedCath. FHC must submit documentation reasonably
acceptable to MedCath of such expenses to receive reimbursement.

     7. Independent Contractor. FHC is an independent contractor of MedCath and not an
employee, officer, partner, joint venturer, or agent of MedCath and neither FHC nor any employee of
FHC will be considered an employee of MedCath within the meaning or the application of any federal,
state or local laws or regulations. Neither FHC nor any employee of

 

 

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October 27, 2005

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FHC will have any claim under
this Agreement or otherwise against MedCath for vacation pay, paid sick leave, retirement benefits,
social security, worker’s compensation, health insurance, disability or unemployment insurance
benefits, or other employee benefits of any kind. FHC understands and agrees that (i) neither FHC
nor any employee of FHC will be treated as an employee of MedCath for federal or state tax
purposes; (ii) MedCath will not withhold from the compensation payable to FHC hereunder any sums
for income tax, unemployment insurance, social security, or any other withholding pursuant to any
law or requirement of any governmental body or make available any of the benefits afforded to
employees of MedCath; and (iii) all of such payments, withholdings, and benefits, if any, are FHC’s
sole responsibility.

     8. Notices. Any notice required or permitted to be given under this Agreement will be
sufficient if in writing and sent by registered mail, telecopy, overnight courier, or hand delivery
to office of FHC or to MedCath at the following addresses:

	 	 	 
	MedCath:

	 	MedCath Corporation
	 

	 	10720 Sikes Place, Suite 300
	 

	 	Charlotte, NC 28277
	 

	 	Attention: John T. Casey, Chairman and Chief Executive Officer
	 
	 	 
	FHC:

	 	French Healthcare Consulting, Inc.
	 

	 	O. Edwin French, President
	 

	 	P.O. Box 535, 6011 Riverside Drive
	 

	 	Secretary, MD 21664

     9. Entire Agreement. This Agreement contains the entire agreement of the parties
hereto. It may not be amended other than by written instrument signed by the party against whom
enforcement is sought.

     10. Applicable Law. This Agreement shall be construed in accordance with the laws of
North Carolina.

     11. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one and the same
agreement. Such executions may be transmitted to the parties by facsimile, and such facsimile
execution shall have the full force and effect of an original signature.

 

 

French Healthcare Consulting, Inc.

October 27, 2005

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     Please execute both copies of this Agreement below to confirm our agreement as set forth
herein and return one fully executed copy to me.

	 	 	 	 	 	 	 
	 

	 	Very truly yours,
	 
	 	 	 	 	 	 
	 

	 	MedCath Corporation	 	
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ JOHN T.
CASEY      	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	John T. Casey, Chairman and Chief	 	 
	 

	 	 	 	Executive Officer	 	 

Agreed and Accepted:

French Healthcare Consulting, Inc.

By: /s/ O. Edwin French     

       O. Edwin French, President

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