EMPLOYMENT AGREEMENT
R. Milton Johnson
This EMPLOYMENT
AGREEMENT (the “ Agreement ”) dated
November 16, 2006 is entered into by and between Hercules
Holding II, LLC (the “ Company ”) and R. Milton
Johnson (the “ Executive ”).
In connection with
the merger contemplated under that certain Agreement and Plan of
Merger by and among HCA Inc. (“ HCA ”), the
Company and Hercules Acquisition Corporation, dated July 24, 2006
(the “ Merger Agreement ”, and such transaction
being the “ Merger ”) the Company desires to
employ Executive and to enter into an agreement embodying the terms
of such employment, effective as of the consummation of the Merger
(the “ Closing ”);
After the Closing,
the Company will own substantially all of the stock of HCA;
and
Executive desires
to accept such employment and enter into such an
agreement.
In consideration
of the promises and mutual covenants herein and for other good and
valuable consideration, the parties agree as follows:
1. Term
of Employment; Effectiveness . Subject to the occurrence of the
Closing, Executive shall be employed by HCA Management Services,
L.P., an affiliate of HCA existing solely as an employment vehicle
for corporate employees of HCA, on the terms and subject to the
conditions set forth in this Agreement until Executive’s
employment is terminated in accordance with Section 7 of this
Agreement (the “Employment Term”). Notwithstanding any
other provision of this Agreement, the operative provisions of this
Agreement shall become effective only upon the Closing Date (as
defined in the Merger Agreement). In the event the Merger Agreement
is terminated for any reason without the Closing Date having
occurred, this Agreement shall be terminated without further
obligation or liability of either party. Upon the Closing, the
Company will cause HCA to assume this Agreement and all references
to “Company” contained herein shall at all times
thereafter refer to HCA.
a. During
the Employment Term, Executive shall serve as the Executive Vice
President and Chief Financial Officer of HCA. In such position,
Executive shall have such duties, authority and responsibility as
shall be determined from time to time by the Chief Executive
Officer which duties, authority and responsibility are consistent
with his existing position with HCA with respect to the business of
HCA. Executive shall, if requested, also serve as a member of the
Board of Directors of any affiliate of the Company, without
additional compensation.
b.
During the Employment Term, Executive will devote Executive’s
full business time and best efforts to the performance of
Executive’s duties hereunder and will not engage in any other
business, profession or occupation for compensation or otherwise
which would conflict or interfere with the rendition of such
services either directly or indirectly,
without the
prior written consent of the Board of Directors of HCA (the
“Board”); provided that nothing herein shall
preclude Executive, subject to the prior approval of the Board,
from accepting appointment to or continue to serve on any board of
directors or trustees of any business corporation or any charitable
organization; provided in each case, and in the aggregate,
that such activities do not conflict or interfere with the
performance of Executive’s duties hereunder or conflict with
Section 8.
3. Base
Salary . During the Employment Term, HCA shall pay Executive a
base salary at the annual rate of $750,379, payable in regular
installments in accordance with HCA’s normal payroll
practices. The Board will review Executive’s salary annually,
and Executive shall be entitled to such increases in
Executive’s base salary, if any, as may be determined in the
sole discretion of the Board, based upon such review.
Executive’s annual base salary, as in effect from time to
time, is hereinafter referred to as the “ Base Salary
.”
a. With
respect to the 2006 fiscal year, Executive shall be eligible to
receive the annual bonus to which Executive is otherwise entitled
under the HCA 2006 Senior Officer Performance Excellence Program as
a “covered officer” (as defined therein), to be paid at
the target level on the Closing Date; pursuant to such program, and
as set forth in the Merger Agreement.
b. With
respect to each full fiscal year of HCA (a “ Fiscal
Year ”) occurring during the Employment Term,
beginning with the 2007 Fiscal Year, Executive shall be eligible to
earn, pursuant to an annual bonus program to be adopted by the
Board, an annual bonus award (an “ Annual Bonus
”) equal to a percentage of Executive’s Base Salary,
based upon the extent to which annual performance targets
established by the Board are met or exceeded. The Annual Bonus, if
any, shall be paid to Executive within two and one-half (2.5)
months after the end of the applicable Fiscal Year. For the 2007
Fiscal Year, Executive shall be eligible to earn a target bonus of
(i) 60% of Base Salary (the “ Target Bonus
”) if annual performance targets are met, (ii) 50% of
the Target Bonus if a lower “threshold” level of
performance is achieved, or (iii) two times the Target Bonus
if “maximum” performance goals are achieved, with the
Annual Bonus amount being interpolated, in the sole discretion of
the Board, in the event that performance results exceed
“threshold” goals but do not exceed
“maximum” goals. For the 2007 Fiscal Year,
“target” performance will be $4,407 million in
EBITDA (which will be calculated in the same way it is calculated
for purposes of the vesting of options granted under the New Option
Plan (as defined below) that vest based on the attainment of EBITDA
targets), “threshold” performance will be 96.4%% of
“target” and “maximum” performance will be
103.6% “of target” performance (with appropriate
adjustments by the Board for extraordinary transactions and changes
in capital expenditures). With respect to the 2008 Fiscal Year, the
Board shall in good faith attempt to provide Annual Bonus
opportunities to Executive that are consistent with those
applicable to the 2007 Fiscal Year, unless doing so would be
adverse to the interests of HCA, the Company or their shareholders.
For later fiscal years, the Board will set bonus opportunities in
consultation with the Chief Executive Officer of HCA.
5. Employee
Benefits and Business Expenses . During the Employment Term,
Executive shall be entitled to participate in HCA’s pension
and welfare benefit, deferred
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compensation,
cash incentive compensation and perquisite plans as in effect from
time to time for senior executives of HCA (collectively “
Employee Benefits ”). In addition, during the
Employment Term, reasonable business expenses incurred by Executive
in the performance of Executive’s duties hereunder shall be
reimbursed by HCA in accordance with HCA’s policies. During
the Employment Term, HCA shall also (a) provide Executive with
Director’s and Officer’s indemnification and insurance
coverage to the extent that the Board determines to be reasonable,
in its sole discretion, for a company of the nature and size of HCA
and (b) shall continue Executive’s participation in
HCA’s Supplemental Executive Retirement Plan until such time
as Executive has become fully vested in the maximum benefit
available to the Executive under that plan (including achieving the
maximum years of service) in accordance with the terms of the
Merger Agreement.
a. In
connection with the Merger, Executive shall (i) participate in
the equity compensation program established by HCA effective as of
the Closing, pursuant to which, on the Closing, Executive shall
receive a grant of options to purchase shares of common stock of
HCA (with an exercise price of $51.00 per share) pursuant to a
stock incentive plan to be adopted by HCA (the “ New
Options ”, and any shares of common stock acquired upon
exercise of such New Options, “ Option Stock ”,
with the plan being the “ New Option Plan ”),
(ii) be permitted to rollover existing HCA stock options
and/or shares of HCA common stock (or have such options and/or
shares cashed out in connection with the Merger and
(iii) execute a stockholder’s agreement and such other
related agreements that are in forms reasonably acceptable to
Executive and the Company (such agreements, together with the
option grant and stock incentive plan, the “ Equity
Agreements ”). Executive’s New Options (ignoring
Executive’s possible receipt of 2x Time Options, as defined
and discussed below in Section 6(b)) will cover approximately
0.0234375 times 10% of the fully diluted equity of HCA on the
Closing Date (10% of the fully diluted equity of HCA on the Closing
Date being the “ Option Pool ”).
b. HCA
will reserve 10% of the Option Pool to be granted on the following
terms (these options being the “ 2x Time Options
”). HCA agrees that after Closing Date, it will grant 100% of
the 2x Time Options to one or more of Jack Bovender, Richard
Bracken, R. Milton Johnson, Samuel Hazen, W. Paul Rutledge, Beverly
Wallace, and Charles Hall (the “ Tier 1 Executives
”). The individual allocations will be based upon each
executive’s contribution to HCA and the Company between the
Closing and the date of grant as determined by the Board in
consultation with the Chief Executive Officer (provided that the
fact that Jack Bovender may have retired prior to the grant date
will not be held against him in making such allocation and shall
not preclude him from receiving 2x Time Options). A percentage of
the 2x Time Options will be vested and exercisable on the date of
grant, such percentage corresponding to the percentage of the
period measured between the Closing Date and the fifth anniversary
of the Closing Date that has elapsed as of the grant date. The 2x
Time Options will otherwise vest pursuant to the schedule generally
used in connection with HCA’s other time-vesting options,
subject to continued employment (or special provisions governing
retirement as may be mutually agreed to by an Executive and the
Company or HCA). The 2x Time Options will have an exercise price of
$102 per share (subject to adjustment to take into account any
share splits, extraordinary cash dividends, or other adjustment
events under Section 8 of the New Option Plan, in any case
made on or after Closing). The Board will in good faith attempt to
time the
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grant of the 2x
Time Options relatively near in time to but before the earlier of
(i) a “Change in Control” or “Public
Offering” as defined in the New Option Plan or (ii) the
time at which the Board in its good faith judgment, believes that
it is likely that the fair market value per share of HCA common
stock will soon thereafter exceed the proposed exercise price of
the 2x Time Options, but not later than the fifth anniversary of
the Closing Date. The form of the award agreement for the 2x Time
Options will otherwise be consistent with the terms of time-vesting
options that the Executive is granted in connection with the
Closing. If an executive’s employment is terminated, then any
2x Time Options which are forfeited (or 2x option shares which are
repurchased) would be re-issued to the other then-remaining Tier 1
Executives or the person who is chosen to replace the forfeiting
Tier 1 Executive.
c. In
connection with the foregoing, Executive hereby acknowledges his or
her commitment to invest in the Company or HCA as agreed to in that
certain Management Investment Letter agreement between the
Executive and the Company, in an amount as described under the
sub-heading “Equity Roll Over Commitments” in
HCA’s definitive proxy statement filed October 17,
2006.
7.
Termination . The Employment Term and Executive’s
employment hereunder may be terminated by either party at any time
and for any reason; provided that Executive will be required to
give the Company at least 90 days advance written notice of
any resignation of Executive’s employment; provided, however,
that the Company may elect to accelerate the effective date of such
resignation, and such acceleration shall not be deemed a
termination of Executive’s employment without Cause (as
defined below) by the Company. Notwithstanding any other provision
of this Agreement, and subject to the provisions of the Equity
Agreements, the provisions of this Section 7 shall exclusively
govern Executive’s rights upon termination of employment with
the Company and its affiliates.
a.
By the Company For Cause or By Executive Without Good Reason
.
(i) The
Employment Term and Executive’s employment hereunder may be
terminated by the Company for Cause (as defined below) and shall
terminate automatically upon Executive’s voluntary
resignation without Good Reason (as defined below).
(ii) For
purposes of this Agreement, “ Cause ” shall mean
Executive’s:
(A) willful and
continued failure to perform his or her material duties with
respect to the Company or it subsidiaries which continues beyond
ten (10) business days after a written demand for substantial
performance is delivered to Executive by the Company (the “
Cure Period ”); or
(B) willful or
intentional engaging by Executive in material misconduct that
causes material and demonstrable injury, monetarily or otherwise,
to the Company, the Sponsor Group (as defined in Section 8
below) or their respective affiliates; or
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(C) conviction of,
or a plea of nolo contendere to, a crime constituting
(x) a felony under the laws of the United States or any state
thereof or (y) a misdemeanor for which a sentence of more than
six months’ imprisonment is imposed; or
(D) willful and
material breach of the Equity Agreements, or Executive’s
engaging in any action in breach of the covenants set forth in
Section 8, which continues beyond the Cure Period (to the
extent that, in the Board’s reasonable judgment, such breach
can be cured).
For purposes of
this Section 7(a)(ii), an action will not be considered
“willful” unless taken in bad faith or without the
reasonable belief that it was in the best interest of
HCA.
(iii) If
Executive’s employment is terminated by the Company for Cause
or if Executive voluntarily resigns without Good Reason (other than
due to Executive’s death or Disability (as defined in Section
7(b) below)), Executive shall be entitled to receive:
(A) any Base
Salary earned, but unpaid, through the date of
termination;
(B) any Annual
Bonus earned, but unpaid, as of the date of termination for the
immediately preceding Fiscal Year, paid in accordance with
Section 4 (except to the extent payment is otherwise deferred
pursuant to any applicable deferred compensation arrangement with
HCA);
(C) reimbursement,
within 60 days following submission by Executive to the
Company and HCA of appropriate supporting documentation, for any
unreimbursed business expenses properly incurred by Executive in
accordance with HCA policy prior to the date of Executive’s
termination; so long as claims for such reimbursement (accompanied
by appropriate supporting documentation) are submitted to the
Company and HCA within 90 days following the date of
Executive’s termination of employment; and
(D) such Employee
Benefits, if any, as to which Executive may be entitled under the
employee benefit plans of HCA, (the amounts described in clauses
(A) through (D) hereof being referred to as the “
Accrued Rights ”).
Following such
termination of Executive’s employment by the Company for
Cause or voluntary resignation by Executive without Good Reason
(other than due to Executive’s death or Disability), except
as set forth in this Section 7(a)(iii) or the Equity
Agreements, Executive shall have no further rights to any
compensation or any other benefits from the Company or any of its
affiliates.
(i)
The Employment Term and Executive’s employment hereunder
shall terminate upon Executive’s death and may be terminated
by the Company if Executive becomes disabled (within the meaning of
Section 409A of the Internal Revenue Code (such incapacity is
hereinafter referred to as “ Disability ”)). Any
question as to the existence of the Disability of
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Executive as to
which Executive and the Company cannot agree shall be determined in
writing by a qualified independent physician mutually acceptable to
Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint
such a physician and those two physicians shall select a third who
shall make such determination in writing. The determination of
Disability made in writing to the Company and Executive shall be
final and conclusive for all purposes of this Agreement, and the
Company shall bear the costs of retaining the independent
physician.
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