EMPLOYMENT AGREEMENT
This Employment Agreement ("AGREEMENT") is effective as of the Closing Date
of the Stock Purchase Agreement ("PURCHASE AGREEMENT") among Paramount Dental
Plan, Inc., a Florida corporation ("PARAMOUNT"), SafeGuard Health Enterprises,
Inc., a Delaware corporation ("SAFEGUARD"), and Xxxxxxxx X. Xxxxxxxxx, DMD
("EMPLOYEE") which date shall be inserted into this Agreement at the end hereof
(the "EFFECTIVE DATE"). Capitalized terms not otherwise defined in this
Agreement correspond to the defined terms in the Purchase Agreement.
SafeGuard desires the benefits of Employee's knowledge and experience as a
full-time employee of SafeGuard. Employee desires to be employed full time by
SafeGuard. SafeGuard and Employee desire to enter into an agreement reflecting
the terms under which SafeGuard will employ Employee as President and a Director
of SafeGuard Health Plans, Inc., a Florida corporation and a wholly-owned
subsidiary of SafeGuard ("SAFEGUARD FLORIDA") responsible for the Florida
Market, as defined in Section 3.2. Therefore, SafeGuard and Employee agree to
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the following terms and conditions:
1. EMPLOYMENT SERVICES AND DUTIES. SafeGuard agrees to employ and retain
the full-time services of Employee and Employee hereby agrees to accept
full-time employment with SafeGuard as President of SafeGuard Florida under the
terms of this Agreement. Employee will also serve as a Director of SafeGuard
Florida. Employee agrees to faithfully perform his duties as President and a
Director of SafeGuard Florida, to the best of his ability and in the best
interests of SafeGuard Florida. Employee's duties and responsibilities shall be
commensurate with those customarily associated with the other vice presidents of
SafeGuard responsible for its other target markets.
2. TERM OF EMPLOYMENT. The term of this Agreement shall commence on the
Effective Date and shall continue until the earlier of the third anniversary of
the Effective Date, the date of Employee's death or Permanent Disability (as
defined in Section 6.2.3), or the date of termination pursuant to Section 6 or
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7.
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3. COMPENSATION TERMS. SafeGuard agrees to compensate Employee for his
services rendered under this Agreement as follows:
3.1 Base Salary. As of the Effective Date and for the remainder of the
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term of employment, Employee shall receive a base salary of Two Hundred Thirty
Thousand Dollars ($230,000) per year, payable in equal periodic installments in
accordance with SafeGuard's normal payroll policy (the "BASE SALARY").
3.2 Florida Market. For purposes of this Agreement, the "Florida
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Market" means the members of any of SafeGuard's dental HMO subsidiaries,
including Paramount, that are enrolled with a general dentist located in Florida
or Illinois, or who have not selected a general dentist, but reside in Florida
or Illinois, and all of the groups written by SafeGuard's indemnity insurance
subsidiary whose contracts are based in the states of Delaware, Georgia,
Florida, Illinois,
Kentucky, Maryland, Ohio, South Carolina, Pennsylvania, and Wisconsin.
Additional states may be added to the Florida Market from time to time at the
sole discretion of SafeGuard.
3.3 Bonuses.
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3.3.1 Employee shall be entitled to an annual bonus of up to Two
Hundred Seventy Thousand Dollars ($270,000) each calendar year. The bonus
earned shall be equal to Twenty Percent (20%) of the increase, if any, in
the Florida Market's earnings before interest and income and franchise
taxes ("EBIT") (with each component of EBIT to be calculated in accordance
with U.S. generally accepted accounting principles consistently applied)
for the current calendar year compared to the prior calendar year. An
example of the methodology to be used by the parties to calculate EBIT is
set forth on Exhibit A to this Agreement. The bonus determined pursuant to
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this Section 3.3 shall be payable as provided in this Section 3.3.
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3.3.2 For purposes of this Agreement, EBIT shall include all
revenue and direct health care expenses directly attributable to the
members enrolled in plans in the Florida Market and all other expenses of
SafeGuard that are incurred solely for the benefit of the Florida Market,
including but not limited to, any salary, bonus, and other benefits paid
pursuant to this Section 3.3. The calculation of EBIT for any period prior
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to the Effective Date shall include the operations of Paramount, excluding
any extraordinary bonuses paid to Employee in such period, any note
forgiveness provided to Employee in such period, and any out-of-pocket
expenses directly related to the transactions contemplated by the Purchase
Agreement, including but not limited to, the Stay Bonuses, severance
payments, and legal fees.
3.3.3 In the event an administrative function is performed by
SafeGuard Florida or Paramount for the Florida Market on the Effective Date
but is thereafter transferred to SafeGuard's corporate services center,
SafeGuard will charge to the Florida Market an administrative fee
attributable to such function that will not exceed the cost incurred by
SafeGuard to perform such function. SafeGuard will allocate costs to the
Florida Market in good faith and in a manner consistent with the allocation
of costs for purposes of the audited financial statements of its
subsidiaries and regulatory purposes.
3.3.4 EBIT for 2001 shall be prorated over the number of months
this Agreement is in effect for the 2002 calendar year. If the transaction
represented by the Purchase Agreement closes by November 30, 2002, the base
for determining the increase in EBIT subject to bonus for the 2002 calendar
year, shall be 1/12th of the combined Paramount and SafeGuard's EBIT for
the Florida Market for the 2001 calendar year (as adjusted by this Section
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3.3) times the number of full months remaining in the 2002 calendar year
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after the Closing Date. Actual EBIT for the Florida Market for the same
remaining months of the 2002 calendar year will be compared for purposes of
this partial year calculation. The same concept will apply in the final
year if a partial calendar year under the Agreement. The annual maximum
bonus will also be so prorated, based on the number of months worked by
Employee in the calendar year.
3.3.5 For purposes of computing any bonus to be paid under this
Section 3.3, unless SafeGuard and Employee agree otherwise, EBIT shall be
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adjusted for any acquisitions or divestitures that occur. Any adjustment
for an acquisition shall be made by combining the operations of the
acquisition that relate to the Florida Market with the operations of the
Florida Market for purposes of determining EBIT for the calendar year prior
to the calendar year in which the transaction occurs and EBIT for the
calendar year in which the transaction occurs. Any adjustment for a
divestiture shall be made by disregarding the operations of the divestiture
that relate to the Florida Market for purposes of determining EBIT for the
calendar year prior to the calendar year in which the transaction occurs
and the EBIT for the calendar year in which the transaction occurs.
3.3.6 SafeGuard shall pay the bonus to Employee within thirty
(30) days after the issuance of SafeGuard's audited financial statements
for the prior year (but in any event, not later than one hundred twenty
(120) days after SafeGuard's year-end), subject to applicable federal
income tax withholding, and shall deliver to Employee with the payment a
complete and accurate statement showing how EBIT was calculated for the
year (the "EBIT STATEMENT"). Employee shall have the right, at its own
expense, upon reasonable notice and during normal business hours, to have a
representative examine SafeGuard's and SafeGuard Florida's books and
records for the purpose of verifying the accuracy of the EBIT Statement.
3.4 Benefits. Subject to satisfaction of all eligibility requirements
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that are applicable to executive employees of SafeGuard, Employee and his
dependents shall be entitled to and shall receive any and all benefits generally
available to executive employees of SafeGuard, including participation in
health, dental, vision, life insurance and retirement plans.
3.5 Indemnification. SafeGuard shall indemnify Employee to the same
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extent as SafeGuard indemnifies its officers and directors, as provided in
SafeGuard's by-laws on the date of this Agreement. This Section 3.5 shall
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survive a termination of this Agreement.
4. EXPENSES. SafeGuard authorizes Employee to incur reasonable and
necessary expenses for promoting the business of SafeGuard Florida according to
the policies of SafeGuard applicable to executives of SafeGuard. Such expenses
will be reimbursed upon submission of properly supported expense reports which
are subject to the approval of SafeGuard's Chief Operating Officer (the "COO"),
which approval will not be unreasonably withheld.
5. EXTENT OF SERVICES; VACATION.
5.1 During the term of Employee's employment under this Agreement,
except during customary vacation periods and periods of illness, Employee shall
devote full-time energy and attention during regular business hours to the
benefit and business of SafeGuard Florida as may be reasonably necessary in
performing the Employee's duties pursuant to this Agreement. Notwithstanding
the foregoing, the Employee may (i) serve on corporate, trade association,
civic, religious or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions, and (iii)
manage personal investments, so long as such activities do not interfere with
the performance of the Employee's duties and responsibilities and do not
create a conflict of interest. Employee shall pre-clear with the COO any
speaking engagements that will discuss SafeGuard or SafeGuard Florida in any
respect.
5.2 Employee shall be entitled to four (4) weeks of paid vacation
during any calendar year and a pro rata portion in the initial and final years
if partial years. Such vacation shall be taken at such times as are mutually
agreed upon by Employee and the COO. It is agreed by the parties hereto that
there shall be no carry-over of unused vacation in excess of two (2) weeks from
any calendar year to the next calendar year while this Agreement is in effect.
6. TERMINATION BY SAFEGUARD.
6.1 SafeGuard may terminate Employee and this Agreement at any time for
any reason Without Cause upon sixty (60) days advance written notice. Employee
shall be entitled to continue to receive his base salary for one (1) year
following the effective date of termination or the remainder of the term of this
Agreement, whichever is less, paid in accordance with SafeGuard's standard
payroll polices and procedures, if (a) Employee is terminated Without Cause, (b)
the Employee resigns his employment because the Employee is demoted from his
position as president of SafeGuard Florida or his responsibilities are reduced
significantly without his prior consent, or (c) the Employee resigns his
employment because SafeGuard violates this Agreement and fails to cure the
violation within thirty (30) days after notice from Employee. In addition, in
any of such events, Employee shall be entitled to receive (i) a bonus for the
part of a calendar year up to the effective date of termination if any is earned
under the plan described in Section 3.3 which shall be paid at the time such
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bonus would normally be paid; (ii) any reimbursement of expenses properly
submitted pursuant to Section 4; and (iii) the benefits referred to in Section
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3.4 to which Employee has a vested right under the terms and conditions of the
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benefit plans pursuant to which such benefits were granted.
6.2 SafeGuard may terminate Employee for "Cause" which shall mean:
6.2.1 (a) Employee's continuing and willful refusal or failure to
perform any material duty with SafeGuard to the extent of his ability to do
so (other than any failure due to physical or mental incapacity) after
Employee has been given (i) written notice specifying in reasonable detail
the nature of the duty that he failed to perform and referencing this
provision of this Agreement, and (ii) a reasonable opportunity to comply
with such duty on a going forward basis;
6.2.2 The commission by Employee of an act of fraud or
embezzlement or an act in material violation of his duties to SafeGuard or
the conviction of Employee of a felony; or
6.2.3 The death or "Permanent Disability" of Employee. For
purposes of this agreement, Permanent Disability means Employee becomes
physically or mentally disabled such that he is substantially unable to
perform his duties under this Agreement and such disability continues for
three (3) consecutive months.
Upon a termination under this Section 6.2, Employee shall be entitled to receive
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(i) his Base Salary through the effective date of termination; (ii) any
reimbursement of expenses properly submitted pursuant to Section 4; and (iii)
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the benefits referred to in Section 3.4 to which Employee has a vested right
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under the terms and conditions of the benefit plans pursuant to which such
benefits were granted. No bonus will be paid for the calendar year in which
the termination occurs, unless such termination is as a result of Section 6.2.3,
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in which case Employee shall be entitled to receive a bonus for the part of a
calendar year up to the effective date of the termination if any is earned under
the plan described in Section 3.3, which shall be paid at the time such bonus
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would normally be paid. Termination of Employee by SafeGuard other than as
expressly set forth in Section 6.2 for Cause shall be deemed to be a termination
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of employment by SafeGuard "Without Cause."
6.3 Notice of Termination. SafeGuard's termination of Employee shall
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be communicated by a written notice of termination delivered to Employee. For
purposes of this Agreement, the notice of termination shall specify the
termination provision of this Agreement relied upon to effect such termination
and shall set forth in reasonable detail the specific facts and circumstances
claimed to provide a basis for termination of Employee as well as the effective
date of termination.
6.4 No Duty to Mitigate. Employee shall not be required to mitigate
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the amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and any payments due Employee upon termination of
employment shall not be reduced in respect of any other employment compensation
received by Employee following such termination; provided, however, that such
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payments may be terminated if SafeGuard shall have provided written notice to
Employee of his violation of any provision of Section 8 or 9 and such violation
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caused material damage to SafeGuard's or SafeGuard Florida's business.
7. TERMINATION BY EMPLOYEE. At any time, upon sixty (60) days advance
written notice of termination delivered to SafeGuard's Chief Operating Officer,
Employee may voluntarily terminate his employment with SafeGuard and this
Agreement. If Employee terminates his employment and this Agreement under this
Section 7, he will be entitled to receive (i) his Base Salary through the
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effective date of termination; (ii) any reimbursement of expenses properly
submitted pursuant to Section 4; and (iii) the benefits referred to in Section
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3.4 to which Employee has a vested right under the terms and conditions of the
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benefit plans pursuant to which such benefits were granted. No prorated bonus
will be paid.
8. CONFIDENTIAL INFORMATION. Employee agrees that he shall not, during the
term of this Agreement, and for a period of three (3) years following its
termination, absent SafeGuard's written consent, disclose to any person, or
otherwise use or exploit any non-public proprietary or confidential information
of SafeGuard and/or its affiliates, including without limitation trade secrets,
customer lists, records of research, memoranda, proposals, reports, methods,
processes, techniques, non-public financial information, contracts,
negotiations, business plans and strategies, marketing data or other non-public
information regarding SafeGuard and/or any of its affiliates, their business,
properties or affairs ("CONFIDENTIAL INFORMATION") obtained by him at any time
prior to or subsequent to the execution of this Agreement, except to the extent
required by his performance of his assigned duties for SafeGuard , including its
affiliates. Upon termination of employment, Employee shall surrender
all Confidential Information and all other property belonging to SafeGuard and
its subsidiaries, it being understood by Employee that such documents are the
sole property of SafeGuard and that Employee shall not make any copies thereof.
Additionally, the terms and conditions of this Agreement shall constitute
Confidential Information and shall not be disclosed by Employee except in
accordance with this Section 8.
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9. NON-COMPETITION AND CONFLICTS OF INTEREST.
9.1 Employee. During the term of this Agreement and for two (2)
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years after termination of this Agreement, Employee shall not work for, be
a consultant to or provide any direct or indirect services to, nor make or
cause to be made on his behalf, or maintain an investment in any business
which is engaged, either in whole or in part, in any business which is
competitive with or detrimental to any businesses of SafeGuard, or its
subsidiaries, except that Employee may make or maintain an investment of no
more than one percent (1%) of any outstanding class of capital stock of any
publicly traded corporation, provided such class of capital stock is
regularly traded by the public without prior written permission of
SafeGuard. The Non-Competition provisions of this Section 9 shall terminate
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immediately upon a default on the Convertible Note issued in conjunction
with the Purchase Agreement that is not cured within any applicable cure
period and be of no further force or effect at any time after the
expiration of the cure period applicable to such default.
9.2 SafeGuard and its Subsidiaries. During the term of this
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Agreement, SafeGuard and its subsidiaries other than SafeGuard Florida
shall not directly or indirectly engage in a business similar to or
competitive with the business of SafeGuard Florida in the State of Florida,
except through SafeGuard Florida.
10. TAMPA RESIDENCE. The parties acknowledge that Employee resides in
Tampa, Florida. SafeGuard agrees that the principal executive offices of the
Florida Market will be based in Tampa, Florida during the term of this
Agreement. Employee shall not be obligated to move his residence from Tampa,
Florida or to travel from Tampa, Florida for extended time periods during the
term of this Agreement.
11. FACILITIES. SafeGuard shall provide Employee with a fully-furnished
office in Tampa, Florida. The facilities shall be generally available to
Employee in the performance of Employee's duties pursuant to this Agreement, it
being understood and contemplated by the parties that all equipment, supplies
and office personnel required in the performance of Employee's duties under this
Agreement shall be provided by and at the sole expense of SafeGuard. The
expenses incurred in providing such facilities and personnel shall be expenses
of the Florida Market for purposes of determining EBIT of the Florida Market
pursuant to Section 3.
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12. SEVERABILITY. The provisions of this Agreement are severable. If a
court of competent jurisdiction determines that any one or more provisions of
this Agreement is invalid, void, or unenforceable, in whole or in part, it will
be severed therefrom. The remaining
provisions of this Agreement shall then continue in full force without being
impaired or invalidated in any way.
13. ASSIGNMENT; BINDING EFFECT.
13.1 Assignability. This Agreement may be assigned by SafeGuard to any
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successor to all or substantially all of the business and/or assets of SafeGuard
or to a wholly-owned subsidiary of SafeGuard, although an assignment to a
wholly-owned subsidiary will not relieve SafeGuard of its obligations under this
Agreement. This Agreement, intending to secure the personal service of
Employee, may not be assigned nor its duties delegated by Employee without the
written consent of SafeGuard.
13.2 SafeGuard's Obligation Upon Assignment or Succession. SafeGuard
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shall require any successor, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all of the business and/or
assets of SafeGuard or assignee of this Agreement, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that
SafeGuard would be required to perform it if no such succession had taken place.
14. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding on the parties and their respective successors and assigns. If
Employee should die, any amounts payable to him hereunder, unless otherwise
provided for herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee, or other designee or, if there be no
such designee, to Employee's estate.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties concerning the subject matter hereof. This Agreement
supersedes all negotiations, prior discussions, and preliminary agreements.
This Agreement may not be amended except in a writing executed by Employee and
SafeGuard.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, regardless of the application
of conflicts of laws principles.
17. NOTICES. All notices, requests, demands and other communication
required or contemplated under this Agreement, shall be in writing and shall be
deemed to have been duly given when delivered personally or when enclosed in a
properly sealed and addressed envelope, registered or certified, return receipt
requested, and deposited, postage prepaid, in the United States mail, or sent
via a recognized overnight delivery service. Any notice to be given to either
party shall be addressed to the parties' address as set forth herein, or at such
other address as either party may hereafter designate in writing to the other
from time to time.
18. WAIVER. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the waiver.
19. CONSTRUCTION. Whenever herein the singular number is used, the same
shall include the plural, and the masculine gender shall include the feminine
and neuter genders. The captions, section numbers, article numbers, and index
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe, or describe the scope or intent of such sections
or articles of this Agreement nor in any way affect this Agreement.
20. ARBITRATION. Any dispute regarding any aspect of this Agreement or any
act that allegedly has or would violate any provision of this Agreement must be
submitted to arbitration in Hillsborough County, Florida, in accordance with the
rules of the Judicial Arbitration and Mediations Service ("JAMS") as the
exclusive remedy for such claim or dispute. Either party may invoke this clause
by serving on the other, in writing, a request to arbitrate. Within thirty (30)
days thereafter, either party may institute proceedings in superior court to
enforce this clause. If the parties cannot mutually select a judge from the JAMS
panel, the superior court shall make the selection. The decision of JAMS will
be final and binding. The prevailing party in any such arbitration shall be
entitled to reimbursement by the losing party for all reasonable costs and
expenses incurred in enforcing this Agreement, including but not limited to
reasonable attorneys' fees and expenses.
[SIGNATURES APPEAR ON THE NEXT PAGE.]
EMPLOYMENT AGREEMENT
SIGNATURE PAGE
The undersigned execute the Employment Agreement and authorize this
signature page to be attached to a counterpart of the Employment Agreement
executed by the other parties to the Employment Agreement.
Executed as of August 30, 2002
"SAFEGUARD"
SAFEGUARD HEALTH ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
Executive Vice President and Chief
Operating Officer
By: /s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx
Senior Vice President and Secretary
Address:
00 Xxxxxxxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Executive Vice President and
Chief Operating Officer
EMPLOYMENT AGREEMENT
SIGNATURE PAGE
The undersigned executes the Employment Agreement and authorize this
signature page to be attached to a counterpart of the Employment Agreement
executed by the other parties to the Employment Agreement.
Executed as of August 30, 2002
"EMPLOYEE"
/s/ Xxxxxxxx X. Xxxxxxxxx, DMD
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Xxxxxxxx X. Xxxxxxxxx, DMD
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Address
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City, State, Zip Code
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Employee's Social Security Number
EMPLOYMENT AGREEMENT
EXHIBIT A
EBIT CALCULATION METHODOLOGY
Attachment A is an example of the EBIT calculation for the 2001 calendar year.
The methodology used in this example will be used in calculating EBIT for each
subsequent calendar year.
