EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into on February
__, 1997 by and between APPLE ORTHODONTIX, INC., a Delaware corporation (the
"Company") and W. XXXXXX XXXX (the "Employee").
R E C I T A L S:
In entering into this Agreement, the Company desires to provid 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.
NOW, THEREFORE, in consideration of the foregoing and the mutual prov
sions 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.
"AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"ANNUAL CASH COMPENSATION" of the Employee for any calendar
year means the sum of the salary and bonus earned by the
Employee during that calendar 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.
"AVERAGE ANNUAL CASH COMPENSATION" of the Employee means, as
of the Separation Effective Date, the average of (a) the
Annual Cash Compensation earned by the Employee in each of the
two (2) calendar years next preceding that date or, if fewer
than two (2) calendar years have occurred prior to that date
and since the Effective Date, (b) the average of the Annual
Cash Compensation in any calendar year restated on an
annualized basis.
"BASE SALARY" means the guaranteed minimum annual salary
payable by the Company to the Employee pursuant to Section
4(A).
"BENEFICIAL OWNER" is as defined in Exchange Act Rule 13d-3.
"CAUSE" to permit the Company to terminate the Employee's
Employment pursuant to the terms hereof means: (a) the
Employee's final conviction of a felony crime that involved
moral turpitude or that enriched the Employee at the expense
of the Company; (b) the Employee's deliberate, intentional or
highly reckless continuing failure to perform his duties and
responsibilities hereunder; or (c) beginning the period of
time after the Company has reported negative net revenues in
its reports to the Securities and Exchange Commission for six
(6) consecutive fiscal quarters.
"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
2
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, 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 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 9(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 plan which provides for incentive,
bonus or other performance-based awards of cash, stock , stock
appreciation rights or other restricted stock option plan, not
otherwise included in this definition, and (vi) any
arrangement, plan, policy, practice or program (A)
3
authorizing and providing for the payment or 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.
"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
4
such Affiliate or Associate.
"DISABILITY" of the Employee means the Employee has been
determined, 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,
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
during the term hereof; provided that, the determination
whether the Employee has incurred a Disability shall be made
by the Company by it causing the selection of three (3)
Qualified Physicians, the majority determination of which
shall be binding on the Company (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 at the direction of the Company hereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
5
"EXECUTIVE OFFICER" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the
chief financial 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 subsidiary of the Company and (b) the Employee, any
Affiliate 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 of the Employee is a member. "IPO" means the first
time a registration statement filed under the Securities Act
and respecting an underwritten primary offering by the 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.
"PERSON" means any natural person, sole proprietorship,
corporation,
6
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.
"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) duly licensed
to practice that specialty 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.
"SEPARATION EFFECTIVE DATE" means the date the Nonterminating
Party receives the Terminating Party's Notice of Termination
(a) if the Company elects pursuant hereto to terminate the
Employee's Employment other than for Cause or (b) if the
Employee elects pursuant hereto to terminate his Employment
pursuant to the terms and conditions hereof, or by reason of
Disability.
"SEPARATION PERIOD" means the period of time which begins on
the Separation Effective Date and ends on the first to occur
of (a) the third (3rd) anniversary of that Separation
Effective Date.
"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.
7
"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 the Employee giving a written
notice of breach of contract which is not cured within thirty
(30) days, or 180 days written Notice Termination pursuant to
the terms hereof, and other than for Disability; (d) the date
the Employee receives the Company's Notice of Termination.
"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 the
Corporation.
2. EMPLOYMENT
A. Subject to the terms and conditions hereof, as of the
Effective Date, the Company will employ the Employee as its
Chief Administrative Officer 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 employment as the Company's Chief
Administrative Officer. 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 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
8
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. The Company shall
not assign Employee duties inconsistent in any material
respect with the Employee's position as set forth above, or
otherwise diminish the Employee's position, duties or
responsibilities.
C. Pursuant to the terms and conditions of a Consulting Contract
dated __, 1996, between the Employee and the Company, the
Employee and the Company hereby agree to and ratify the
above-referenced Consulting Contract, and the Employee shall
serve as a consultant pursuant to that agreement from the date
hereof until the Effective Date.
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 Co pany 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 Separation 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 calendar year during the period from the Effective
Date to the the Termination Date, subject to the rights of the
Employee during the Separation Period. 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 $120,000 and shall be increased (but not decreased or
adjusted other than as provided in Section 5) as follows:
9
(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 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 Separation 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 during the term
hereof, regardless of
10
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. The Company hereby
convenants and agrees to establish a health, life and
disability insurance program and a policy for reimbursement of
country club dues and related business expense reimbursements
as of the Effective Date, or to be effective as of the
Effective Date, and to establish a retirement plan and
incentive compensation plan that is effective as of the end of
the first calendar year after the IPO Effective Date.
(ii) The Company shall grant to the Employee 52.50 shares of
it's pre- IPO common stock, subject to a subscription
agreement to establish the private placement exemption for
private placement purposes.
(iii) Employer shall be responsible for the Employee's
reasonable moving expenses regarding his families' household
furnishings and goods to the city of the Corporation's
headquarters.
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
11
(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.
5. TERMINATION, SEPARATION 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 Cause or (b) subject to the
payments obligations of the Separation Period, at any time
without Cause. The Company's termination of the Employee's
Employment hereunder will be effective on
12
the date the Company delivers a Notice of Termination for
Cause to the Employee pursuant hereto. Subject to the payment
provisions applicable to the Separation Period, the Employee
shall be required to vacate the premises of the Company, with
all of the Employee's personal property no later than five (5)
business days after the Notice of Termination.
(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 end of the
calendar month of 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 otherwise terminates the Employee's
Employment, the respective rights and obligations of the
Company and the Employee during the Separation 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, other than for Disability, at any time after one
hundred eighty (180) days after a Notice of Termination, (b)
by reason of a Change of Control at any time within three
hundred sixty-five (365) days after that Change of Control
occurs, or (c) at any time after thirty (30) days after
receipt of a Notice of Termination for material breach of any
provision of this Agreement, and the Company has not cured
that breach during the thirty (30) day period. 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 pursuant to (a)
and (b) above shall be effective on the Termination Date,
subject to the payment obligations of the Company during the
Separation Period.
(ii) 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
13
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.
(iii) If the Employee terminates his Employment, 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 accrued but unpaid vacation pay and (d) the amount
equal to fifty percent (50%) of the Base Salary being paid for
the calendar year in which the Company receives the Employee's
Notice of Termination, and other than for Disability.
C. TERMINATION BY REASON OF DISABILITY. If the Employee incurs
any Disability during the term hereof, 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 Separation Period will be
as set forth in Section 5(E).
D. TERMINATION OF EMPLOYMENT BY DEATH. The Employee's Employment
shall terminate during the term hereof 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
14
pay and (iv) (a) the product of the Base Salary being paid for
the calendar year of death multiplied by three (3).
E. EMPLOYEE'S PAYMENT RIGHTS DURING THE SEPARATION 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 Separation Effective Date to and including the third
anniversiary thereof in the amounts determined from time to
time as follows: the Base Salary payable by the Company to the
Employee shall be as follows:
(a) if the Separation Effective Date occurs as a result
of the receipt by the Nonterminating Party of a Notice
of Termination other than for Cause, the amount equal to
the Average Annual Cash Compensation of the Employee
determined as of the Separation Effective Date; and (b)
if the Separation 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
thirty-six (36) 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
(b) on the first and each subsequent anniversary of the
Separation 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 Separation 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
15
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 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 prevented from accepting other employment or
engaging in (and devoting substantially all his time to) other
business activities and shall not be required to perform any
regular duties for the Company, and the Employee may 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 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
16
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
calendar year immediately preceding the Separation 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 incentive plan, expire or fail
to become exercisable or, if exercisable, cease to be
exercisable by reason of the occurrence of the Employee's
Separation Effective Date.
6. OTHER EMPLOYEE RIGHTS
17
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. Further, it is understood by the Employee
that all paid vacation days shall be taken by or on December
31 of the calender year. Any and all vacation days which were
not taken by said date, shall be paid to the Employee on the
second pay period of the following January.
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. During the term hereof, 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 re ognizes 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 Employment
and for a period of one (1) year after the Termination Date,
Employee will not, within fifty (50) miles of the corporate
headquarters: (i) accept employment or render service to any
Person that is engaged in a business directly competitive with
the business then engaged in by the
18
Company or (ii) enter into or take part in or lend Employee's
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 the Employee has had and will
continue to have access to various Confidential Information.
The Employee agrees, therefore, that Employee 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
19
Company from pursuing any other available remedy for that
breach or threatened breach, including the recovery of
damages.
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 term of 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 term of
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,
20
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 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.
21
(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.
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:
W. Xxxxxx Xxxx
000 Xxxxxxxxxxxxx Xxxx.
Xxxxxxx, XX 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
22
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 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
23
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. Except for the Consulting Contract ratified
hereby and the agreements related to the IPO, including the
Plan and Agreement of Merger, 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
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
24
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.
11. INDEMNIFICATION
Pursuant to the express terms and conditions of the Certificate of Incorporation
and Bylaws of the Company, the Company hereby ratify and confirm and enter into
an express separate contract to provide that the Employee shall be held harmless
from monetary damages and be fully indemnified by the Company to the maximum
extent permitted by the law of Delaware, the state of the Company's
incorporation, and the x x 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.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the day and year indicated above.
25
APPLE ORTHODONTIX, INC.
By: /s/ XXXXXXX X. XXXXXXXX
Xxxxxxx X. Xxxxxxxx,
Chairman of Compensation Committee
By: /s/ XXXX X. XXXXXXX, D.D.S.
Xxxx X. Xxxxxxx, D.D.S.,
Chief Executive Officer
EMPLOYEE
/s/ W. XXXXXX XXXX
W. Xxxxxx Xxxx
Employee's Permanent Address:
000 Xxxxxxxxxxxxx Xxxx.
Xxxxxxx, XX 00000
26
