EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into on December
9, 1996, by and between APPLE ORTHODONTIX, INC., a Delaware corporation (the
"Company") and XXXXXX X. XXXXXXXX (the "Employee").
R E C I T A L S:
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company as a senior executive
performing at the highest levels of leadership and stewardship, without
distraction or concern over minimum compensation, benefits or tenure, to develop
and implement the Company's initial development plan and thereafter assist in
managing the Company's future growth and development and maximizing the returns
to the Company's stockholders. Further, the Employee understands and agrees that
prior to the Effective Date, he shall work on behalf of Apple as a full-time
consultant.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. CERTAIN DEFINITIONS. As used herein, the following terms have
the meanings assigned to them below:
"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 the
Company, 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.
"ACTIVE STATUS" means the Employee's Employment status from
the Effective Date to and including the first to occur of (a)
the Part-time Employment Effective Date or (b) the Termination
Date.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any
Compensation Year means the sum of the salary and bonus earned
by the Employee during that Compensation Year, including all
amounts deferred at the election of the Employee pursuant to a
Compensation Plan intended to qualify as a plan under Section
401(k) of the Code or otherwise. If salary or bonus is paid in
whole or in part in property other than cash (such as Common
Stock) the amount so paid shall be the fair market value
thereof on the date of payment.
"ASSOCIATE" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than the Company or a
subsidiary of the Company) 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 and (C) any
relative or spouse of that Person, or any relative of that
spouse, who has the same home as that Person.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee
means, as of the Part-time Employment Effective Date, the
average of (a) the Annual Cash Compensation earned by the
Employee in each of the two (2) Compensation Years next
preceding that date or, if less than two (2) Compensation
Years have occurred prior to that date and since the Effective
Date, (b) the Annual Cash Compensation in each whole
Compensation Year, if any, and, restated on an annualized
basis, the Annual Cash Compensation in each partial
Compensation Year (up to a maximum of two (2) partial
Compensation Years) next preceding the Part-time Employment
Effective Date.
"BASE SALARY" means: (a) prior to the Part-time Employment
Effective Date, the guaranteed minimum annual salary payable
by the Company to the Employee pursuant to Section 4(A); and
(b) on and after
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the Part-time Employment Effective Date, the guaranteed
minimum annual salary payable by the Company to the Employee
pursuant to Section 5(E).
A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(a) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act
Rule 13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
(a) as a result of an agreement, arrangement or understanding
to vote that security if that agreement, arrangement or
understanding: (1) arises solely from a revocable proxy or
consent given in response to a public (that is, not including
a solicitation exempted by Exchange Act Rule 14a-2(b)(2))
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange
Act; and (2) is not then reportable by such Person on Exchange
Act Schedule 13D (or any comparable or successor report);
(b) which that Person or any of that Person's Affiliates
or Associates, directly or indirectly, has the right or
obligation to acquire (whether that right or obligation is
exercisable or effective immediately or only after the passage
of time or the occurrence of an event) pursuant to any
agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," securities
tendered pursuant to a tender or exchange offer made by that
Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or
exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of
the specified Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (a) of this definition) or disposing
of any voting securities of the Company or (2) any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which that
specified Person is a member; provided, however, that nothing
in this definition shall cause a Person engaged in business as
an underwriter of securities to be the "Beneficial Owner" of,
or to
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"beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment
underwriting until the expiration of forty (40) days after the
date of that acquisition. For purposes of this Agreement,
"voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to
corporate action (including, without limitation, calling a
stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in
respect of such security. "BOARD" means the entire Board of
Directors of the Company.
"BUSINESS REASON" for the Company's termination of the
Employee's Employment means any lawful reason other than
Cause.
"CAUSE" for the Company's termination of the Employee's
Employment means: (a) the Employee's final conviction of a
felony crime that enriched the Employee at the expense of the
Company; or (b) the Employee's deliberate and intentional
continuing failure to substantially perform his duties and
responsibilities hereunder (except by reason of the Employee's
incapacity due to physical or mental illness or injury) for a
period of forty-five (45) days after the Required Board
Majority has delivered to the Employee a written demand for
substantial performance hereunder which specifically
identifies the bases for the Required Board Majority's
determination that the Employee has not substantially
performed his duties and responsibilities hereunder (such
period being the "Grace Period"); provided, that for purposes
of this clause (b), the Company shall not have Cause to
terminate the Employee's Employment unless (1) at a meeting of
the Board called and held following the Grace Period in the
city in which the Company's principal executive offices are
located of which the Employee was given not less than ten (10)
days' prior written notice and at which the Employee was
afforded the opportunity to be represented by counsel, appear
and be heard, the Required Board Majority shall adopt a
written resolution which (A) sets forth the Required Board
Majority's determination that the failure of the Employee to
substantially perform his duties and responsibilities
hereunder has (except by reason of his incapacity due to
physical or mental illness or injury) continued past the Grace
Period and (B) specifically identifies the bases for that
determination and (2) the Company, at the written direction of
the Required Board Majority, shall deliver to the Employee a
Notice of Termination for Cause to which a copy of that
resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is
attached. Cause of the type referred to in clause (a) of the
preceding sentence is a "Type I Cause," while Cause of the
type referred to in clause (b) of the preceding sentence is a
"Type II Cause." For purposes of determining whether a Type II
Cause has occurred, no act or failure to act on the part of
the Employee shall be considered "deliberate
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and intentional" unless it is taken or omitted to be taken by
the Employee in bad faith or without a reasonable belief that
the Employee's act or omission was in the best interests of
the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (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 the Company with or
into, or a sale by the Company 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.
"CHANGE OF CONTROL PAYMENT" means at any time the amount equal
to three (3) times the Employee's then highest Base Salary
during the term of this Agreement.
"CODE" means the Internal Revenue Code of 1986.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means (a) APPLE ORTHODONTIX, INC., a Delaware
corporation, and (b) any Person that assumes the obligations
of "the Company" hereunder, by operation of law, pursuant to
Section (D)(iii) or otherwise.
"COMPENSATION PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or
sponsored by the Company or any subsidiary of the Company, or
to which the Company or any subsidiary of the Company
contributes, on behalf of any Executive Officer or any member
of the family of any Executive Officer, (a) including (I) any
"employee pension benefit plan" (as defined in Section 3(2) of
ERISA) or other "employee benefit plan" (as defined in Section
3(3) of ERISA), (ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any
plan intended to be qualified under Section 401(a) of the Code
or whose benefits are limited by the Code or ERISA, (iii) any
"employee welfare plan" (as defined in Section 3(1) of ERISA),
(iv) any arrangement, plan, policy, practice or program
providing for severance pay, deferred compensation or
insurance benefit, (v) any Incentive Plan and (vi) any
arrangement, plan, policy, practice or program (A) authorizing
and providing for the payment or
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reimbursement of expenses attributable to first-class air
travel and first-class hotel occupancy while on travel or (B)
providing for the payment of business luncheon and country
club dues, long-distance charges, mobile phone monthly air
time or other recurring monthly charges or any other fringe
benefit, allowance or accommodation of employment, but (b)
excluding any compensation arrangement, plan, policy, practice
or program to the extent it provides for annual base salary.
"COMPENSATION COMMITTEE" means the committee of the Board to
which the Board has delegated duties respecting the
compensation of Executive Officers and the administration of
Incentive Plans, if any, intended to qualify for the Exchange
Act Rule 16b-3 exemption.
"COMPENSATION YEAR" means any calendar year.
"CONFIDENTIAL INFORMATION" means, with respect to the Company
or any subsidiary of the Company, all trade secrets and other
confidential, nonpublic and/or proprietary information of that
Person, including information derived from reports,
investigations, research, work in progress, codes, marketing
and sale programs, customer lists, records of customer service
requirements, capital expenditure projects, cost summaries,
pricing formulae, contract analyses, financial information,
projections, confidential filings with any governmental
authority and all other confidential, nonpublic concepts,
methods of doing business, ideas, materials or information
prepared or performed for, by or on behalf of that Person.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers--All Items Index for Houston, Texas (or any
substantially similar index published for the same area), as
published by the United States Department of Labor, Bureau of
Labor Statistics (or its successor) for that period.
"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 the IPO Closing Date 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.
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"DISABILITY" of the Employee means the Employee has been
determined (which determination shall be final and binding on
all persons, absent manifest error), as a result of a physical
or mental illness or personal injury he has incurred
(including illness or injury resulting from any substance
abuse), by a Qualified Physician (who may be the doctor
treating or otherwise acting as the Employee's doctor in
connection with the illness or injury in question) selected by
the Employee with the consent of the Company, or by the
Company with the consent of the Employee (which consent shall
not be unreasonably withheld in either case), to be unable to
perform, at the time of that determination and, in all
reasonable medical likelihood, indefinitely thereafter, the
normal duties then most recently assigned, under and in
accordance with the terms hereof, to the Employee while on
Active Status; provided that, the determination whether the
Employee has incurred a Disability shall be made by a majority
of three (3) Qualified Physicians, (a) one (1) of whom shall
be selected by the Employee, (b) one (1) of whom shall be
selected by the Company and (C) the remaining one (1) of whom
shall be selected by the Qualified Physicians selected by the
Employee and the Company pursuant to clauses (a) and (b) of
this proviso and the fees and expenses of whom will be shared
and paid in equal amounts by the Employee and the Company, if:
(1)(A) the Company has reasonably withheld its consent to the
Qualified Physician, if any, selected by the Employee or (B)
the Employee has reasonably withheld his consent to the
Qualified Physician, if any, selected by the Company and (2)
the Qualified Physicians selected by the Employee and the
Company disagree as to whether the Employee has incurred a
Disability. For purposes of this definition, if the Employee
is unable by reason of illness or injury to give an informed
consent to the performance of the treatment of that illness or
injury, a Qualified Physician selected by any Person who is
authorized by applicable law to give that consent will be
deemed to have been selected by the Employee.
"EFFECTIVE DATE" means the date that the Registration
Statement on Form S-1, relating to an unwritten initial public
offering of the Company's Common Stock (the "IPO"), is filed
initially with the Securities and Exchange Commission.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"EMPLOYMENT" means the salaried employment of the Employee by
the Company or a subsidiary of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the
chief financial
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officer, the president, any executive or senior vice president
or the general counsel of the Company.
"EXEMPT PERSON" means (a) (1) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of
any subsidiary of the Company and (2) any Person organized,
appointed or established by the Company 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 the
Company or any subsidiary of the Company and (b) the Employee,
any Affiliate or Associate of the Employee or any group (as
that term is used in Exchange Act Rule 13d-5(b)) of which the
Employee or any Affiliate or Associate of the Employee is a
member.
"GOOD REASON" for the Employee's termination of his Employment
means: (a) any violation hereof in any material respect by the
Company; (b) either (1) a failure of the Company to continue
in effect any Compensation Plan in which the Employee was
participating or (2) the taking of any action by the Company
which would adversely affect the Employee's participation in
or materially reduce the Employee's Benefits under, any such
Compensation Plan, unless (A) in the case of either subclause
(1) or (2) of this clause, there is substituted a comparable
Compensation Plan that is at least economically equivalent, in
terms of the benefit offered to the Employee, to the
Compensation Plan being ended or in which the Employee's
participation is being adversely affected or the Employee's
benefits are being materially reduced or (B) in the case of
that subclause (1), the failure, or in the case of that
subclause (2), the taking of action, adversely affects
Executive Officers generally; or (C) the assignment to the
Employee of duties inconsistent in any material respect with
the Employee's then current positions (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities or any other action by the Company which
results in a material diminution in those positions,
authority, duties or responsibilities.
"INCENTIVE PLAN" means any compensation arrangement, plan,
policy, practice or program established, maintained or
sponsored by the Company or any subsidiary of the Company, or
to which the Company or any subsidiary of the Company
contributes, on behalf of any Executive Officer and which
provides for incentive, bonus or other performance-based
awards of cash, securities or the phantom equivalent of
securities, including any stock option, stock appreciation
right and restricted stock plan, but excluding any plan
intended to qualify as a plan under any one or more of
Sections 401(a), 401(k) or 423 of the Code.
"IPO" means the first time a registration statement filed
under the Securities Act and respecting an underwritten
primary offering by the
8
Company of shares of Common Stock is declared effective under
that act and the shares registered by that registration
statement are issued and sold by the Company (otherwise than
pursuant to the exercise of any over-allotment option).
"IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in
the IPO.
"NONTERMINATING PARTY" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a
Notice of Termination.
"NOTICE OF TERMINATION" to or from the Employee means a
written notice that: (a) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's Employment,
and if the Termination Date is other than the date of receipt
of the notice, (b) sets forth that Termination Date.
"OUTSIDE DIRECTOR" means at any time a member of the Board at
that time who is not then an employee of the Company or any
subsidiary of the Company.
"PART-TIME EMPLOYMENT EFFECTIVE DATE" means, (a) if the
Company elects pursuant to any applicable provision hereof to
terminate the Employee's Employment other than for Cause or
(b) if the Employee elects pursuant to the applicable
provision hereof to terminate his Employment for Good Reason
or by reason of his Disability, the date the Nonterminating
Party receives the Terminating Party's Notice of Termination.
"PART-TIME EMPLOYMENT PERIOD" means the period of time which
begins on the Part-time Employment Effective Date and ends on
the first to occur of (a) the third (3rd) anniversary of that
Part-time Employment Effective Date, (b) the termination by
the Company of the Employee's Employment for Type I Cause or
(C) the death or Retirement of the Employee.
"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.
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"QUALIFIED PHYSICIAN" means, in the case of any determination
whether the Employee has sustained a Disability, a physician
(a) holding an M.D. degree from a medical school located in
the United States and having a national reputation in the
United States as a leading medical school, (b) specializing
and board-certified in the treatment of the injury or illness
that has or may have caused that Disability, (C) licensed to
practice that specialty in the State of Texas or the state in
which the Employee then is domiciled and (d) having admission
privileges to one or more private hospitals located in the
Texas Medical Center in Houston, Texas or in a hospital of
comparable reputation in the state in which the Employee then
is domiciled.
"REQUIRED BOARD MAJORITY" means at any time a majority of the
members of the Board at that time which includes at least a
majority of the Outside Directors at that time.
"RETIREMENT" of the Employee means the Employee terminates his
Employment on or after the date he has attained age 65.
"SECURITIES ACT" means the Securities Act of 1933.
"TERMINATING PARTY" means the Employee or the Company, as the
case may be, who or which terminates the Employee's Employment
by means of a Notice of Termination.
"TERMINATION DATE" means: (a) if the Employee's Employment is
terminated by reason of the Employee's death or Retirement,
the date of that death or Retirement; (b) if the Employee's
Employment is terminated by reason of the Employee's giving a
Notice of Termination following a Change of Control pursuant
to Section 5(B)(I)(b), the first date on which the Company
pays to the Employee in full the amounts owed to the Employee
pursuant to Section 5(B)(iii); (C) if the Employee's
Employment is terminated by reason of the Employee's giving a
Notice of Termination without Good Reason and other than for
Disability pursuant to Section 5(B)(I)(c), the elapse of the
thirtieth (30th) day after the Company receives that notice;
(d) if the Employee's Employment is terminated by the Company
at any time for Type I Cause or, prior to the Part-time
Employment Effective Date, at any time for Type II Cause, the
date the Employee receives the Company's Notice of Termination
for Cause; and (e) if the Employee's Employment is terminated
for any other reason, at the expiration of the Part-time
Employment Period.
"TYPE I CAUSE" means Cause of the type referred to in clause
(a) of the definition of Cause herein.
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"TYPE II CAUSE" means Cause of the type referred to in clause
(b) of the definition of Cause herein.
"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.
B. OTHER DEFINITIONAL PROVISIONS.
(i) Except as otherwise specified herein, all references
herein to any statute defined or referred to herein, including
the Code, ERISA and the Exchange Act, shall be deemed
references to that statute or any successor statute, as the
same may have been or may be amended or supplemented from time
to time, and any rules or regulations promulgated thereunder.
(ii) When used in this Agreement, the words "herein," "hereof"
and "hereunder" and words of similar import shall refer to
this Agreement as a whole and not to any provision of this
Agreement, and the word "Section" refers to a Section of this
Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one
gender includes each other gender and the neuter.
(iv) The word "including" (and, with correlative meaning, the
word "include") means including, without limiting the
generality of any description preceding such word, and the
words "shall" and "will" are used interchangeably and have the
same meaning.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company
will employ the Employee as its President and the Employee
will serve in the Company's employ in that position. The
Employee shall perform such duties, and have such powers,
authority, functions, duties and responsibilities for the
Company and corporations affiliated with the Company as are
commensurate and consistent with his employment as the
Company's President. The Employee also shall have such
additional powers, authority, functions, duties and
responsibilities as may be assigned to him by the Board;
provided that, without the Employee's written consent, such
additional powers, authority, functions, duties and
responsibilities shall not
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be inconsistent or interfere with, or detract from, those
herein vested in, or otherwise then being performed for the
Company by the Employee.
B. The Employee shall not, at any time during his Employment,
engage in any other activities unless those activities do not
interfere materially with the Employee's duties and
responsibilities for the Company at that time, except that the
Employee shall be entitled, subject to the provisions of
Section 7, (a) to continue with such activities as the
Employee has carried on prior to the Effective Date, including
making and managing his personal investments and participating
in other business or civic activities and (b) to serve on
corporate or other business, civic or charitable boards or
committees and trade association or similar boards or
committees.
3. TERM OF EMPLOYMENT. Subject to the provisions of Section 5, the term of
the Employee's Employment shall be for a continually renewing term of three (3)
years commencing on the Effective Date and renewing each day thereafter for an
additional day without any further action by either the Company or the Employee,
it being the intention of the parties that there shall be continuously a
remaining term of three (3) years' duration of the Employee's Employment until
an event has occurred as described in, or one of the parties shall have made an
appropriate election pursuant to, the provisions of Section 5. When the
Termination Date shall have occurred and the Company shall have paid to the
Employee all the applicable amounts Section 5 provides the Company shall pay as
a result of the termination of the Employee's Employment, including all amounts
accruing during the Part-time Employment Period, if any, this Agreement will
terminate and have no further force or effect, except that Sections 4(C), 8, 9,
10 and 11 shall survive that termination indefinitely and Section 7 shall
survive for the period of time provided for therein.
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee by
the Company as a guaranteed minimum annual amount hereunder
for each Compensation Year during the period from the
Effective Date to the first to occur of the Part-time
Employment Effective Date or the Termination Date. That Base
Salary shall be payable in the intervals consistent with the
Company's normal payroll schedules (but in no event less
infrequently than semi-monthly), shall be payable initially at
the annual rate of $150,000 and shall be increased (but not
decreased or adjusted other than as provided in Section 5) as
follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the same percentage increase (if any) in
the CPI for the twelve (12) month period immediately preceding
such anniversary;
(ii) on the first and each subsequent anniversary of the
Effective Date, by such additional amount as shall be
determined in the sole discretion of
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the Compensation Committee, but only in such form and to such
extent as the Compensation Committee may from time to time
approve, as evidenced by the written minutes or records of the
Compensation Committee and its written notices of such
determinations or approvals to the Employee; and
(iii) if the Employee relocates from a state without a
personal income tax at the time of his relocation to a state
having a personal income tax, or if the Employee resides in a
state without a personal income tax on the date hereof which
subsequently adopts a personal income tax, then, in either
case, the Base Salary in effect at the time of such relocation
or adoption, as applicable, shall immediately be increased by
the amount equal to the Base Salary immediately prior to this
increase multiplied by seventy percent (70%) of the highest
personal income tax rate of such state; for example, if the
Employee relocates from a state without a personal income tax
to a state having a personal income tax and the highest rate
of that tax is six percent (6%) when the Base Salary is
$200,000, then the Base Salary will be increased by $8,400
(computed at 70% x 6% x $200,000); provided, however, that the
obligation of the Company to pay the Base Salary earned by the
Employee for his service in the period beginning on the
Effective Date and ending on the date that is the first to
occur of (a) the IPO Closing Date, (b) the Termination Date or
(C) such other date as the Board in its sole discretion may
determine shall be deferred to the last day of that period in
such amounts as the Board in its sole discretion may from time
to time determine, on which day the Company shall pay in full
to the Employee, without interest, the aggregate earned but
unpaid amount of the Base Salary for that period. Effective as
of the Part-time Employment Effective Date, the Base Salary
theretofore in effect shall be adjusted as provided in Section
5(E).
B. OTHER COMPENSATION.
(I) The Employee shall be entitled to participate in all
Compensation Plans from time to time in effect while he
remains on Active Status, regardless of whether the Employee
is an Executive Officer. All awards to the Employee under all
Incentive Plans shall take into account the Employee's
positions with and duties and responsibilities to the Company
and its subsidiaries.
(ii) The Company shall grant to the Employee 40 shares of
it's pre- IPO common stock subject to a subscription
agreement.
13
C. TAX INDEMNITY. Should any of the payments of Base Salary,
other incentive or supplemental compensation, benefits,
allowances, awards, payments, reimbursements or other
perquisites, or any other payment in the nature of
compensation, singly, in any combination or in the aggregate,
that are provided for hereunder to be paid to or for the
benefit of the Employee be determined or alleged to be subject
to an excise or similar purpose tax pursuant to Section 4999
of 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), the
Company shall pay to the Employee such additional compensation
as is necessary (after taking into account all federal, state
and local taxes payable by the Employee as a result of the
receipt of such additional compensation) to place the Employee
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. The Company hereby agrees to pay such
additional compensation within the earlier to occur of (I)
five (5) business days after the Employee notifies the Company
that the Employee 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 the Employee's tax
counsel (such tax counsel to be chosen solely by the Employee)
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 the Company 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 the Company, and as
long as such tax counsel was chosen by the Employee in good
faith, the conclusions reached in such opinion shall not be
challenged or disputed by the Company. If the Employee intends
to make any payment with respect to any such excise or similar
purpose tax as a result of an adjustment to the Employee's tax
liability by any federal, state or local tax authority, the
Company will pay such additional compensation by delivering
its cashier's check payable in such amount to the Employee
within five (5) business days after the Employee notifies the
Company of his intention to make such payment. Without
limiting the obligation of the Company hereunder, the Employee
agrees, in the event the Employee makes any payment pursuant
to the preceding sentence, to negotiate with the Company in
good faith with respect to procedures reasonably requested by
the Company which would afford the Company the ability to
contest the imposition of such excise or similar purpose tax;
provided, however, that the Employee will not be required to
afford the Company any right to contest the applicability of
any such excise or similar purpose tax to the extent that the
Employee reasonably determines (based upon the opinion of his
tax counsel) that such contest is inconsistent with the
overall tax interests of the Employee.
14
5. TERMINATION, PART-TIME EMPLOYMENT PERIOD, DISABILITY AND
DEATH
A. TERMINATION OF EMPLOYMENT BY THE COMPANY.
(i) The Company shall be entitled, if acting at the direction
of the Required Board Majority, to terminate the Employee's
Employment (a) at any time for Type I Cause or (b) at any time
prior to the Part-time Employment Effective Date for Type II
Cause or for any Business Reason. If the Employee is neither a
member of the Board nor an Executive Officer, the Company
shall be entitled, if acting at the direction of the chief
executive officer of the Company, to terminate the Employee's
Employment at any time prior to the Part-time Employment Date
for any Business Reason. The Company's termination of the
Employee's Employment for Cause will be effective on the date
the Company delivers a Notice of Termination for Cause to the
Employee pursuant to this Section 5(A)(I)(together, in the
case of a termination for Type II Cause, with the certified
resolution referred to in clause (b) of the definition herein
of Cause), while the Company's termination of the Employee's
Employment for a Business Reason will be effective on the
third (3rd) anniversary of the date the Company delivers a
Notice of Termination for a Business Reason to the Employee
pursuant to this Section 5(A)(I).
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event
within five (5) business days thereafter, shall pay the
Employee his Base Salary to and including the Termination Date
and the amount of all compensation previously deferred by the
Employee (together with any accrued interest or earnings
thereon), in each case to the extent not theretofore paid,
and, when that payment is made, the Company shall,
notwithstanding Section 3, have no further or other
obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason, the respective rights and obligations of
the Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
B. TERMINATION OF EMPLOYMENT BY THE EMPLOYEE.
(i) The Employee shall be entitled to terminate his Employment
(a) for a Good Reason at any time within one hundred eighty
(180) days after the facts or circumstances constituting that
Good Reason first exist and are known to the Employee, (b) by
reason of a Change of Control at any time within three hundred
sixty-five (365) days after that Change of Control
15
occurs (provided, however, that the Employee shall not be
entitled to terminate his Employment by reason of that Change
of Control if it occurs (1) during the thirty (30) day period
following the Company's receipt of the Employee's Notice of
Termination without Good Reason and other than for Disability
pursuant to this Section 5(B)(I), (2) after (A) the receipt by
the Nonterminating Party of the Terminating Party's Notice of
Termination pursuant to Section 5 (C) or (B) the Employee's
receipt of the Company's Notice of Termination for a Business
Reason (other than in connection with that Change of Control)
pursuant to Section 5(A) or (3) more than three hundred
sixty-five (365) days after the Company's receipt of the
Employee's Notice of Termination for Good Reason pursuant to
this Section 5(B)(I)) or (C) without Good Reason and other
than for Disability at any time. The Employee's termination of
his Employment for Good Reason will be effective on the third
(3rd) anniversary of the date the Employee delivers a Notice
of Termination for Good Reason to the Company pursuant to this
Section 5(B)(I). The Employee's termination of his Employment
by reason of a Change of Control will be effective on the
first date on which the Change of Control Payment shall have
been paid in full to the Employee. The Employee's termination
of his Employment without Good Reason and other than for
Disability will be effective on the thirtieth (30th) day
following the Employee's delivery of a Notice of Termination
without Good Reason and other than for Disability pursuant to
this Section 5(B)(I).
(ii) If the Employee terminates his Employment for Good
Reason, the respective rights and obligations of the Company
and the Employee during the Part-time Employment Period will
be as set forth in Section 5(E).
(iii) If the Employee terminates his Employment by reason of a
Change of Control, the Company shall pay to the Employee in a
cash lump sum within five (5) business days after the date the
Company receives the Employee's Notice of Termination by
reason of that Change of Control the amount equal to the sum
of (a) the portion of the Base Salary to and including the
Termination Date which has not yet been paid, (b) all
compensation previously deferred by the Employee (together
with any accrued interest and earnings thereon), (C) any
accrued but unpaid vacation pay and (d) the Change of Control
Payment.
(iv) If the Employee terminates his Employment without Good
Reason and other than for Disability, the Company shall pay to
the Employee, in a cash lump sum within five (5) business days
after the Termination Date, the amount equal to the sum of (a)
the portion of the Base Salary to and including the
Termination Date which has not yet been paid, (b) all
compensation previously deferred by the Employee (together
with any accrued interest and earnings thereon) which has not
yet been paid, (C) any
16
accrued but unpaid vacation pay and (d) the amount equal to
fifty percent (50%) of the Base Salary being paid for the
Compensation Year in which the Company receives the Employee's
Notice of Termination without Good Reason and other than for
Disability; provided, however, that if the Employee terminates
his Employment without Good Reason and other than for
Disability within six (6) months of the theretofore scheduled
final day of the Part-time Employment Period, the amount
payable pursuant to clause (d) of this sentence shall be the
amount determined pursuant to that clause multiplied by a
fraction the numerator of which is the number of days from and
excluding the date the Company receives the Notice of
Termination to and including that final day and the
denominator of which is one hundred eighty-two (182). For
purposes of this Section 5(B)(iv), if the anniversary of the
Effective Date in the Compensation Year in which the Company
receives the Notice of Termination without Good Reason and
other than for Disability has not occurred on or prior to the
date of that receipt, the Base Salary for that Compensation
Year will be calculated on the assumption that no increase in
the amount thereof would be made effective as of that
anniversary pursuant to Section 4(A) or 5(E)(I), as
applicable.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability while on Active Status, either the Employee or
the Company may terminate the Employee's Employment effective
on the third (3rd) anniversary of the date the Nonterminating
Party receives a Notice of Termination from the Terminating
Party pursuant to this Section 5(C). If the Employee's
Employment is terminated by reason of the Employee's
Disability, the respective rights and obligations of the
Company and the Employee during the Part-time Employment
Period will be as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's
Employment shall terminate automatically at the time of his
death. If the Employee's Employment is terminated by reason of
the Employee's death, the Company shall pay to the Person the
Employee has designated in a written notice delivered to the
Company as his beneficiary entitled to such payment, if any,
or to the Employee's estate, as applicable, in a cash lump sum
within thirty (30) days after the Termination Date, the amount
equal to the sum of (I) the portion of the Base Salary through
the end of the month in which the Termination Date occurs
which has not yet been paid, (ii) all compensation previously
deferred by the Employee (together with any accrued interest
or earnings thereon) which has not yet been paid, (iii) any
accrued but unpaid vacation pay (if the Employee dies while on
Active Status) and (iv) (a) if the Employee dies while on
Active Status, the product of (1) the Base Salary being paid
for the Compensation Year in which he dies multiplied by (2)
three (3) or (b) if the Employee dies
17
during the Part-time Employment Period, the product of (1)
one-twelfth (1/12th) of the Base Salary being paid for the
Compensation Year in which the Employee dies multiplied by (2)
the number of whole and partial calendar months in the period
beginning with the first calendar month after the calendar
month in which he dies and ending with the last calendar month
in which the Termination Date would have occurred if the
Employee's Employment were to have continued to the end of the
Part-time Employment Period. For purposes of this Section
5(D), if the anniversary of the Effective Date in the
Compensation Year in which the Employee dies has not occurred
on or before the Termination Date, the Base Salary for that
Compensation Year will be calculated on the assumption that no
increase in the amount thereof would be made effective as of
that anniversary pursuant to Section 4(A) or 5(E)(I), as
applicable.
E. EMPLOYEE'S RIGHTS DURING THE PART-TIME EMPLOYMENT
PERIOD.
(i) The Company shall pay the Employee a Base Salary, in the
intervals consistent with the Company's normal payroll
schedules (but in no event less frequently than semi-monthly)
from the Part-time Employment Effective Date to and including
the Termination Date in the amounts determined from time to
time as follows: Effective as of the Part-time Employment
Effective Date, the Base Salary payable by the Company to the
Employee for the period from and including that date to and
excluding the third (3rd) anniversary of that date shall be as
follows:
(a) if the Part-time Employment Effective Date occurs as
a result of the receipt by the Nonterminating Party of a
Notice of Termination for a Business Reason pursuant to
Section 5(A) or a Notice of Termination for Good Reason
pursuant to Section 5(B)(I), the amount equal to the
Average Annual Cash Compensation of the Employee
determined as of the Part-time Employment Effective
Date; and (b) if the Part-time Employment Effective Date
occurs as a result of the receipt by the Nonterminating
Party of a Notice of Termination for Disability pursuant
to Section 5(C), the amount equal to the amount by which
(1) seventy-five percent (75%) of the Average Annual
Cash Compensation of the Employee determined as of the
Part-time Employment Effective Date exceeds (2) the
aggregate amount of periodic payments the Employee
receives during the twelve (12) months beginning on that
date under Compensation Plans then in effect and
providing for the payment to the Employee solely as a
result or on account of disability; and
18
(b) on the first and each subsequent anniversary of the
Part-time Employment Effective Date, the Base Salary
payable pursuant to this Section 5(E) shall be increased
(but not decreased) by the same percentage increase (if
any) in the CPI for the twelve (12) month period
immediately preceding that anniversary.
(ii) (a) The Employee shall continue to participate in all
Compensation Plans from time to time in effect during
the Part-time Employment Period, provided, however,
that: (1) the Employee shall not be entitled to receive
any new award or grant under any Incentive Plan, and any
such new award or grant shall be at the sole discretion
of the Compensation Committee or the Board, as
applicable, with respect to that Incentive Plan; and (2)
if (A) the terms of any such plan preclude the
Employee's continued participation therein or (B) his
continued participation in any such plan would or
reasonably could be expected to disqualify that plan
under the Code, the Employee shall not be entitled to
participate in that plan, but the Company instead shall
provide the Employee with the after-tax equivalent of
the benefits that would have been provided to the
Employee were he a participant in that plan.
(b) For purposes of determining eligibility (including
years of service) for retirement benefits payable under
any Compensation Plan, the Employee shall be deemed to
have retired at the Termination Date.
(iii) Subject to the provisions of Section 7, the Employee
shall not be (A) prevented from accepting other employment or
engaging in (and devoting substantially all his time to) other
business activities or (B) required to perform any regular
duties for the Company (except to provide such services
consistent with the Employee's educational background,
experience and prior positions with the Company as may be
acceptable to the Employee) or to seek or accept additional
employment with any other Person. If the Employee, at his
discretion, shall accept any such additional employment or
engage in any such other business activity there shall be no
offset, reduction or effect upon any rights, benefits or
payments to which the Employee is entitled pursuant to this
Agreement. Furthermore, the Employee shall have no obligation
to account for, remit, rebate or pay over to the Company any
compensation or other amounts earned or derived in connection
with such additional employment or business activity.
The Employee shall, however, make himself generally
available for special projects or to consult with the Company
and its employees at such
19
times and at such places as may be reasonably requested by the
Company and which shall be reasonably satisfactory to the
Employee and consistent with the Employee's regular duties and
responsibilities in the course of his then new occupation or
other employment, if any.
(iv) Unless and until the Employee shall have sustained a
Disability, the Company shall continue to provide the Employee
with either the same or, at the Company's election, at a
different location within thirty-five (35) miles of the
Employee's principal residence, in any case reasonably
acceptable to the Employee, alternate but comparable office
space, furnishings, facilities, reserved parking, supplies,
services, equipment, secretarial and administrative assistance
that are in each case at least commensurate with the size and
quality of that which were provided to the Employee during the
Compensation Year immediately preceding the Part-time
Employment Effective Date pursuant to Section 6(C), but in no
event less than are being furnished or provided on the date
hereof. The Company and Employee may mutually agree upon an
equivalent monthly cash allowance in lieu of the Employee
being provided all or any part of these items.
(v) The Employee shall remain entitled to the benefits of
Section 4(C).
F. RETURN OF PROPERTY. On termination of the Employee's
Employment, however brought about, the Employee (or his
representatives) shall promptly deliver and return to the
Company all the Company's property that is in the possession
or under the control of the Employee.
G. STOCK OPTIONS. Notwithstanding any provision of this Agreement
to the contrary: (I) except in the case of a termination of
the Employee's Employment for Cause, all stock options
previously granted to the Employee under Incentive Plans that
have not been exercised and are outstanding as of the time
immediately prior to the Termination Date shall,
notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding (and continue to become
exercisable pursuant to their respective terms) until
exercised or the expiration of their term, whichever is
earlier; and (ii) in the case of a termination of the
Employee's Employment for Cause, all stock options previously
granted to the Employee under Incentive Plans that have not
been exercised and are outstanding as of the time immediately
prior to the Termination Date shall, notwithstanding any
contrary provision of any applicable Incentive Plan, remain
outstanding and continue to be exercisable until exercised or
the date that is ten (10) days after the Termination Date,
whichever is earlier. No stock option previously granted to
the Employee under any Incentive Plan shall, notwithstanding
any contrary provision of that
20
Incentive Plan, expire or fail to become exercisable or, if
exercisable, cease to be exercisable by reason of either (I)
the occurrence of the Employee's Part-time Employment
Effective Date or (ii) the Employee's service during the
Employee's Part-time Employment Period being less than
full-time.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to not
less than four (4) weeks of annual vacation and all legal
holidays during which times his applicable compensation shall
be paid in full.
B. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all
reasonable expenses incurred by the Employee in performing his
duties and carrying out his responsibilities hereunder,
including business meal, entertainment and travel expenses,
provided that the Employee complies with the applicable
policies, practices and procedures of the Company relating to
the submission of expense reports, receipts or similar
documentation of those expenses. The Company shall either pay
directly or promptly reimburse the Employee for such expenses
not more than twenty (20) days after the submission to the
Company by the Employee from time to time of an itemized
accounting of such expenditures for which direct payment or
reimbursement is sought. Unpaid reimbursements after such
twenty (20) day period shall accrue interest in accordance
with Section 9(K).
C. SUPPORT. While on Active Status, the Employee shall be
provided by the Company with office space, furnishings, and
facilities, reserved parking, secretarial and administrative
assistance, supplies and other support equipment (including a
computer, facsimile machine and photocopier). .
7. COVENANT NOT TO COMPETE
A. The Employee recognizes that in each of the highly competitive
businesses in which the Company is engaged, personal contact
is of primary importance in securing new orthodontic practices
and in retaining the accounts and goodwill of present
practices and protecting the business of the Company. The
Employee, therefore, agrees that during the term of his
Employment and for a period of one (1) year after the
Termination Date, he will not, within fifty (50) miles of the
geographic location in which the he has devoted substantial
attention at such location to the material business interests
of the Company: (i) accept employment or render service to any
Person that is engaged in a business directly
21
competitive with the business then engaged in by the Company
or (ii) enter into or take part in or lend his name, counsel
or assistance to any business, either as proprietor,
principal, investor, partner, director, officer, employee,
consultant, advisor, agent, independent contractor, or in any
other capacity whatsoever, for any purpose that would be
competitive with the business of the Company.
B. If the provisions of this Section 7 are violated in any
material respect, the Company shall be entitled, upon
application to any court of proper jurisdiction, to a
temporary restraining order or preliminary injunction (without
the necessity of posting any bond with respect thereto) to
restrain and enjoin the Employee from that violation. If the
provisions of this Section 7 should ever be deemed to exceed
the time, geographic or occupational limitations permitted by
the applicable law, the Employee and the Company agree that
such provisions shall be and are hereby reformed to the
maximum time, geographic or occupational limitations permitted
by the applicable law.
8. CONFIDENTIAL INFORMATION
A. The Employee acknowledges that he has had and will continue to
have access to various Confidential Information. The Employee
agrees, therefore, that he will not at any time, either while
employed by the Company or afterwards, knowingly make any
independent use of, or knowingly disclose to any other person
(except as authorized by the Company) any Confidential
Information. Confidential Information shall not include (i)
information that becomes known to the public generally through
no fault of the Employee, (ii) information required to be
disclosed by law or legal process or the order of any
governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause
(ii), the Employee shall, if possible, give prior written
notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure, or (iii) the Employee
reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the Employee.
In the event of a breach or threatened breach by the Employee
of the provisions of this Section 8(A) with respect to any
Confidential Information, the Company shall be entitled to a
temporary restraining order and a preliminary and permanent
injunction (without the necessity of posting any bond in
connection therewith) restraining the Employee from
disclosing, in whole or in part, that Confidential
Information. Nothing herein shall be construed as prohibiting
the Company from pursuing any other available remedy for that
breach or threatened breach, including the recovery of
damages.
22
B. The Employee shall disclose promptly to the Company any and
all conceptions and ideas for inventions, improvements, and
valuable discoveries, whether patentable or not, which are
conceived or made by the Employee solely or jointly with any
other Person or Persons during the period of his Employment
and which pertain primarily to the material business
activities of the Company, and the Employee hereby assigns and
agrees to assign all his interests therein to the Company or
to its nominee; whenever requested to do so by the Company,
the Employee shall execute any and all applications,
assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters of Patent of the
United States or any foreign country or to otherwise protect
the Company's interest therein. These obligations shall (I)
continue beyond the Termination Date with respect to
inventions, improvements, and valuable discoveries, whether
patentable or not, conceived, made or acquired by the Employee
during the period of his Employment and (ii) be binding upon
the Employee's assigns, executors, administrators and other
legal representatives.
9. GENERAL PROVISIONS
A. SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held or found by final
judgment of a court of competent jurisdiction to be invalid,
illegal or unenforceable in any respect, (i) such invalidity,
illegality or unenforceability shall not affect any other
provisions of this Agreement, (ii) this Agreement shall be
construed as if such invalid, illegal or unenforceable
provision had never been contained herein (except that this
clause (ii) shall not prohibit any modification allowed under
Section 7(B)), and (iii) if the effect of a holding or finding
that any such provision is invalid, illegal or unenforceable
is to modify to the Employee's detriment, reduce or eliminate
any compensation, reimbursement, payment, allowance or other
benefit to the Employee intended by the Company and Employee
in entering into this Agreement, the Company shall, within
thirty (30) days after the date of such finding or holding,
negotiate and expeditiously enter into an agreement with the
Employee which contains alternative provisions (reasonably
acceptable to the Employee) that will restore to the Employee
(to the extent lawfully permissible) substantially the same
economic, substantive and income tax benefits and legal rights
the Employee would have enjoyed had such provision been upheld
as legal, valid and enforceable.
B. NONEXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any
Compensation Plan or, subject to Section 9(N), limit or
otherwise affect such rights as the Employee may have under
any other contract or agreement with the
23
Company. Vested benefits and other amounts to which the
Employee is or becomes entitled to receive under any
Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as
expressly modified hereby.
C. FULL SETTLEMENT. The Company's obligations to make the
payments provided for in, and otherwise to perform its
undertakings in, this Agreement shall not be affected by any
right of set-off, counterclaim, recoupment, defense or other
action, claim or right the Company may have against the
Employee or others. In no event shall the Employee be
obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Employee under
any provision hereof, and those amounts shall not be reduced,
regardless of whether the Employee obtains other employment or
becomes self-employed.
D. SUCCESSORS.
(i) This Agreement is personal to the Employee and, without
the prior written consent of the Company, is not assignable by
the Employee otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit and be
enforceable by the Employee's legal representatives acting in
their capacities as such pursuant to applicable law.
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. If
the Employee is not an Executive Officer, but is an officer of
a subsidiary of the Company, the Company shall be entitled to
assign all its obligations hereunder to that subsidiary and
treat the Employee as an employee of that subsidiary for all
purposes, but the Company shall remain liable for the full,
timely performance of all the obligations so assigned as if
the assignment had not been made.
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share
exchange or otherwise) to the business, properties and assets
of the Company substantially as an entirety expressly to
assume and agree to perform this Agreement in the same manner
and to the same extent the Company would have been required to
perform it had no such succession taken place.
E. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a written agreement executed and delivered
by the parties hereto or their respective successors or legal
representatives acting in their capacities as such pursuant to
applicable law.
24
F. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by hand
delivery or by registered or certified mail, return receipt
requested, postage prepaid, addressed to the appropriate
Person at the address of such Person set forth below (or at
such other address as such Person may designate by written
notice to each other party in accordance herewith):
(a) if to the Employee, addressed as follows:
Xxxxxx X. Xxxxxxxx
000 X. Xxx.
Xxxxxxxx, Xxxxxxxxxx 00000 and
(b) if to the Company, addressed as follows:
APPLE ORTHODONTIX, INC.
Xxx Xxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Corporate Secretary
G. NO WAIVER. The failure of the Company or the Employee to
insist on strict compliance with any provision of, or to
assert any right under, this Agreement (including the right of
the Employee to terminate his Employment for Good Reason or by
reason of a Change of Control pursuant to Section 5(B)(i))
shall not be deemed a waiver of that provision or of any other
provision of or right under this Agreement.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF TEXAS, WITHOUT REFERENCE TO ANY
PRINCIPLES OF CONFLICTS OF LAWS.
I. JURISDICTION AND VENUE. The Company irrevocably consents with
respect to any action, suit or other legal proceeding
pertaining directly to this Agreement or to the interpretation
or enforcement of any of the Employee's rights hereunder to
service of process in the State of Texas and hereby waives any
right to contest or oppose receipt of such service of process.
The Company irrevocably (i) agrees that any such action, suit
or other legal proceeding may be brought in the courts of such
state or in the courts of the United States sitting in such
state, (ii) consents to the jurisdiction of each such court in
any such action, suit or other legal proceeding, and (iii)
waives any objection it may have to the laying of
25
venue of any such action, suit or other legal proceeding in
any of such courts.
J. HEADINGS. The headings of Sections and subsections hereof are
included solely for convenience of reference and shall not
control the meaning or interpretation of any of the provisions
of this Agreement.
K. INTEREST. If any amounts required to be paid or reimbursed to
the Employee hereunder are not so paid or reimbursed at the
times provided herein (including amounts required to be paid
by the Company pursuant to Sections 6 and 10, those amounts
shall accrue interest compounded daily at the annual
percentage rate which is three percentage points (3%) above
the interest rate announced by Texas Commerce Bank National
Association, Houston, Texas (or its successor), from time to
time, as its Base Rate (or prime lending rate), from the date
those amounts were required to have been paid or reimbursed to
the Employee until those amounts are finally and fully paid or
reimbursed; provided, however, that in no event shall the
amount of interest contracted for, charged or received
hereunder exceed the maximum non-usurious amount of interest
allowed by applicable law.
L. PUBLICITY. The Company agrees with the Employee that, except
to the extent required by law or legal process (including the
Exchange Act and the Securities Act), it will not make or
publish, without the prior written consent of the Employee,
any written or oral statement concerning the terms of the
Employee's employment relationship with the Company and will
not, if a Notice of Termination is given by either the Company
or the Employee for any reason, publish or cause to be
published any statement concerning the Employee, including his
work-related performance or the reasons or basis for the
giving of that Notice of Termination.
M. TAX WITHHOLDING. Notwithstanding any other provision hereof,
the Company may withhold from amounts payable hereunder all
Federal, state, local and foreign taxes that are required to
be withheld by applicable laws or regulations.
N. ENTIRE AGREEMENT. The Company and the Employee (i) acknowledge
that this Agreement supersedes all prior written and oral
agreements between them with respect to the employment of the
Employee by the Company.
10. INTENDED BENEFITS TO EMPLOYEE; PAYMENT OF EXPENSES;
RESOLUTION OF DISPUTES
26
A. INTENDED BENEFITS; PAYMENT OF EXPENSES. In entering into this
Agreement the Company intends that the Employee 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
the Employee; the Company, therefore, agrees that it will
strive expeditiously and in good faith to construe and resolve
in the Employee's 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 the Employee and the Company or another Person as to
the validity, interpretation or application of any term or
condition hereof, or as to the Employee's entitlement to any
benefit intended to be bestowed hereby, which is not resolved
to the satisfaction of the Employee, (ii) the Employee must
(a) defend the validity of this Agreement, (b) contest any
determination by the Company concerning the amounts payable
(or reimbursable) by the Company to the Employee, or (c)
determine in any tax year of the Employee the tax consequences
to the Employee of any amounts payable (or reimbursable) under
Section 4(c) or 4(B)(iii), or (iii) the Employee 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 the Company's income tax returns, then the Company
hereby unconditionally agrees: (a) on written demand of the
Company by the Employee, to provide sums sufficient to advance
and pay on a current basis (either by paying directly or by
reimbursing the Employee) not less than thirty (30) days after
a written request therefor is submitted by the Employee, the
Employee's 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 the Employee in
connection with any such matter; (b) the Employee 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 the Company to pay or advance such costs and expenses
on a current basis; and (c) the company's obligations under
this Section 10(A) will not be affected if the Employee is not
the prevailing party in the final resolution of any such
matter.
B. RESOLUTION OF DISPUTES. If a dispute of any type referred to
in Section 10(A) arises between the Company and the Employee
and they fail to resolve that dispute by direct negotiation,
the Company and the Employee agree that the next step taken to
resolve that dispute, prior to either party initiating any
litigation to resolve that dispute (not including any
litigation that may be required to enforce the Employee's
rights to the
27
payment or advancement of expenses and legal fees on a current
basis pursuant to Section 10(A)) shall be to submit the
dispute to an agreed Alternative Dispute Resolution ("ADR")
process, to which process the parties shall strive diligently
in good faith to agree within ten (10) business days after
either party has given written notice to the other party that
it is unable to concur in the other party's final proposed
negotiated resolution of the dispute. If the Company and the
Employee are unable to agree in writing to an acceptable ADR
process within that ten (10) business day period, then the
parties shall submit to a mandatory ADR process by making
joint application to the then Chief United States Federal
District Judge in the Southern District of Texas for the
selection of an ADR process for the parties. The parties shall
diligently in good faith participate in the ADR process chosen
by that judge. If the parties are unable to resolve their
dispute after diligent good faith participation in the ADR
process, then either party shall be free to initiate such
litigation as that party deems appropriate under the
circumstances. Under no circumstances shall the Employee be
obligated to pay for the cost of any ADR process or to pay or
reimburse the Company for any attorneys' fees, costs or other
expenses incurred by the Company in connection with any
process undertaken by the Employee to resolve disputes under
this Agreement. As used in this Section 10, the term
"Employee" includes, if the Employee has died or become
incompetent as a matter of applicable law, the Employee's
legal representative acting in his capacity as such under
applicable law.
11. INDEMNIFICATION
The Employee shall be indemnified by the Company to the maximum extent
permitted by the law of Delaware, the state of the Company's incorporation, and
the law of the state of incorporation of any subsidiary of the Company of which
the Employee is a director or an officer or employee, as the same may be in
effect from time to time.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the day and year indicated above.
APPLE ORTHODONTIX, INC.
By: /s/ XXXX X. XXXXXXX
Xxxx X. Xxxxxxx,
Chief Executive Officer
EMPLOYEE
By: /s/ XXXXXX X. XXXXXXXX
Xxxxxx X. Xxxxxxxx
Employee's Permanent Address:
000 X. Xxx.
Xxxxxxxx, Xxxxxxxxxx 00000
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