EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made as of October 3, 1997
(the "COMMENCEMENT DATE"), by and between Assisted Living Concepts, Inc., a
corporation organized under the laws of the state of Nevada ("ALC" or the
"COMPANY") and Xxxxxxx XxXxxxx III ("EXECUTIVE").
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment, Title and Duties.
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(a) ALC hereby employs Executive to serve as its Chief Executive
Officer of ALC. In such capacity, Executive shall report to the Board of
Directors of the Company, and shall have such duties, powers and
responsibilities as are customarily assigned to the Chief Executive Officer of a
publicly held corporation in a business such as that conducted by Company.
(b) Executive shall serve as the Chairman of the Board of Assisted
Living Concepts Services, Inc. ("ALCS"), a wholly-owned subsidiary of ALC.
(c) Executive's duties may require him to travel. When Executive is
not travelling on behalf of ALC, or as otherwise provided under this Agreement,
Executive may exercise his discretion whether to perform his duties in an office
provided him by Company at its corporate headquarters, which as of the date
hereof, is in Portland, Oregon, or in California.
2. Term of Agreement.
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(a) The initial term of this Agreement shall be for a four (4) year
period from and after the Commencement Date, unless terminated earlier by (i)
termination for Cause; (ii) the voluntary resignation of Executive for Good
Reason; (iii) the expiration of six (6) months from and after the date Executive
provides written notice of termination to Company; or (iv) Executive's death or
Permanent Disability (defined in SECTION 5(a) below).
(b) If this Agreement has not terminated as of the date of the
expiration of the initial term, this Agreement shall be automatically extended
on a continuous basis daily from and after that date, until the occurrence of
one of the following events of termination: (i) termination for Cause; (ii)
voluntary resignation of Executive for Good Reason; (iii) Executive's death or
Permanent Disability; (iv) the expiration of six (6) months from and after the
date Executive provides written notice of intent not to renew this Agreement to
Company; or (v) the expiration of four (4) years from and after the date Company
provides written notice of intent not to renew this Agreement to Executive.
(c) A termination hereunder shall constitute a termination of
employment with any wholly owned subsidiary or other affiliate of Company.
3. Acceptance of Position. Executive accepts the position set forth
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in SECTION 1 above and agrees that during the term of this Agreement, Executive
will faithfully perform Executive's duties and, except as expressly approved by
the Board of Directors of ALC and except as set forth herein, will devote
substantially all of Executive's business time to the business and affairs of
ALC, and will not engage, for Executive's own account or for the account of any
other person or entity, in a business which competes with ALC. During the term
of this Agreement, Executive shall not directly own, or own as part of a
consortium, more than five percent (5%) of a publicly held corporation which
conducts the same business as does ALC or its affiliates. It is acknowledged
and agreed that Executive may, from time to time during the term of this
Agreement, serve as a member of the Board of Directors of other companies, in
which event the Board of Directors of ALC must expressly approve such service.
As of the date hereof, the Board of ALC approves of Executive serving on the
Board of Directors of XXXXX. In addition, as of the date hereof, the Board of
ALC approves of Executive serving as an officer of Home and Community Care, Inc.
until it is merged into ALC or until November 30, 1997, whichever occurs
earlier.
4. Salary and Benefits. During the term of this Agreement:
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(a) ALC shall pay to Executive a base salary in an annual amount of
not less than Two Hundred Sixty-five Thousand Dollars ($265,000) per annum, paid
in approximately equal installments at intervals in accordance with the then
prevailing policy of the Company with respect to its senior executives
generally, but in no event, less frequently than monthly. ALC agrees to consider
from time to time increases in such base salary in the discretion of the Board
of Directors. Any increase, once granted by the Board of Directors, shall be
deemed to automatically amend this Agreement to provide that thereafter
Executive's base salary shall not be less than the annual amount to which the
base salary has been increased.
(b) Concurrently herewith ALC and Executive shall execute and deliver
a Restricted Stock Agreement for Employees in substantially the same form as
that attached hereto as EXHIBIT "A," pursuant to which Executive shall be issued
200,000 shares of restricted common stock of ALC pursuant to the Amended and
Restated 1994 Stock Option Plan (the "PLAN"). The Restricted Stock Agreement
provides that the restrictions on the stock shall be lifted to the extent of 25%
of the stock per year commencing on the fourth anniversary date from the
Effective Date hereof, subject to earlier acceleration as provided in the
Restricted Stock Agreement.
(c) Executive shall participate in all health, retirement, Company-
paid insurance, sick leave, disability, expense reimbursement and other benefit
programs which ALC makes available to any of its senior executives, and shall be
eligible for bonuses in the discretion (as to bonuses) of the Board of
Directors.
(d) Executive shall be entitled to vacation time of not less than four
(4) weeks per year, provided that not more than two (2) weeks of such vacation
time may be taken consecutively without prior notice to, and non-objection by,
the Compensation Committee of the Board of Directors or, if there is no
Compensation Committee, the Board of Directors.
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5. Certain Terms Defined. For purposes of this Agreement:
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(a) Executive shall be deemed to be "PERMANENTLY DISABLED" if a
physical or mental condition occurs and persists which, in the written opinion
of a licensed physician selected by the Board of Directors in good faith, has
rendered Executive unable to perform Executive's duties hereunder for a period
of ninety (90) days or more and, in the written opinion of such physician, the
condition will continue for an indefinite period of not less than an additional
ninety (90) day period, rendering the Executive unable to return to Executive's
duties.
(b) A termination of Executive's employment by ALC shall be deemed
for "CAUSE" if, and only if, seventy-five percent (75%) of the Board of
Directors entitled to vote, at a meeting in which a quorum is present at the
time of the vote, vote for such termination and the termination is based upon
one or more of the following: (i) conviction of a felony; (ii) material
disloyalty to the Company such as embezzlement, misappropriation of corporate
assets or, except as provided in SECTION 3 of this Agreement, breach of
Executive's agreement not to engage in business for another enterprise of the
type engaged in by the Company or not to purchase more than five percent (5%) of
stock in a publicly held corporation which conducts the same business as does
ALC or its affiliates; or (iii) the engaging in immoral, unethical or illegal
behavior which is of public nature, brings ALC into disrepute, and results in
material damage to the Company. The Company shall have the right to suspend
Executive, with pay, for a reasonable period to investigate allegations of
conduct which, if proven, would establish a right to terminate this Agreement
for Cause, or to permit a felony charge to be tried. Immediately upon the
conclusion of such temporary period, unless Cause to terminate this Agreement
has been established, Executive shall be restored to all duties and
responsibilities as if such suspension had never occurred.
(c) A resignation by Executive shall not be deemed to be voluntary
and shall be deemed to be a resignation with "GOOD REASON" if it is based upon
one or more of the following: (i) a material diminution in Executive's title,
duties or salary; (ii) a reduction in benefits which is not part of an across-
the-board reduction in benefits of all senior executive personnel; or (iii) a
direction by the Board of Directors that Executive report to any person or group
other than the Board of Directors. It shall also constitute Good Reason for
Executive to resign Executive's employment if the shareholders of ALC shall fail
to elect or re-elect Executive to the Board of Directors of ALC, unless
Executive declines to be elected to such Board of Directors, or if the directors
fail to elect Executive to serve as Chief Executive Officer of ALC and/or
Chairman of the Board, unless Executive declines to be elected such.
Executive's statement that a resignation was based upon one of the events stated
in this SECTION 5(c) shall be conclusive and binding for purposes of this
Agreement, if the resignation occurs within three (3) months following the
event.
(d) "AFFILIATE" means any corporation affiliated with any Person
whose actions result in a Change in Control (or which, as a result of the
completion of the transactions causing a Change in Control shall become
affiliated) within the meaning of Section 1504 of the Internal Revenue Code of
1986, as amended (the "CODE").
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(e) "BASE SALARY" means, as of any date of termination of employment,
the highest annual base salary of Executive in any of the last five fiscal years
preceding such date of termination of employment.
(f) "BENEFICIAL OWNER" shall have the meaning given to such term in
Rule 13d-3 under Exchange Act (defined in SUBSECTION (i) below);
(g) A "CHANGE IN CONTROL" occurs if:
(i) any Person (other than Executive) or that Person's Affiliate
is or becomes the Beneficial Owner, directly or indirectly, of securities of ALC
representing 30% of more of the combined voting power of ALC's then outstanding
securities; or
(ii) the stockholders of ALC approve a merger or consolidation
of ALC with any other corporation (or other entity), other than a merger or
consolidation which would result in the voting securities of ALC outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
ALC or such surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected to
implement a recapitalization of ALC (or similar transaction) in which no Person
acquires more than 30% of the combined voting power of ALC's then outstanding
securities shall not constitute a Change in Control; or
(iii) the stockholders of ALC approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of ALC's assets; or
(iv) a majority of the members of the Board of Directors of ALC
cease to be Continuing Directors.
(h) "CONTINUING DIRECTORS" means, as of any date of determination,
any member of the Board of Directors of ALC who (i) was a member of such Board
of Directors on the date of the Agreement or (ii) was nominated for election or
elected to such Board of Directors who were members of such Board at the time of
such nomination or election.
(i) "PERSON" is given the meaning as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"); provided, however, that unless this Agreement provides to the
contrary, the term shall not include ALC, any trustee or other fiduciary holding
securities under an employee benefit plan of ALC, or any corporation owned,
directly or indirectly, by the stockholders of ALC in substantially the same
proportions as their ownership of stock of ALC.
6. Certain Benefits Upon Termination.
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(a) If Executive's employment by ALC terminates for any reason
(including by reason of death or Permanent Disability), except for a termination
for Cause or a voluntary resignation by Executive without a Good Reason or
pursuant to SECTION 2(a)(iii) or
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2(b)(iv), and SECTION 6(b) is inapplicable to such termination, then ALC shall
pay Executive a lump sum severance payment (the "SEVERANCE PAYMENT") equal to
four times Executive's Base Salary.
(b) If within one (1) year after a Change in Control of the Company,
Executive gives notice of termination of employment for any reason, gives notice
of non-renewal, or Executive otherwise terminates employment (other than due to
Executive's death or Permanent Disability) or is terminated by the Company
without Cause, ALC shall pay Executive a Severance Payment in cash equal to $4
million. In the event of a Change in Control and Executive dies or becomes
Permanently Disabled within one year after such Change in Control, then the
Severance Payment shall be equal to four times Executive's Base Salary.
(c) Company shall offer to Executive the opportunity to participate in
whatever Company-provided medical and dental plans exist as of the date of
termination from that date for a period of three (3) years commencing
Executive's date of termination, if such plans permit such participation;
provided, however, in the event there is a Change in Control of the Company and
Executive's employment terminates, then Executive shall not be given the
opportunity to participate in any such medical and dental plans except as may
otherwise be provided by law.
(d) In the event either (a) or (b) above occurs, (i) ALC shall pay
all accrued but unpaid or unused vacation, sick pay and expense reimbursement
benefit, (ii) all restrictions on Executive's restricted stock shall lapse,
(iii) the exercisability of all stock options held by Executive shall accelerate
and (iv) all other benefits shall vest (unless a plan governs vesting, such as
the deferred compensation plan, in which event the plan's terms and conditions
shall govern vesting). In the event that Executive holds stock options covered
by agreements that are affected by the provisions of SECTION 6(d)(iii), Company
shall promptly take such steps as are necessary to effect the amendment of such
agreements to reflect such provisions. Executive acknowledges that he has been
advised by his own legal counsel as to the effect of such amendments on the
status of any such options as "qualified" options under the Code, the tax effect
on Executive of such amendment, and the ramifications for Executive of such
amendments under Section 16 of the Securities Exchange Act of 1934 and the
reporting and short-swing profit provisions thereof.
(e) In the event that Executive's employment terminates by reason of
Executive's death, all benefits provided in this SECTION 6 shall be paid to
Executive's estate or as Executive's executor shall direct, but payment may be
deferred until Executive's executor or personal representative has been
appointed and qualified pursuant to the laws in effect in Executive's
jurisdiction of residence at the time of Executive's death.
(f) Company shall make all cash payments to which Executive is
entitled hereunder within thirty (30) days following the date of termination of
Executive's employment or earlier, if required by applicable law.
(g) In the event Executive has provided notice to the Company of his
intent to terminate or not renew this Agreement pursuant to SECTION 2(a)(iii) OR
2(b)(iv) or
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Company has provided written notice to the Executive of its intent not to renew
this Agreement pursuant to SECTION 2(b)(v):
(i) Salary and Benefits. The salary and other benefits to
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which Executive would have otherwise been entitled shall continue
through the remainder of the period of notice specified by SECTION
2(a)(iii), 2(b)(iv) OR 2(b)(v), provided that Executive is otherwise
in compliance with the terms of this Agreement, unless (I) Executive
subsequently terminates his employment without Good Reason or the
Company terminates Executive's employment with Cause, (II) Executive
is entitled to the extraordinary payment provided in SECTION 6(a)
pursuant to the provisions of SECTION 6(g)(ii), or (III) Executive is
entitled to the extraordinary payment provided in SECTION 6(b).
(ii) Section 6(a) Benefit. Executive shall be entitled to
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the extraordinary payment provided in SECTION 6(a) (unless Executive
is otherwise entitled to the extraordinary payment provided by SECTION
6(b)) in the event that, subsequent to such notice, (I) Executive is
terminated without Cause by the Company, (II) Executive's employment
terminates due to death or Permanent Disability, or (III) Executive
terminates his employment with Good Cause.
(iii) Section 6(b) Benefit. Executive shall have no rights
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under SECTION 6(b); provided, however, that if Company and a third
party have executed a commitment letter or agreement under which a
Change in Control is to occur and such agreement was entered into
prior to the Company having provided notice to Executive of its intent
not to renew pursuant to SECTION 2, then Executive shall be entitled
to the extraordinary payment provided in SECTION 6(b), if that Change
in Control in fact occurs and Executive otherwise is entitled to those
benefits as set forth in SECTION 6(b).
(h) In the event Executive is entitled hereunder to any payments
or benefits set forth in SECTION 6(a) OR (b), Executive shall have no obligation
to notify Company of employment subsequent to Executive's termination or to
offset Company's obligation by payments due to such employment and shall have no
duty to mitigate.
(i) The provisions for Severance Payments contained in this
SECTION 6 may be triggered only once during the term of this Agreement, so that,
for instance, should Executive terminate owing to a Permanent Disability and
should there thereafter be a Change in Control, then Executive would be entitled
to be paid only under 6(a) and not under 6(b) as well. In addition, Executive
shall not be entitled to receive severance benefits of any kind from any wholly
owned subsidiary or other affiliated entity of ALC if in connection with the
same event of series of events the Severance Payments provided for in this
SECTION 6 have been triggered.
(j) Gross-Up.
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(i) If it is determined that any payment, distribution
or benefit received or to be received by Executive from the Company (whether
payable pursuant to the
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terms of this Agreement or any other plan, arrangements or agreement with the
Company or an affiliate of the Company ("PAYMENTS") would be subject to the
excise tax imposed by Section 4999 of the Code (the "EXCISE TAX"), then
Executive shall be entitled to receive an additional payment (the "EXCISE TAX
GROSS-UP PAYMENT") in an amount such that the aggregate amount of the Payment
and Excise Tax Gross-Up Payment to be retained by Executive, after the deduction
of any Excise Tax on the Payments and any federal, state and local income taxes
and excise tax on the Excise Tax Gross-Up Payment provided for in this SECTION
6(j)(i) , shall be equal to the Payments. In determining this amount, the
amount of the Excise tax Gross-Up Payment attributable to federal income taxes
shall be reduced by the maximum reduction in federal income taxes that could be
obtained by the deduction of the portion of the Excise Tax Gross-Up Payment
attributable to state and local income taxes. Finally, the Excise Tax Gross-Up
Payment shall be reduced by income or excise tax withholding payments made by
the Company or any affiliate of either to any federal, state or local taxing
authority with respect to the Excise Tax Gross-Up Payment that was not deducted
from compensation payable to Executive.
(ii) All determinations required to be made under this SECTION 6 (j),
including whether and when an Excise Tax Gross-Up Payment is required and the
amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, except as specified in SECTION 6(j)(i) above,
shall be made by the Company's independent auditors (the "ACCOUNTING FIRM"),
which shall provide detailed supporting calculations both to the Company and
Executive within fifteen (15) business days after the Company makes any Payments
to Executive. Such determination of tax liability made by the Accounting Firm
shall be subject to review by Executive's tax advisor and, if Executive's tax
advisor does not agree with such determination reached by the Accounting Firm,
then the Accounting Firm and Executive's tax advisor shall jointly designate a
nationally recognized public accounting firm, which shall make such
determination. All reasonable fees and expenses of the accountants and tax
advisors retained by either Executive or the Company shall be borne by the
Company. Any Excise Tax Gross-Up Payment, as determined pursuant to this
SECTION 6(J), shall be paid by the Company to Executive within five (5) days
after the receipt of such determination. Any determination by a jointly
designated public accounting firm shall be binding upon the Company and
Executive.
(iii) As a result of the uncertainty in the application of Subsection
4999 of the Code at the time of the initial determination hereunder, it is
possible that Excise Tax Gross-up Payment will not have been made by the Company
that should have been made consistent with the calculations required to be made
hereunder ("UNDERPAYMENT").
In the event that Executive thereafter is required to make a payment of any
Excise Tax, any such Underpayment calculated in accordance with and in the same
manner as the Excise Tax Gross-up Payment exceeds the amount subsequently
determined to be due, such excess shall constitute a loan from the Company to
Executive payable on the fifth day after demand by the Company (together with
interest at the rate provided in Section 1274 (b)(2)(B) of the Code).
(k) Company agrees to take reasonable steps to ensure that in the
event Company has an obligation to perform under SECTION 6(b), Company shall
have the financial
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ability to do so.
7. Indemnification.
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(a) ALC and Executive shall enter into an indemnification agreement
in substantially the same form as that which is attached hereto as EXHIBIT "B"
and incorporated herein by this reference.
(b) ALC shall include Executive as an insured in its directors and
officers insurance policy and shall provide evidence of such coverage to
Executive upon Executive's written request.
8. Dispute Resolution.
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(a) Mediation. If a dispute arises out of or relates to this
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Agreement or the breach of it (the "DISPUTE"), and if the Dispute cannot be
settled through negotiation, the parties agree first to attempt in good faith to
settle the Dispute by nonbinding mediation under the then effective rules of the
Arbitration Service of Portland, Inc. (the "SERVICE") or, if the Service is no
longer doing business, then under the Mediation Rules of the American
Arbitration Association (the "AAA") before resorting to arbitration.
(b) Arbitration. In the event the parties fail to resolve the
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Dispute through mediation, then either party or both of them shall have the
right to submit the Dispute to final and binding arbitration by the Service or,
if the Service is no longer doing business, then by the American Arbitration
Association. The parties agree to arbitration as an alternative to court
proceedings in order (i) to obtain a prompt evidentiary hearing and an
arbitrator's final award resolving any dispute, (ii) to do so expeditiously, and
(iii) to do so economically. During the arbitration proceeding, the arbitrator,
in the arbitrator's sole discretion, shall have the right to grant requests for
discovery of documents, the taking of depositions, and the issuance of subpoenas
in accordance with Rules of the Service or AAA, whichever is applicable. Each
party hereby promises to cooperate in the arbitration process to effectuate
these purposes. The arbitration shall be conducted in accordance with the Rules
of the Service or, if the Service is no longer doing business, then in
accordance with the Rules of the AAA which are in effect at the time of the
arbitration. Judgment rendered by the arbitrator may be entered in any court
having competent jurisdiction in accordance with Oregon law.
(c) Waiver of Jury Trial. By submitting a Dispute to mediation and
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arbitration, the parties hereto understand that they will not enjoy the benefits
of a jury trial. Accordingly, the parties hereto expressly waive the right to a
jury trial.
(d) Nonexclusive Remedy. Notwithstanding the above provisions
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regarding mediation and arbitration, the parties each retain their respective
rights to seek injunctive relief or other provisional remedies provided under
the law in any court having competent jurisdiction.
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9. Attorneys Fees.
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(a) In the event of mediation, the parties shall bear their own
attorneys fees and costs, except that the cost of mediation shall be shared
equally.
(b) In the event of arbitration, the arbitrator shall award
reasonable attorneys fees and costs of the mediation and arbitration to the
prevailing party, including the fees of the arbitrator, unless such award of
fees and costs would be manifestly unjust for reasons set forth by the
arbitrator in his written decision. In determining the amount of reasonable
attorneys fees to a party, the arbitrator may take into account (i) each party's
respective efforts to achieve an economical and expeditious resolution of the
dispute in accordance with this SECTION; and (ii) the final settlement offers,
if any, of the parties at least ten (10) calendar days prior to the commencement
of the hearing. In accordance with the rules of evidence, however, settlement
offers shall not be considered in relation to the merits of any Dispute that is
subject to this SECTION other than the award of attorneys fees and costs.
(c) Notwithstanding (b) above, if a suit, action or other proceeding
of any nature whatsoever (including any contested matter or adversary proceeding
under the U.S. Bankruptcy Code) is instituted in connection with any controversy
arising out of this Agreement or to interpret or enforce any rights hereunder,
the prevailing party shall be entitled to recover its reasonable attorneys,
paralegals, accountants and other experts fees, and all other fees, costs and
expenses actually incurred in connection therewith, as determined by the judge
at trial or on appeal or review, in addition to all other amounts provided by
law.
(d) ALC agrees to reimburse Executive in an amount not to exceed $2500
for Executive's attorneys fees incurred in the negotiations for, and preparation
of, this Agreement.
10. Notices. All notices and other communications provided to either
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party under this Agreement shall be in writing and delivered by overnight
courier or other personal delivery to such party at its address set forth below
its signature hereto, or at such other address as may be designated by such
party in a notice to the other party. Any notice, if so delivered and properly
addressed with postage prepaid, shall be deemed given when received.
11. Binding Effect. This Agreement shall be binding upon and inure
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to the benefit of Executive's heirs, representatives and executors and ALC's
successors and assigns, respectively.
12. Construction. In construing this Agreement, if any portion of
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this Agreement shall be found to be invalid or unenforceable, the remaining
terms and provisions of this Agreement shall be given effect to the maximum
extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the plural,
the masculine shall include the feminine and neuter genders as appropriate, and
no meaning or effect shall be given to the captions of the sections in this
Agreement, which are inserted for convenience of reference only.
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13. Headings. The section headings hereof have been inserted for
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convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
14. Governing Law. The provisions of this Agreement shall be
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construed and interpreted in accordance with the internal laws of the State of
Oregon as at the time in effect.
15. Entire Agreement. This Agreement constitutes the final and
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entire agreement and supersedes all other prior agreements and undertakings,
both written and oral, including without limitation the Prior Employment
Agreement, among Executive and the Company, with respect to the subject matter
hereof.
16. Counterpart. This Agreement may be executed in one or more
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counterparts, each of which shall be an original, but all of which taken
together shall constitute one instrument.
IN WITNESS WHEREOF, this Agreement has been executed on the dates set
forth below, to be effective as of the date specified in the first paragraph of
this Agreement.
"EXECUTIVE"
Date: 10/3, 1997 /s/ Xxxxxxx XxXxxxx III
_____________________________________
Xxxxxxx XxXxxxx III, as an individual
Home Address:
_____________________________________
_____________________________________
"ALC OR COMPANY"
Date: 10/3, 1997 Assisted Living Concepts, Inc.
/s/ Xxxxxxx Xxxxxx
_____________________________________
Xxxxxxx Xxxxxx, Chief Financial Officer
Address:
0000 X.X. Xxxxxxxxxx Xx., Xxxxx Xxxxx
Xxxxxxxx, XX 00000
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