EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated January 17, 1997,
is made by and between DAOU Systems, Inc., a Delaware Corporation having its
principal offices at 0000 Xxxxxxxx Xxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000 (the
"Company") and Xxxxxx XxXxxxx ("Employee").
AGREEMENT
1. EFFECTIVE DATE.
Employee's employment commenced on November 11, 1996. This Agreement
formalizes the terms and conditions to which Employee orally agreed prior to
accepting and beginning his employment with the Company. This Agreement
therefore memorializes an Agreement already in existence between the parties,
and will, upon signature, be retroactive to November 11, 1996.
2. AT-WILL EMPLOYMENT.
Employee's employment relationship with the Company is at-will,
terminable at any time and for any reason by either the Company or Employee.
The Company nonetheless reserves the right to discharge an employee for acts of
gross misconduct in the performance of his duties or may otherwise terminate the
employee for a specific reason or for "cause". While certain paragraphs of this
Agreement describe events which could occur at a particular time in the future,
nothing in this Agreement may be construed as a guarantee of employment of any
length.
3. EMPLOYMENT DUTIES.
a. TITLE/RESPONSIBILITIES. Employee shall hold the title of
Executive Vice President of the Company. Employee shall also perform all duties
which from time to time are assigned to him by the Board of Directors ("BOARD").
b. FULL TIME ATTENTION. Employee shall devote all of his business
time and attention, energy and skills to the Company during the time he is
employed under this Agreement.
c. POLICY COMPLIANCE. Employee is required to comply with the
Company policy, practice and procedure in effect during his employment. Employee
must agree to the terms and conditions of the Company's Employee
Confidentiality and Inventions Agreement ("CONFIDENTIALITY AGREEMENT," attached
to this Agreement as Exhibit 1 and incorporated by reference.)
4. COMPENSATION.
a. BASE SALARY. The Company shall pay Employee an annual Base
Salary of One Hundred Seventy Five Thousand Dollars ($175,000.00), which will
be paid bi-weekly during the year. Any increase to the Base Salary is within
the sole discretion of the Company.
b. SIGNING BONUS. In order to assist Employee in exercising the
options which he presently holds for shares of stock in his former employer,
Shared Medical Systems Corporation ("SMS"), the Company will pay Employee a
signing bonus of an amount equal to the tax liability Employee incurs in
exercising the above referenced options, up to a maximum payment of $105,000.00.
Employee understands and agrees to repay the Company the unearned portion of the
bonus if employee resigns or is discharged for "cause" prior to completion of
three years of employment. The bonus is earned pro rata over three years.
c. BONUS COMPENSATION. In addition to the compensation provided
above, the Company will pay Employee an incentive bonus in the amount of up to
$30,000.00 per quarter during the employment relationship. For 1996, Employee
is eligible for a pro-rata portion of this bonus, for the period from November
11, 1996 through December 31, 1996. Thereafter, from January 1, 1997, the bonus
will be paid quarterly, and will be paid within 10 days of the end of the
quarter. Such bonus shall be contingent upon the Company's achievement of
Quarterly Goals for revenue and profit. These Quarterly Goals will be set by
the Company at the beginning of each calendar year. All bonus arrangements are
established and reviewed by the Board and may be modified at any time by the
Board in its sole discretion.
d. STOCK OPTIONS.
(1) GRANT OF OPTIONS. Employee acknowledges that effective
November 11, 1996 he has been granted non-qualified options to purchase 100,000
shares of the Company's common stock under DAOU's 1996 Stock Option Plan ("THE
PLAN") subject to the terms and conditions of the Stock Option Agreements
reflecting that grant (the "OPTION AGREEMENTS") as follows: Employee has been
granted a non-qualified stock option exercisable into one hundred thousand
shares, in each case, at an exercise price of Six Dollars ($6) per share. These
options shall vest in five equal annual increments commencing on the first
anniversary date of his employment, rounded to the nearest whole number of
shares. The stock options are subject to the terms and provisions set forth in
the Option Agreements and the Plan as well as applicable state and federal laws
including, but not limited to, tax and securities laws. The length of time the
option to purchase will remain open and details of this grant are formalized in
the Option Agreement and the Plan.
(2) TAX EFFECT OF EXERCISE, SALE OR GIFT. The Company and
Employee intend that the after-tax effect of the options to Employee shall be
equivalent to the
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result that would pertain had they originally been issued as incentive stock
options (ISOs) with the same terms and conditions. Accordingly, should
Employee incur a tax liability as a result of the exercise of the options in
excess of the tax liability that would have been incurred had the options
originally been issued as ISOs ("Excess Tax"), the Company shall make an
interest-free loan to Employee equal to the Excess Tax. At the time of sale
or other disposition of the shares subject to the options, the loan will be
due and payable, but the amount payable shall be reduced by the amount, if
any, by which (1) the cumulative tax liability on exercise of the options and
on disposition of the underlying shares exceeds (2) the tax that would have
been incurred had the options originally been issued as ISOs. If the shares
are not sold or otherwise disposed of on or before the earlier of (1) the
Employee's date of termination or (2) January 17, 2002, the loan will be due
and payable in full. Other repayment terms will be established in writing at
the time of the loan ("Loan Agreement"). In the event Employee fails to
repay the loan in a timely manner, according to the Loan Agreement, the
Company reserves the right to offset the debt from Employee's future bonus
payments, if any.
(3) STOCK SPLIT. The Company is currently contemplating an
Initial Public Offering ("IPO"). The number of such shares into which
Employee's stock options are exercisable ("OPTION SHARES") will be adjusted
upward proportionately in the event of a stock split or other upward adjustment
in the number of outstanding shares of capital stock in the Company (by merger
or otherwise) preparation for that IPO, PROVIDED, HOWEVER, that in no event
shall the number of Option Shares exceed 200,000 at the time of the first split.
(4) SHORTFALL. If Employee is employed by the Company three
years from the option date, and if at that time the originally issued options
do not have a net value (exercise price of such options minus market value of
the Company's common stock, as defined below) of at least $1,550,000.00, a
cash bonus will be paid to make up the shortfall. If the Company is public,
the market value of the common stock will be determined by calculating the
trading price for the common stock (or any other securities received by
Employee in lieu thereof) for a sixty day trading period preceding that three
year date. Otherwise, the market value will be determined by the fair market
value of such securities as reasonably determined by the Board or the
Committee as that group is defined in the Plan.
(5) TAX IMPLICATIONS. The Company does not make any warranty or
representation with respect to the taxability or tax consequence of any of the
above grant of options or of the tax consequences of any exercise of the options
or consequent sale of the shares purchased. Employee is advised to consult with
his own tax advisor with respect to the tax treatment of the option grant.
e. FRINGE BENEFITS.
(1) VACATION. During the Term of this Agreement, Employee shall
be entitled to vacation in accordance with The Company's vacation policy as set
forth in the Employee Handbook.
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(2) HEALTH BENEFITS. The Company agrees to provide Employee
with comprehensive health insurance benefits during his employment.
(3) 401(k) PARTICIPATION. Employee may participate in any 401(k)
or other employee retirement plan according to the requirements of those plans
starting January, 1997.
(4) LIFE INSURANCE. The Company shall maintain a term life
insurance policy providing for payment of $500,000.00 to Employee's designated
beneficiaries.
(5) SHORT TERM AND LONG TERM DISABILITY INSURANCE. In the event
Employee suffers a short term disability, Employee will seek state short term
disability benefits. The Company shall provide short term disability payments
to ensure that Employee receives, in combination with state disability benefits,
if any, One Hundred Percent (100%) of Employee's base salary for a period of six
consecutive months of disability. The Company shall provide long term
disability insurance to provide Employee with $8,500.00 per month for any
consecutive period of disabilities after the six consecutive months of
disability for the term set by the policy.
(6) AUTOMOBILE. During his employment, the Company agrees to
provide Employee with an automobile allowance in the initial amount of $550.00
per month towards an automobile to be used in connection with the Company's
business.
f. REIMBURSEMENT OF EXPENSES. During his Employment, with approval
by the Chief Financial Officer, Employee shall be entitled to reimbursement of
reasonable and actual expenses, incurred on behalf of the Company, including but
not limited to travel and entertainment expenses, supplies and cellular phone
expenses.
5. CONFIDENTIALITY. As set forth above, Employee agrees to comply with
the terms and conditions of the Company's Employee Confidentiality and
Inventions Agreement (EXHIBIT 1).
6. RETURN OF PROPERTY. Employee agrees that all documents, records,
apparatus, equipment and other physical property which is furnished or obtained
by Employee in the course of his employment with the Company shall be and remain
the sole property of the Company. Employee agrees that, upon the termination of
his employment, he shall return all such property (whether or not it pertains to
Proprietary Information), and agrees not to make or retain copies, reproductions
or summaries of any such property.
7. NON COMPETITION. During the term of his employment, Employee shall
not, directly or indirectly, either as an employee, employer, consultant,
corporate officer,
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director, or in any other individual or representative capacity, engage or
participate in any business that is in competition in with the business of the
Company in any location, unless such participation or interest is fully
disclosed to the Company and approved by the Board.
8. AGREEMENT WITH PREVIOUS EMPLOYERS. Employee agrees that he does not
have any agreement with any previous employer which will prevent him from
performing under this agreement or which will limit his performance except as
follows: By virtue of an agreement with SMS, Employee is prohibited, for a
period of eighteen months from November 11, 1996, from using information which
he gained by soliciting and negotiating SMS contracts with (1) Crozer-Chester
Medical Center, Philadelphia; (2) Childrens' Medical Center, Pittsburgh; and (3)
Pinnacle Health Systems, Harrisburg, to displace SMS services or to reduce SMS's
revenues received from these three clients.
9. SEVERANCE.
a. UPON TERMINATION WITHOUT "CAUSE" As set forth above, the
employment relationship between the parties is at-will, terminable at any time
by either party for any reason or no reason. Where Employee is discharged
without "cause", Employee is eligible for severance payments equivalent to
eighteen months of base salary paid over an eighteen (18) month period. These
payments will cease if Employee obtains new employment within the eighteen month
period or becomes a consultant to any company.
b. UPON RESIGNATION, AT COMPANY OPTION If Employee voluntarily
resigns his employment at his own initiative with the Company, the Company at
its option and in its sole discretion may offer severance of up to eighteen (18)
monthly payments of base salary, IF AND ONLY IF he agrees to extend the non-
competition requirements set forth in paragraph 7 above for the severance
period. The Company reserves the right to cease any remaining Severance
Payments in the event Employee violates this Agreement.
c. DISCHARGE WITH "CAUSE" Where Employee is discharged as a result
of gross misconduct or otherwise for "cause", he is not eligible for severance.
d. COBRA REIMBURSEMENT Upon termination of the employment
relationship, Employee will be provided with election forms for medical
insurance continuation as provided by the Consolidated Omnibus Budget
Reconciliation Act (COBRA). If Employee elects to continue insurance under
COBRA, the Company will reimburse Employee for the cost of his continued health
insurance (not dependents), for up to eighteen (18) months. This does not
extend the length of the COBRA period. In the event Employee becomes eligible
for or obtains insurance through any replacement employment, this benefit will
cease.
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10. DISPUTE RESOLUTION PROCEDURES. Any dispute or claim arising out of
this agreement shall be subject to final and binding arbitration. The
arbitration will be conducted by one arbitrator who is a member of the American
Arbitration Association (AAA) or of the Judicial Arbitration and Mediation
Services (JAMS) and will be governed by the Model Employment Arbitration rules
of AAA. The arbitration shall be held in San Diego, California. The arbitrator
shall have all authority to determine the arbitrability of any claim and enter a
final and binding judgment at the conclusion of any proceedings in respect of
the arbitration. Any final judgment only may be appealed on the grounds of
improper bias or improper conduct of the arbitrator. Notwithstanding any rule
of AAA to the contrary, the parties will be entitled to conduct discovery (i.e.
investigation of facts through depositions and other means) which shall be
governed by the Code of Civil Procedure section 1283.05. The arbitrator shall
have all power and authority to enter orders relating to such discovery as are
allowed under the Code. The arbitrator will apply California substantive law in
all respects. The party prevailing in the resolution of any such claim will be
entitled, in addition to such other relief as may be granted, to an award of all
actual attorneys fees and costs incurred in pursuit of the claim, without regard
to any statute, schedule, or rule of court purported to restrict such award.
11. GENERAL PROVISIONS.
a. GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of California.
b. ASSIGNMENT. Employee may not assign, pledge or encumber his
interest in this Agreement or any part thereof.
c. NO WAIVER OF BREACH. The failure to enforce any provision of
this Agreement will not be construed as a waiver of any such provision, nor
prevent a party thereafter from enforcing the provision or any other provision
of this Agreement. The rights granted the parties are cumulative, and the
election of one will not constitute a waiver of such party's right to assert all
other legal and equitable remedies available under the circumstances.
d. SEVERABILITY. The provisions of this Agreement are severable,
and if any provision will be held to be invalid or otherwise unenforceable, in
whole or in part, the remainder of the provisions, or enforceable parts of this
Agreement, will not be affected.
e. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter of this Agreement,
and supersedes all prior and contemporaneous negotiations, agreements and
understandings between the parties, oral or written, including but not limited
to the Offer Letter.
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f. MODIFICATION; WAIVERS. No modification, termination or attempted
waiver of this Agreement will be valid unless in writing, signed by the party
against whom such modification, termination or waiver is sought to be enforced.
g. FEES AND EXPENSES. If any proceeding is brought for the
enforcement or interpretation of this Agreement, or because of any alleged
dispute, breach, default or misrepresentation in connection with any provisions
of this Agreement, the successful or prevailing party will be entitled to
recover from the other party reasonable attorneys' fees and other costs incurred
in that proceeding (including, in the case of an arbitration, arbitration fees
and expenses), in addition to any other relief to which such party may be
entitled.
h. AMENDMENT. This Agreement may be amended or supplemented only by
a writing signed by both of the parties hereto.
i. DUPLICATE COUNTERPARTS. This Agreement may be executed in
duplicate counterparts, each of which shall be deemed an original; provided,
however, such counterparts shall together constitute only one instrument.
j. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
k. DRAFTING AMBIGUITIES. Each party to this Agreement and its
counsel have reviewed and revised this Agreement. The rule of construction that
any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any of the amendments to
this Agreement.
Dated: January 20, 1997 DAOU Systems, Inc.
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By: /s/ Xxxx XxXxx
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Xxxx XxXxx, Chief Financial Officer
Dated: January 20, 1997 /s/ Xxxxxx XxXxxxx
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Xxxxxx XxXxxxx
