EXHIBIT 10.4
AGREEMENT REGARDING
TERMINATION OF EMPLOYMENT
AND SEVERANCE BENEFITS
WHEREAS, H. Xxxxxx Xxxxxx ("Xxxxxx") and Apple Orthodontix, Inc.
("Apple") have heretofore entered into an agreement dated March 1, 1997
pursuant to which Apple employed Xxxxxx and thereafter amended such employment
agreement in certain respects (the amended employment agreement being hereafter
referred to as the "Employment Agreement"); and
WHEREAS, Apple has terminated Xxxxxx'x employment effective as of May 4,
1998; and
WHEREAS, Xxxxxx and Apple have agreed to certain commitments and
understandings regarding the severance benefits which he is owed as a result of
Apple's termination of his employment and desire to evidence such understandings
pursuant to this agreement.
NOW, THEREFORE, Xxxxxx and Apple agree as follows:
1. Apple agrees that Xxxxxx'x termination of employment by Apple is without
Cause (as such term is defined in the Employment Agreement) for all
purposes of the Employment Agreement.
2. In lieu of the benefits which otherwise would be payable by Apple to
Xxxxxx pursuant to Section 5(E)(i) of the Employment Agreement, Xxxxxx
agrees to accept and Apple agrees to pay to Xxxxxx a total cash
severance benefit payment in the amount of $1,600,000.00 payable in
twelve installments with the first such installment being paid to Xx.
Xxxxxx upon execution of this agreement and the remaining eleven
installments being paid on the first day of each calendar month during
the period of June 1, 1998 through April 30, 1999. In addition and if
there occurs at any time prior to May 1, 2000 a "Change of Control" of
Apple within the meaning of paragraph 6 of this agreement, Apple will
pay to Xxxxxx in a single cash payment the sum of $300,000.00 within 30
days of such Change of Control.
3. In full and complete satisfaction of its obligations in connection with
the stock options described in Section 4.C.(iv)(b) of the Employment
Agreement, Apple agrees to transfer to Xxxxxx, as against Apple's
obligation to honor the exercise of such options, (i) 76,850 shares of
its common stock, of which 38,425 shares shall be issued immediately
upon execution of this agreement and 38,425 shares shall be issued upon
May 22, 1998 and (ii) a cash payment of $250,000 on the date of
execution hereof.
4. Apple agrees not to make incorrect, disparaging or negative comments
concerning Xxxxxx. Apple agrees that any violation of the covenant
described in this paragraph 4 shall (i) cause all cash amounts described
in paragraph 2 above of this agreement to become immediately due and
payable to Xxxxxx in full and (ii) obligate Apple to pay Xxxxxx
liquidated damages in the amount of $600,000 unless (i) Apple, promptly
after written notice is received from Xxxxxx that Xxxxxx believes a
violation of this paragraph 4 has occurred, retracts such comment or
otherwise takes steps to correct such violation and (ii) Xxxxxx
determines in his reasonable discretion which determination shall not be
unreasonably withheld and confirms such determination in writing that
the corrective action taken by Apple has adequately eliminated the
injury or harm caused Xxxxxx by such violation.
5. Xxxxxx agrees not to make incorrect, disparaging or negative comments
concerning Apple or its officers and further agrees that, promptly after
written notice is received from Apple that a violation of this paragraph
5 has occurred, to retract such comment or otherwise take steps to
correct such violation. Nothing in this paragraph 5 shall be construed
or interpreted to obligate Xxxxxx to refuse or to fail to answer fully
and truthfully questions in any legal proceedings involving Apple, or
its officers or its directors.
6. Upon the occurrence of a "Change of Control" of Apple, all payments
then remaining payable pursuant to paragraph 2 above of this agreement
shall become immediately due and payable. For purposes of this paragraph
6, "Change of Control" means the occurrence of any of the following
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events: (a) any Person become an Acquiring Person; (b) at any time the
then Continuing Directors cease to constitute a majority of the members
of the Board; (c) a merger of Apple with or into, or a sale by Apple of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety. For purposes of the preceding definition
of "Change of Control", the following terms shall have the following
meanings:
(i) "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 Apple, 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 Affiliates 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.
(ii) "Affiliate" has the meaning ascribed to that term in the Securities
Exchange Act of 1934 Rule 12b-2.
(iii) "Associate" means, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated
organization or other entity (other than Apple or a subsidiary of
Apple) of which that Person is an officer or general partner (or
officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of its
equity securities, (b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person
serves as trustee or in a similar fiduciary capacity, (c) any
relative or spouse of that Person, or any relative of that spouse,
who has the same home as that Person and (d) any stockholder, partner
or owner of any equity in such Person.
(iv) "Board" means the board of directors of Apple.
(v) "Common Stock" means the common stock of Apple.
(vi) "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 May 4,
1998 or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved
by a majority of the then Continuing Directors (acting separately or
as a part of any action taken by the Board or any committee thereof)
and (b) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such Affiliate or Associate.
(vii) "Exempt Person" means (a) (1) Apple, any subsidiary of Apple, any
employee benefit plan of Apple or of any subsidiary of Apple and (2)
any Person organized, appointed or established by Apple 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
Apple or any subsidiary of Apple and (b) Xxxxxx, any Affiliate or
Associate of Xxxxxx or any group (as that term is used in the
Securities
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Exchange Act of 1934 Rule 13d-5(b) of which Xxxxxx or any Affiliate
or Associate of Xxxxxx is a member.
(viii) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated
organization or association, mutual company, joint stock company,
joint venture, estate, trust, union or employee organization or
governmental authority.
(ix) "Voting Shares" means: (a) in the case of any corporation, stock of
that corporation of the class or classes having general voting power
under ordinary circumstances to elect a majority of that corporation's
board of directors; and (b) in the case of any other entity, equity
interests of the class or classes having general voting power under
ordinary circumstances equivalent to the Voting Shares of a
corporation.
7. Should any payments made by Apple to Xxxxxx pursuant to this agreement
or resulting from or in connection with his prior employment with Apple, singly,
in any combination or in the aggregate, to or for the benefit of Xxxxxx be
determined or alleged to be subject to an excise or similar purpose tax pursuant
to Section 4999 of the Internal Revenue Code of 1986, as amended (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), Apple shall pay to Xxxxxx such additional compensation as is necessary
(after taking into account all federal, state and local taxes payable by Xxxxxx
as a result of the receipt of such additional compensation) to place Xxxxxx 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. Apple hereby agrees to pay such additional
compensation within the earlier to occur of (i) five (5) business days after
Xxxxxx notifies Apple that Xxxxxx 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 Xxxxxx'x tax counsel (such tax counsel to be chosen
solely by Xxxxxx) 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 Apple
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 Apple, and as long as such tax counsel was
chosen by Xxxxxx in good faith, the conclusions reached in such opinion shall
not be challenged or disputed by Apple. If Xxxxxx intends to make any payment
with respect to any such excise or similar purpose tax as a result of an
adjustment to Xxxxxx'x tax liability by any federal, state or local tax
authority, Apple will pay such additional compensation by delivering its
cashier's check payable in such amount to Xxxxxx within five (5) business days
after Xxxxxx notifies Apple of his intention to make such payment. Without
limiting the obligation of Apple hereunder, Xxxxxx agrees, in the event Xxxxxx
makes any payment pursuant to the preceding sentence, to negotiate with Apple in
good faith with respect to procedures reasonably requested by Apple which would
afford Apple the ability to contest the imposition of such excise or similar
purpose tax; provided, however, that Xxxxxx will not be required to afford Apple
any right to contest the applicability of any such excise or similar purpose tax
to the extent that Xxxxxx reasonably determines (based upon the opinion of his
tax counsel) that such contest is inconsistent with the overall tax interests of
Xxxxxx.
8. In entering this agreement Apple intends that Xxxxxx 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 Xxxxxx; Apple, therefore, agrees that it will strive expeditiously
and in good faith to construe and resolve in Xxxxxx'x 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 Xxxxxx and Apple or another person or
entity as to the validity, interpretation or application of any term or
condition hereof, or as to Xxxxxx'x entitlement to any benefit intended to be
bestowed hereby, which is not resolved to the reasonable satisfaction of Xxxxxx,
(ii) Xxxxxx must (a) defend the validity of this agreement, (b) contest any
determination by Apple concerning the amounts payable (or reimbursable) by Apple
to Xxxxxx, or (c) determine in any tax year of Xxxxxx the tax consequences to
Xxxxxx of any amounts payable (or
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reimbursable) under paragraph 7, or (iii) Xxxxxx must prepare responses to an
Internal Revenue Service ("IRS") audit of, or otherwise defend, his personal
income tax return for any year the subject of any such audit, or an adverse
determination, administrative proceedings or civil litigation arising therefrom
that is occasioned by or related to an audit by the IRS of Apple's income tax
returns, then Apple hereby unconditionally agrees:
(a) On written demand of Apple by Xxxxxx, to provide sums sufficient to
advance and pay on a current basis (either by paying directly or by
reimbursing Xxxxxx) not less than thirty (30) days after a written
request therefor is submitted by Xxxxxx, Xxxxxx'x 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 Xxxxxx in connection
with any such matter.
(b) Xxxxxx 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 Apple
to pay or advance such costs and expenses on a current basis; and
(c) Apple's obligations under this paragraph 8 will not be affected if
Xxxxxx is not the prevailing party in the final resolution of any such
matter.
9. Apple agrees to pay all legal and other fees, costs and expenses
incurred by Xxxxxx in connection with the termination of his employment with
Apple including fees, costs and expenses incurred by Xxxxxx in connection with
and the negotiation and implementation of this agreement and certain other
proposed but ultimately not consummated agreements.
10. Time is of the essence of this agreement. Overdue payments (whether in
cash or in kind) under this agreement shall accrue interest at a rate of 18% per
annum through the date of full and complete payment. Any failure by Apple to pay
any amounts due under this agreement that continues for more than 10 business
days shall constitute a material breach by Apple of this agreement and all then
remaining payable pursuant to paragraph 2 of this agreement shall thereupon be
accelerated and shall be immediately due and payable.
11. Xxxxxx shall be indemnified by Apple with respect to his prior
employment with Apple to the maximum extent permitted by the laws of Delaware,
the state of Apple's incorporation, and the laws of the state of incorporation
of any subsidiary of Apple of which Xxxxxx is or at any time was a director,
officer, employee or consultant as same may be in effect from time to time.
12. Xxxxxx waives and releases all rights, claims, charges, demands and
causes of action against Apple, its predecessors, successors, parent companies,
subsidiaries and affiliates, and its officers, directors, employees, owners,
shareholders and agents, of any kind or character, both past and present, known
or unknown, including but not limited to those arising under the Age
Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of
1964, and the Employee Retirement Income Security Act of 1974, all as amended,
and any other state or federal statute, regulation or the common law (contract,
tort or other), which relate to Xxxxxx'x employment with Apple prior to May 4,
1998 or termination of such employment, including both not limited to any
alleged discriminatory or retaliatory employment practices, any matter relating
to or arising under the Employment Agreement or any other matter. Apple
understands and agrees that the foregoing waiver and release shall not serve to
waive or release any rights or claims that may arise after the date this
agreement is executed whether relating to this agreement or otherwise. Apple
waives and releases all rights, claims, charges, demands and causes of action
against Xxxxxx of any kind or character, both past and present, known or
unknown, arising under any state or federal statute, regulation or the common
law (contract, tort or other), which relate to Xxxxxx'x employment Agreement or
any other matter. Xxxxxx understands that the foregoing waiver and release shall
not serve to waive or release any rights or claims that may arise after the date
this agreement is executed whether relating to this agreement or otherwise.
13. This agreement is entered into under and shall be governed for all
purposes by the laws of the State of Texas.
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14. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time.
15. If a court of competent jurisdiction determines that any provision of
this agreement is invalid or unenforceable, then the invalidity or
unenforceability of that provision shall not affect the validity; or
enforceability of any other provision of this agreement, and all other
provisions shall remain in full force and effect.
16. This agreement and the rights and obligations of the parties hereunder
are personal, and neither this agreement nor any right, benefit, or obligation
of either party hereto shall be subject to voluntary or involuntary assignment,
alienation, or transfer, whether by operation of law or otherwise, without the
prior written consent of the other party.
17. This agreement represents the entire agreement between the parties
hereto with respect to the matters covered herein and may not be changed,
altered, or modified in any respect except by an instrument in writing signed by
both the parties hereto.
18. Except as specifically set forth in this agreement, Apple agrees that
any and all rights and benefits otherwise accruing to or benefitting Xxxxxx
under the terms of the Employment Agreement continue to be in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed this 6th day of May, 1998.
APPLE ORTHODONTIX, INC.
By: XXXX X. XXXXXXX, CEO
XXXX X. XXXXXXX, CEO
H. XXXXX XXXXXX
H. XXXXX XXXXXX
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