Exhibit 10.5
EXECUTIVE EMPLOYMENT
AGREEMENT
AGREEMENT dated as of
April 7, 2008, between InSight Health Services Corp., a
Delaware corporation (“Company”), and Louis E.
Hallman, III (“Executive”). Company is a
wholly owned subsidiary of InSight Health Services Holdings Corp.,
a Delaware corporation (“Parent”).
Company wishes to
continue to employ Executive, and Executive wishes to accept such
continued employment, in each case subject to the terms and
conditions hereof. Accordingly, Company and Executive hereby
agree as follows:
I.
TERM
Commencing with the
effective date set forth above, Executive is to be employed by
Company on the terms and conditions set forth in this Agreement,
until such time as Executive or the Company terminate this
Agreement in accordance with its terms.
II.
EMPLOYMENT
SECTION 2.01
Employment by Company . Company
employs Executive to render full time services as Company’s
President and Chief Executive Officer and in such other capacities
as the Board of Directors of Company (“Board”) may
assign and, in connection therewith, to report to the Board and
perform such duties as are reasonably consistent with
Executive’s position and as the Board shall direct.
Executive shall also be elected to the Board. Executive
agrees to perform such duties as are reasonably consistent with the
duties normally pertaining to the office to which Executive has
been elected or appointed, subject always to the direction of the
Board and to conduct himself in a professional and diligent
manner. Subject to Section 5.01 hereof,
Executive’s expenditure of reasonable amounts of time for
personal business, charitable or professional activities will not
be deemed a breach of Executive’s undertaking to provide full
time services hereunder as long as such activities do not interfere
with Executive’s rendering of such services; provided, that
Executive shall not serve as a director of more than two other
Boards of Directors and shall not commence service on any new Board
of Directors in the next twelve months.
SECTION 2.02
Acceptance of Employment by Executive .
Executive accepts such employment and shall render the
services required by this Agreement to be rendered by
Executive. Executive shall also serve on request during all
or any part of the term of this Agreement as a director of Company
and Parent and as an officer or director of any of Company’s
subsidiaries or affiliates without any compensation therefor other
than as specified in this Agreement.
SECTION 2.03
Place of
Employment . Executive’s principal place of
employment shall be located at 26250 Enterprise Court,
Suite 100, Lake Forest, California 92630. In the event
that the principal place of employment of Executive is relocated to
a site that is more than 80 miles from Executive’s principal
residence, subject to Section 4.05(a) hereof, Company may
require
Executive to relocate
Executive’s principal residence to within 80 miles of such
site. Notwithstanding the foregoing, Executive acknowledges
that the duties to be performed by Executive hereunder are such
that Executive may be required to travel extensively, principally
within the United States, in connection with Company Business (as
defined below).
III.
COMPENSATION
SECTION 3.01
Salary,
Bonus, Life Insurance . As compensation for the
services to be rendered pursuant to this Agreement, Company shall
pay Executive, and Executive shall accept, a salary of $400,000 per
annum (“Annual Salary”), payable in accordance with the
payroll policies of Company for senior executives as from time to
time in effect, less such amounts as may be required to be withheld
by applicable federal, state and local law and regulations (the
“Payroll Policies”).
In addition to the
Annual Salary, Executive shall be eligible to receive an annual
bonus of up to 50% of Executive’s Annual Salary
(“Bonus”), which shall be based upon Parent achieving
the target financial goals or other goals approved by the Board
(“Target Goals”) for the then-current fiscal
year. The Target Goals shall be set forth in a budget
prepared by Executive and Company management and approved by the
Board, and shall, as applicable, be set at the plan level
applicable to the other executive officers of Company. The
Bonus is payable, if earned, promptly following the completion of
Parent’s year-end audit for such year and delivery of a
certification by Executive to the Board, certifying the results for
the year and the calculation of any Bonus so payable. For the
fiscal year ended June 30, 2009, the Target Goals shall be set
forth in a budget prepared by Executive and Company management and
approved by the Board prior to August 1, 2008.
Company shall
purchase and maintain in full force and effect at all times during
the term of this Agreement a policy of term insurance on the life
of Executive payable to such beneficiary or beneficiaries as
Executive may designate in an amount equal to three (3) times
the amount of the Annual Salary; provided, Executive shall comply
with the issuing insurance company’s requirements for
issuance of the policy. Executive shall provide reasonable
cooperation with the Company and its insurance agency in the event
the Company decides to obtain a “key man” insurance
policy on Executive for the benefit of Company.
SECTION 3.02
Performance Review . Executive’s
performance shall be reviewed and evaluated by the Board annually
during the term of this Agreement.
SECTION 3.03
Participation in Employee Benefit Plans
. Executive shall be entitled during the term of this
Agreement, if and to the extent eligible, to participate in any
life insurance, medical, health and accident and disability plan or
program, pension plan or similar benefit plan of Company, which may
be available to senior executives of Company generally, on the same
terms as such other executives.
SECTION 3.04
Business
E xpenses .
Subject to such policies as may from time to time be established by
Company for senior executives of Company generally, Company shall
pay or reimburse Executive for all reasonable business expenses
actually incurred and paid by
Executive during the
term of this Agreement in the performance by Executive of services
under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as Company may
reasonably require.
SECTION 3.05
Automobile Allowance . Company
shall pay Executive an automobile allowance of $1,000 per month,
and shall reimburse Executive for expenses of operating such car
consisting of gas, insurance and registration, in such amount and
in accordance with and subject to such policies as may from time to
time be established and amended by the Board.
SECTION 3.06
Vacation . Executive shall be
entitled to four (4) weeks of paid vacation each year during
the term of this Agreement which shall be taken at a time or times
which do not unreasonably interfere with Executive’s duties
hereunder and in accordance with Company policy. Executive
may not accumulate any unused vacation in excess of eight
(8) weeks at any one time .
SECTION 3.07
Equity
Award . Executive shall be entitled to
participate in Parent’s equity award program, on the terms
and conditions that are applicable to the other executive officers
of Company, as such award program may be determined by the board of
directors of Parent (“Parent Board”). The Parent
Board currently expects to award Executive non-statutory stock
options to acquire 192,000 shares of Parent Common Stock (the
“Options”). The Options will be subject to
performance-based vesting, which will occur upon a successful
refinancing (to be defined in the Option grant agreement) of the
currently outstanding issue of $315,000,000 Senior Floating Rate
Notes. The successful refinancing will include, among other
items, the absence of any dilution to the then-existing holders of
outstanding Parent Common Stock. The exercise price of the
Options will be set on the date of actual grant, currently expected
to occur not later than April 11, 2008, and will be calculated
as the 5-day average closing price ending on the date of grant, but
not less than the closing price on the date of grant. The
grant of Options is subject to approval of the 2008 Employee Stock
Option Plan by the Board, which is anticipated to occur not later
than April 11, 2008.
IV.
TERMINATION
SECTION 4.01
Termination upon Death . If
Executive dies during the term of this Agreement, this Agreement
shall terminate as of the date of Executive’s
death.
SECTION 4.02
Termination upon Disability .
Executive’s employment may be terminated by Company due to
Executive’s permanent and total disability (within the
meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended) (“Disability”), so that Executive
is unable substantially to perform Executive’s services
required by this Agreement to be rendered by Executive for
(i) a period of three (3) consecutive months or
(ii) for shorter periods aggregating three (3) months
during any twelve (12) month period. Company may, at any time
after the last day of the three (3) consecutive months of
Disability or the day on which the shorter periods of Disability
equal an aggregate of three (3) months, by 30 days’
written notice to Executive, terminate this Agreement and
Executive’s employment hereunder. Any such
determination of Disability shall be made by a physician chosen by
a majority of the members of the Board in its sole
discretion. Nothing in this Section 4.02 shall be deemed
to extend the term of this Agreement or of Executive’s
employment hereunder, beyond the term specified in Article I
hereof.
SECTION 4.03
Termination for Cause . If the
Board determines that Cause (as defined below) exists, it may
remove Executive for Cause and terminate this Agreement and the
term of Executive’s employment hereunder on the date
specified in written notice to Executive. If terminated for
Cause, Executive shall have no right to receive any monetary
compensation or benefit hereunder with respect to any period after
the date specified in such notice. Such notice may also
terminate Executive’s right to enter Company’s
premises. For purposes of this Agreement, the term
“Cause” means any of the following:
(a)
Executive has been convicted or pled guilty or
no contest to any (i) crime or offense which is likely to have
an adverse impact on the business operations, financial
condition, or overall business reputation of Parent, Company or any
of their subsidiaries, or (ii) felony offense;
(b)
Executive has committed or attempted to commit
fraud or embezzlement;
(c)
Executive has breached any of Executive’s
obligations under this Agreement and Executive has failed to cure
the breach within 30 days following receipt of written notice of
such breach from Company or Executive engages in intentional and
repeated actions specifically and solely for the purpose of causing
his termination by the Company;
(d)
Parent or Company, after reasonable
investigation, finds that Executive has violated or attempted to
violate any material written policies and procedures of Parent or
Company, including but not limited to, policies and procedures
pertaining to harassment and discrimination;
(e)
Executive has failed to obey a specific written
direction from the Board (unless such specific written instruction
represents an illegal act), provided that (i) such failure
continues for a period of 30 days after receipt of such specific
written direction, and (ii) such specific written direction
includes a statement that the failure to comply therewith will be a
basis for termination hereunder; or
(f)
any
willful act or omission on Executive’s part which is
injurious in any material respect to the business operations,
financial condition or business reputation of Parent or Company or
any of their subsidiaries.
SECTION 4.04
Termination in Discretion of Company
. Company may, at any time, on 15 days’ written
notice to Executive, terminate this Agreement and the term of
Executive’s employment hereunder, and Executive thereafter
shall receive all monetary compensation and benefits due through
the termination date specified in the notice, as well as rights to
receive monetary compensation or benefits hereunder in respect of
any period after the effective date of termination as are
specifically provided in Section 4.07 hereof. Such
notice may also terminate Executive’s right to enter
Company’s premises effective immediately.
SECTION 4.05
Voluntary Termination for Good Reason .
During the period commencing upon the occurrence of Good
Reason (as defined below) and continuing for 30 days thereafter,
Executive shall have the right to terminate Executive’s
employment for Good Reason (as defined below), whereupon Executive
shall become entitled to receive compensation as provided in
Section 4.07 hereof. The failure of Executive to deliver
such notice with the 30-day time period shall constitute agreement
by Executive to such event and eliminate the ability of Executive
to terminate this Agreement for such event. Termination by
the Executive pursuant to the preceding sentence shall be effective
upon 30 days written notice to Company. For purposes of this
Agreement, “Good Reason” means any of the
following:
(a)
the
movement by Company, without Executive’s consent, of
Executive’s principal place of employment to a site that is
more than 80 miles from the Executive’s principal residence
on the date hereof;
(b)
a
reduction by Company, without Executive’s consent, in
Executive’s Annual Salary or bonus opportunity, as they exist
on the date hereof ; or
(c)
a
failure by Company to comply with any material provisions of this
Agreement which has not been cured within 30 days after notice of
such noncompliance has been given by Executive to Company, or if
such failure is not capable of being cured in such time, for which
a cure shall not have been diligently initiated by Company within
such 30 day period.
SECTION 4.06
Voluntary Termination Without Good Reason
. Executive shall have the right to terminate this
Agreement upon 30 days’ written notice to Company and, upon
such termination, Executive shall not have the right to receive any
monetary compensation or benefit hereunder with respect to any
period after the date specified in such notice.
SECTION 4.07
Compensation on Termination
.
(a)
If
the term of Executive’s employment hereunder is terminated
pursuant to Section 4.01 hereof, Company shall pay to the
executors or administrators of Executive’s estate or
Executive’s heirs or legatees (as the case may be) all
compensation accrued and unpaid up to the date of Executive’s
death. If the term of Executive’s employment hereunder
is terminated pursuant to Section 4.02 hereof, Company shall
pay to Executive all compensation accrued and unpaid up to the date
of such termination.
(b)
If
the term of Executive’s employment hereunder is terminated
pursuant to Section 4.04, 4.05, or 4.07(c) hereof,
Company shall (i) pay to Executive all compensation accrued
and unpaid up to the effective date of termination; (ii) pay
to Executive additional compensation in an amount equal to twelve
(12) months of compensation at the monthly Annual Salary rate then
in effect, payable in accordance with the Payroll Policies; and
(iii) maintain, at Company’s expense, in full force and
effect, for Executive’s continued benefit until the earlier
of (x) twelve (12) months after the effective date of
termination or (y) commencement of Executive’s benefits
pursuant to employment with a new employer, all life insurance,
medical and health plans or programs, in which Executive was
participating immediately prior to the effective date of
termination; provided, that Executive’s continued
participation is permissible
under the general terms
and provisions of such plans or programs and provided further, that
Company shall be entitled to amend or terminate any employee
benefit plans which are applicable generally to Company’s
employees. In the event that Executive’s participation
in any such plan or program is prohibited, Company shall arrange to
provide Executive with benefits substantially similar to those
which Executive was entitled to receive under such plans or
programs. Any payments made pursuant to this
Section 4.07 shall be reduced by such amounts as are required
by law to be withheld or deducted.
(c)
Notwithstanding any provision herein to the
contrary, if Executive is terminated by Company without Cause, or
Executive terminates Executive’s employment for Good Reason,
within twelve (12) months following a Change in Control (as defined
herein) which occurs after the Effective Time, Executive shall be
entitled to the payments and benefits set forth in
Section 4.07(b). For purposes hereof, a “Change in
Control” shall be deemed to have occurred if (i) any
person, or any two or more persons acting as a group, and all
affiliates of such person or persons (a “Group”), who
prior to such time beneficially owned less than 50% of the then
outstanding capital stock of Company or Parent, shall acquire
shares of Company’s or Parent’s capital stock in one or
more transactions or series of transactions, including by merger,
and after such transaction or transactions such person or group and
affiliates beneficially own 50% or more of Company’s or
Parent’s outstanding capital stock, or (ii) Company or
Parent shall sell all or substantially all of its assets to any
Group which, immediately prior to the time of such transaction,
beneficially owned less than 50% of the then outstanding capital
stock of Company or Parent.
(d)
The
compensation rights provided for Executive in this
Section 4.07 shall be Executive’s sole and exclusive
remedies with respect to Section 4.01, 4.02, 4.04, 4.05, or
4.07(c) hereof, and Executive, the executors or administrators
of Executive’s estate or Executive’s heirs or legatees
(as the case may be) shall not be entitled to any other
compensation, damages or relief in connection therewith.
(e)
In
exchange for, and as a condition to receiving, the compensation
rights provided to Executive in this Section 4.07, Executive
will be required to execute a waiver and release substantially in
the form of E
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