AGREEMENT REGARDING
TERMINATION OF EMPLOYMENT
AND SEVERANCE BENEFITS
WHEREAS, Xxxxxx X. Xxxxxxxx ("Xxxxxxxx") and Apple Orthodontix, Inc.
("Apple") have heretofore entered into an agreement dated December 6, 1996
pursuant to which Apple employed Xxxxxxxx and thereafter amended such employment
agreement in certain respects (the amended employment agreement being hereafter
referred to as the "Employment Agreement"); and
WHEREAS, Apple has terminated Xxxxxxxx'x employment effective as of May 4,
1998; and
WHEREAS, Xxxxxxxx and Apple have agreed to certain commitments and
understandings regarding the severance benefits which he is owed as a result of
Apple's termination of his employment and desire to evidence such understandings
pursuant to this agreement;
NOW, THEREFORE, Xxxxxxxx and Apple agree as follows:
1. Apple agrees that Xxxxxxxx'x termination of employment by Apple is
without Cause (as such term is defined in the Employment Agreement) for all
purposes of the Employment Agreement.
2. In lieu of the benefits which otherwise would be payable by Apple to
Xxxxxxxx pursuant to Section 5(E)(i) and Section 5(E)(iv) of the Employment
Agreement, Xxxxxxxx agrees to accept and Apple agrees to pay to Xxxxxxxx a total
cash severance benefit payment in the amount of $775,000.00 payable by direct
deposit to Xxxxxxxx'x bank account in accordance with the direct deposit
instructions in effect on May 4, 1998 with Apple's payroll department as
follows: $387,500 no later than 5:00 p.m. Central Standard Time on May 20th,
1998 and $387,500 no later than 5:00 p.m. Central Standard Time on July 1, 1998.
3. Apple agrees that, in accordance with prior agreements, the forfeiture
restrictions upon all shares of Apple stock heretofore transferred to Xxxxxxxx
shall lapse as of the date of this agreement and that a certificate evidencing
such shares shall be transferred to Xxxxxxxx upon execution of this agreement.
4. Upon the occurrence of a "Change of Control" of Apple, all payments
then remaining payable pursuant to paragraph 2 above of this agreement shall
become immediately due and payable. For purposes of this paragraph 4, "Change of
Control" means the occurrence of any of the following events: (a) any Person
becomes an Acquiring Person; (b) at any time the then Continuing Directors cease
to constitute a majority of the members of the Board; (c) a merger of Apple with
or into, or a sale by Apple of its properties and assets substantially as an
entirety to, another Person occurs and, immediately after that occurrence, any
Person, other than an Exempt Person, together with all Affiliates and Associates
of such Person, shall be the Beneficial Owner of twenty-five percent (25%) or
more of the total voting power of the then outstanding Voting Shares of the
Person surviving that transaction (in the case or a merger or consolidation) or
the Person acquiring those properties and assets substantially as an entirety.
For purposes of the preceding definition of "Change of Control", the following
terms shall have the following meanings:
(i) "Acquiring Person" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the
shares of Common Stock then outstanding, but does not include any
Exempt Person; provided, however, that a Person shall not be or
become an Acquiring Person if such Person, together with its
Affiliates and Associates, shall become the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock
then outstanding solely as a result of a reduction in the number
of shares of Common Stock outstanding due to the repurchase of
Common Stock by Apple, unless and until such time as such Person
or any Affiliate or Associate of such Person shall purchase or
otherwise become the Beneficial Owner of additional shares of
Common Stock constituting one percent (1%) or more of the then
outstanding shares of Common Stock or any other Person (or
Persons) who is (or collectively are) the Beneficial Owner of
shares of Common Stock constituting one percent (1%) or more of
the then outstanding shares of Common Stock shall become an
Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of
such Person, is not then the Beneficial Owner of twenty-five
percent (25%) or more of the shares of Common Stock then
outstanding.
(ii) "Affiliate" has the meaning ascribed to that term in the
Securities Exchange Act of 1934 Rule 12b-2.
(iii) "Associate" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than Apple or a subsidiary of
Apple) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly
or indirectly, the Beneficial Owner of 10% or more of any class
of its equity securities, (b) any trust or other estate in which
that Person has a substantial beneficial interest or for or of
which that Person serves as trustee or in a similar fiduciary
capacity, (c) any relative or spouse of that Person, or any
relative of that spouse, who has the same home as that Person and
(d) any stockholder, partner or owner of any equity in such
Person.
(iv) "Board" means the board of directors of Apple.
(v) "Common Stock" means the common stock of Apple.
(vi) "Continuing Director" means at any time any individual who then
(a) is a member of the Board and was a member of the Board as of May
4, 1998 or whose nomination for his first election, or that first
election, to the Board following that date was recommended or
approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (b) is not an Acquiring Person, an Affiliate
or Associate of an Acquiring Person or a nominee or representative
of an Acquiring Person or of any such Affiliate or Associate.
(vii) "Exempt Person" means (a) (1) Apple, any subsidiary of Apple,
any employee benefit plan of Apple or of any subsidiary of Apple and
(2) any Person organized, appointed or established by Apple for or
pursuant to the terms of any such plan or for the purpose of funding
any such plan or funding other employee benefits for employees of
Apple or any subsidiary of Apple and (b) Xxxxxxxx, any Affiliate or
Associate of Xxxxxxxx or any group (as that term is used in the
Securities Exchange Act of 1934 Rule 13d-5(b)) of which Xxxxxxxx or
any Affiliate or Associate of Xxxxxxxx is a member.
(viii) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated
organization or association, mutual company, joint stock company,
joint venture, estate, trust, union or employee organization or
governmental authority.
(ix) "Voting Shares" means: (a) in the case of any corporation,
stock of that corporation of the class or classes having general
voting power under ordinary circumstances to elect a majority of
that corporation's board of directors; and (b) in the case of any
other entity, equity interests of the class or classes having
general voting power under ordinary circumstances equivalent to the
Voting Shares of a corporation.
5. Should any payments made by Apple to Xxxxxxxx pursuant to this
agreement or resulting from or in connection with his prior employment with
Apple, singly, in any combination or in the aggregate, to or for the benefit of
Xxxxxxxx be determined or alleged to be subject to an excise or similar purpose
tax pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor or other comparable federal, state or local tax
law by reason of being a "parachute payment" (within the meaning of Section 280G
of the Code), Apple shall pay to Xxxxxxxx such additional compensation as is
necessary (after taking into account all federal, state and local taxes payable
by Xxxxxxxx as a result of the receipt of such additional compensation) to place
Xxxxxxxx in the same after-tax position (including federal, state and local
taxes) he would have been in had no such excise or similar purpose tax (or
interest or penalties thereon) been paid or incurred. Apple hereby agrees to pay
such additional compensation within the earlier to occur of (i) five (5)
business days after Xxxxxxxx notifies Apple that Xxxxxxxx intends to file a tax
return taking the position that such excise or similar purpose tax is due and
payable in reliance on a written opinion of Xxxxxxxx'x tax counsel (such tax
counsel to be chosen solely by Xxxxxxxx) that it is more likely than not that
such excise tax is due and payable or (ii) twenty-four (24) hours of any notice
of or action by Apple that it intends to take the position that such excise tax
is due and payable. The costs of obtaining the tax counsel opinion referred to
in clause (i) of the preceding sentence shall be borne by Apple, and as long as
such tax counsel was chosen by Xxxxxxxx in good faith, the conclusions reached
in such opinion shall not be challenged or disputed by Apple. If Xxxxxxxx
intends to make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to Xxxxxxxx'x tax liability by any federal,
state or local tax authority, Apple will pay such additional compensation by
delivering its cashier's check payable in such amount to Xxxxxxxx within five
(5) business days after Xxxxxxxx notifies Apple of his intention to make such
payment. Without limiting the obligation of Apple hereunder, Xxxxxxxx agrees, in
the event Xxxxxxxx makes any payment pursuant to the preceding sentence, to
negotiate with Apple in good faith with respect to procedures reasonably
requested by Apple which would afford Apple the ability to contest the
imposition of such excise or similar purpose tax; provided, however, that
Xxxxxxxx will not be required to afford Apple any right to contest the
applicability of any such excise or similar purpose tax to the extent that
Xxxxxxxx reasonably determines (based upon the opinion of his tax counsel) that
such contest is inconsistent with the overall tax interests of Xxxxxxxx.
6. In entering into this agreement Apple intends that Xxxxxxxx receive
without reduction or delay all the intended benefits of this agreement and that
those benefits, and the terms and conditions hereof, be construed in a manner
most favorable to Xxxxxxxx; Apple, therefore, agrees that it will strive
expeditiously and in good faith to construe and resolve in Xxxxxxxx'x favor and
to his benefit any ambiguities or uncertainties that may be created by the
express language hereof. If, however, at any time during the term hereof or
afterwards: (i) there should exist a dispute or conflict between Xxxxxxxx and
Apple or another person or entity as to the validity, interpretation or
application of any term or condition hereof, or as to Xxxxxxxx'x entitlement to
any benefit intended to be bestowed hereby, which is not resolved to the
satisfaction of Xxxxxxxx, (ii) Xxxxxxxx must (a) defend the validity of this
agreement, (b) contest any determination by Apple concerning the amounts payable
(or reimbursable) by Apple to Xxxxxxxx, or (c) determine in any tax year of
Xxxxxxxx the tax consequences to Xxxxxxxx of any amounts payable (or
reimbursable) under Paragraph 5, or (iii) Xxxxxxxx must prepare responses to an
Internal Revenue Service ("IRS") audit of, or otherwise defend, his personal
income tax return for any year the subject of any such audit, or an adverse
determination, administrative proceedings or civil litigation arising therefrom
that is occasioned by or related to an audit by the IRS of Apple's income tax
returns, then Apple hereby unconditionally agrees:
(a) On written demand of Apple by Xxxxxxxx, to provide sums sufficient
to advance and pay on a current basis (either by paying directly or
by reimbursing Xxxxxxxx) not less than thirty (30) days after a
written request therefor is submitted by Xxxxxxxx, Xxxxxxxx'x out of
pocket costs and expenses (including attorney's fees, expenses of
investigation, travel, lodging, copying, delivery services and
disbursements for the fees and expenses of experts, etc.) incurred
by Xxxxxxxx in connection with any such matter;
(b) Xxxxxxxx shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction
without the necessity of posting any bond with respect thereto which
compels Apple to pay or advance such costs and expenses on a current
basis; and
(c) Apple's obligations under this Paragraph 6 will not be affected if
Xxxxxxxx is not the prevailing party in the final resolution of any
such matter.
7. Apple agrees to pay all legal and other fees, costs and expenses
incurred by Xxxxxxxx in connection with the termination of his employment with
Apple including fees, costs and expenses incurred by Xxxxxxxx in connection with
and the negotiation and implementation of this agreement and certain other
proposed but ultimately not consummated agreements.
8. Time is of the essence of this agreement. Overdue payments under this
agreement shall accrue interest at a rate of 18% per annum through the date of
full and complete payment. Any failure by Apple to pay any amounts due under
this agreement that continues for more than 10 business days shall constitute a
material breach by Apple of this agreement and all then remaining payable
pursuant to paragraph 2 of this agreement shall thereupon be accelerated and
shall be immediately due and payable.
9. Xxxxxxxx shall be indemnified by Apple with respect to his prior
employment with Apple to the maximum extent permitted by the laws of Delaware,
the state of Apple's incorporation, and the laws of the state of incorporation
of any subsidiary of Apple of which Xxxxxxxx is or at any time was a director,
officer, employee or consultant as same may be in effect from time to time.
10. Xxxxxxxx waives and releases all rights, claims, charges, demands and
causes of action against Apple, its predecessors, successors, parent companies,
subsidiaries and affiliates, and its officers, directors, employees, owners,
shareholders and agents, of any kind or character, both past and present, known
or unknown, including but not limited to those arising under the Age
Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of
1964, and the Employee Retirement Income Security Act of 1974, all as amended,
and any other state or federal statute, regulation or the common law (contract,
tort or other), which relate to Xxxxxxxx'x employment with Apple prior to May 4,
1998 or termination of such employment, including but not limited to any alleged
discriminatory or retaliatory employment practices, any matter relating to or
arising under the Employment Agreement or any other matter. Apple understands
and agrees that the foregoing waiver and release shall not serve to waive or
release any rights or claims that may arise after the date this agreement is
executed whether relating to this agreement or otherwise. Apple waives and
releases all rights, claims, charges, demands and causes of action against
Xxxxxxxx of any kind or character, both past and present, known or unknown,
arising under any state or federal statute, regulation or the common law
(contract, tort or other), which relate to Xxxxxxxx'x employment or termination
of such employment any matter relating to or arising under the Employment
Agreement or any other matter. Xxxxxxxx understands that the foregoing waiver
and release shall not serve to waive or release any rights or claims that may
arise after the date this agreement is executed whether relating to this
agreement or otherwise.
11. This agreement is entered into under and shall be governed for all
purposes by the laws of the State of Texas.
12. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time.
13. If a court of competent jurisdiction determines that any provision of
this agreement is invalid or unenforceable, then the invalidity or
unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this agreement, and all other
provisions shall remain in full force and effect.
14. This agreement and the rights and obligations of the parties hereunder
are personal, and neither this agreement nor any right, benefit, or obligation
of either party hereto shall be subject to voluntary or involuntary assignment,
alienation, or transfer, whether by operation of law or otherwise, without the
prior written consent of the other party.
15. This agreement represents the entire agreement between the parties
hereto with respect to the matters covered herein and may not be changed,
altered, or modified in any respect except by an instrument in writing signed by
both the parties hereto.
16. Except as specifically set forth in this agreement, Apple agrees that
any and all rights and benefits otherwise accruing to or benefitting Xxxxxxxx
under the terms of the Employment Agreement continue to be in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed this 20th day of May, 1998.
APPLE ORTHODONTIX, INC.
By: /s/ XXXX X. XXXXXXX
Xxxx X. Xxxxxxx, CEO
________________________________
Xxxxxx X. Xxxxxxxx
