EMPLOYMENT AGREEMENT
Agreement made the 9th day of December, 1997, by and between a
The Corporation: Certified Diabetic Services, Inc. (a Delaware corporation)
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
and
Executive: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Effective Date: December 22, 1997
BACKGROUND
It is in the best interest of the Corporation and its
Shareholders to secure Executive's services for the Corporation with an
employment agreement. The Corporation, as an incentive to Executive to become
employed and to continue employment with the Corporation grants compensation,
present and future stock interests and other incentives as more fully set
forth in this Agreement and the attached Schedules. Executive and the
Corporation desire to enter into an Employment Agreement under the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the promises and mutual
agreements set forth in this Agreement and for other good and valuable
consideration, the parties agree as follows:
1. EMPLOYMENT
The Executive shall be employed by the Corporation in the
capacity of President and Chief Operating Officer of the Corporation.
The Corporation shall indemnify Executive to the full extent
of the general laws of the Corporation's state of incorporation, now or
hereafter in force, including the advance of expenses under procedures provided
by such laws.
2. DUTIES
Executive shall serve the Corporation faithfully and to the
best of his ability, under the direction of the Chairman of the Board of
Directors (the "Chairman"). Executive shall be responsible for managing the
daily operations and management of the Corporation, including without
limitation, personnel decisions, sales, marketing, customer support and
financial operations under the guidance of the Chairman. Executive shall perform
such other duties as the
Chairman may from time to time prescribe consistent with Executive's position,
title, duties, responsibilities, and status with the Corporation. Executive
shall report and be responsible to the Chairman, and shall conduct his
activities hereunder in consultation with and under the reasonable direction and
control of the Chairman. Executive shall devote his entire time, energy and
skill during the regular business hours and such other hours as are reasonably
necessary to the Corporation. The Corporation acknowledges, however, that
Executive has other business interests and is a director of other businesses and
that such activity shall not constitute a breach of this Agreement as long as it
does not normally interfere with the performance by Executive of his duties
hereunder.
3. COMPENSATION
The Corporation shall pay or cause to pay Executive during the
term of his employment salary and bonuses as more particularly set forth in
Schedule "A" which is attached to this Agreement and made part hereof.
4. STOCK
Executive shall be entitled to certain stock and stock options
in the Corporation as set forth in Schedule "B" which is attached to this
Agreement and made a part hereof.
5. ADDITIONAL BENEFITS
Executive shall also be entitled to any fringe benefits which
may from time to time be made available to officers, directors and other
Executives of the Corporation and as set forth in the personal policies of the
Corporation, or as determined by the Board including but not limited to any
employee benefit plan which is qualified and exempt under Section 401(a) and
501(a) of the Internal Revenue Code. Executive shall also be entitled to any
group medical, dental, hospitalization insurance, long-term disability insurance
of not less than ($4,000/month) Four Thousand Dollars per month and a life
insurance policy of not less than ($1,000,000) One Million dollars payable in
the event of death of the Executive and the Executive shall select the
beneficiary. If, for any reason, the insurance cannot be placed, then the
Executive is entitled to the cash equivalent. Executive shall also be entitled
to annual membership fees for up to two private clubs of Executive's choosing,
to incur no more than $3,100 per annum.
6. EXPENSES
The Corporation shall reimburse Executive for out-of-pocket
expenditures for transportation, fuel, entertainment, travel, meals, hotel
accommodations and the like incurred by him, in the interest of the Corporation
("out-of-pocket expenses"). Executive shall each month submit vouchers, receipts
or other documentation together with appropriate written explanation required by
the Corporation to verify out-of-pocket expenses and shall be reimbursed for the
actual expenses incurred. The Corporation shall provide Executive a reasonable
monthly allowance for automobile expense, including cost of the vehicle, gas,
maintenance, repairs and insurance, or in the alternative, may provide a
suitable motor vehicle for use by the Executive for conduct of business on
behalf of the Corporation, of up to ($650) per month.
2
7. WORKING FACILITIES
The Corporation shall furnish Executive with such office space
and other facilities and services as in the discretion of the Chairman is
appropriate for such an executive position and necessary for performance of his
duties.
8. AUTHORITY TO BIND THE CORPORATION
Executive shall have authority to enter into contracts binding
upon the Corporation and to create any obligations on the part of the
Corporation in the normal course of business and as would be expected of an
Executive of a similar corporation. Notwithstanding the foregoing, Executive
shall not have the authority to enter into contracts binding the Corporation,
without prior approval with the Chairman, for purchases or transactions equal to
or exceeding ($500,000) Five Hundred Thousand Dollars.
9. VACATIONS
Executive shall be entitled each year to six (6) weeks paid
vacation in accord with company policy for officers, directors, or senior
management personnel.
Vacations shall be coordinated with other employees of the
Corporation, shall be consistent with Executive's duties (as more fully set
forth in Section 2 of this Agreement) and the needs of the Corporation and shall
be scheduled at such times so as not to interfere with the effective operation
of the Corporation.
10. TERM AND TERMINATION OF EMPLOYMENT
10.a. Term
The term of employment shall be for a period of three (3)
years commencing on the Effective Date of this Agreement. At the end of the
initial three (3) year term, the Corporation and Executive agree to negotiate in
good faith a new contract or extension of the current contract. In the event the
Corporation and Executive fail to reach an agreement due solely to the failure
of the Corporation to negotiate in good faith, Executive shall be entitled upon
his termination to his highest annual compensation (to include all bonus
compensation) payable for one (1) year from the date of termination in the same
manner his salary was paid while employed ("Severance Pay").
Further, in the event the Corporation terminates Executive
other than pursuant to the provisions set forth in Section 10.b. below,
Executive shall be entitled to (i) the greater of (a) the balance of his
compensation due under this Agreement, and (b) an amount equal to two year's
compensation and benefits as provided in Sections 3, 4, 5, 6 and 7, (ii)
Severance Pay for the year following termination, and (iii) release of all stock
and stock options of the Corporation set forth in Schedule B from any escrow,
forfeiture, or vesting provisions.
3
10.b. Termination
10.b.1 Termination by Death. If Executive dies, then
this Agreement shall terminate immediately, except that Executive's heirs,
personal representatives or estate shall be entitled to receive (a) his Minimum
Base Compensation (as defined in Schedule A) for a period of one (1) year after
his death payable as his Minimum Base Compensation was paid during Executive's
lifetime; (b) any accrued benefits up to the date of termination; (c) bonuses
that have accrued but not paid; (d) all shares of stock and stock options of the
Corporation owned by the Executive or promised by the Corporation to Executive,
including without limitation all stock pledged, held in escrow, stock options,
warrants or other rights to own or purchase stock in the Corporation; and (e)
any benefits which are to be continued or paid after the date of termination in
accordance with the terms of the corresponding benefit plans.
10.b.2 Termination by Disability. If Executive
becomes disabled, and such disability continues for more than three (3)
consecutive months after the onset of Disability (as defined below) or for
periods aggregating more than four (4) months during any six month period, the
Corporation shall have the right to terminate this Agreement immediately, except
that Executive shall be entitled to receive (a) the difference in his Minimum
Base Compensation above any disability insurance proceeds received from the
disability policy or plan paid for or provided by the Corporation for a period
of one (1) year beginning on the date of the Onset of Disability (as defined
below); (b) any accrued benefits up to the date of the termination; (c) bonuses
that have accrued but not paid; (d) all shares of stock and stock options of the
Corporation owned by or promised by the Corporation to Executive, including
without limitation all stock pledged, held in escrow, stock options, warrants or
other rights to own or purchase stock in the Corporation; and (e) any benefits
which are to be continued or paid after the date of termination in accordance
with the terms of the corresponding benefit plans. "Onset of Disability" means
the first day on which Executive shall be unable to perform any of his duties
under this Agreement on a full time basis by reason of physical or mental
incapacity, sickness or infirmity.
In the event of a partial disability, Executive shall be
entitled to work for such time and in such capacity as his disability permits
and his salary be adjusted accordingly.
10.b.3 For Cause. This Agreement may be terminated
for Cause (as defined below), upon five (5) days prior written notice from the
Corporation to Executive upon the occurrence or act by Executive of any one of
more of the following events ("Cause"):
(a) an act of fraud or dishonesty by Executive
that results in gain or personal enrichment
of Executive at the Corporation's expense;
or
(b) Executive's willful engagement in gross
misconduct materially injurious to the
Corporation that has not been cured by
Executive within thirty (30) days of
written notice specifying the alleged
willful gross misconduct and material
injury. For purposes of this Agreement, no
act or failure to act on Executive's part
shall be considered "willful" unless done
or omitted to be done by him not
4
in good faith and without reasonable belief
that his action or omission was in the best
interest of the Corporation.
If the Executive's employment is terminated for Cause
pursuant to this Section, Executive shall be entitled to receive (a) his
accrued Minimum Base Compensation through the date of termination, (b) any
accrued benefits up to the date of termination, (c) release of all stock and
stock options of the Corporation set forth in Schedule B from any escrow,
forfeiture, or vesting provisions, and (d) any benefits which are to be
continued or paid after the date of termination in accordance with the terms
of corresponding benefit plan.
10.b.4 Mutual Agreement. This Agreement may be
terminated any time upon mutual agreement of the parties.
10.c. Change in Control
In the event that the Corporation shall have undergone a
Change of Control (as defined in the Executive Agreement, dated the date hereof,
between the Corporation and Executive (the "Executive Agreement")), in lieu of
compensation otherwise provided under this Agreement, Executive shall be
entitled to the benefits described in the Executive Agreement upon the
termination of his employment, either voluntarily by Executive or by the
Corporation for any reason except Executive's Disability or death.
10.d. Mitigation
In the event that Executive's employment is terminated for
any reason, Executive shall have not duty to mitigate his damages by seeking
other employment and the Corporation shall not be entitled to set off amounts
payable under this Agreement any compensation which Executive may receive from
future employment.
11. PROCEDURE UPON TERMINATION
Upon termination of his employment, Executive shall
promptly return to the Corporation all documents (including copies) and other
materials and property of the Corporation, pertaining to its business, including
without limitation customer and prospect lists, contracts, files, manuals,
letters, reports and records in his possession or control, no matter from whom
or in what manner required.
12. DISCOVERIES
Except as set forth in this Section, Executive shall
communicate to the Corporation, in writing when requested, and preserve as
confidential information of the Corporation, all customer lists, trade secrets,
estimating techniques, bidding practices, non-public client information, client
contacts, vendors, business concepts, and other ideas, relating to the business
for the Corporation which are conceived, developed or made by Executive, whether
alone or jointly with others, at any time (during or after business hours)
during the term of Executive's employment with the Corporation (such concepts,
practices, ideas and lists are referred to "Executive Discoveries"). All of
Executive's Discoveries shall be the Corporation's
5
exclusive property, and Executive shall, at the Corporation's request and
expense, sign all documents and take such other action as it may reasonably
request to confirm its ownership of Executive's Discoveries.
13. NONDISCLOSURE
At all times after the date of this Agreement, except
with the Corporation's express prior written consent or in connection with the
proper performance of services under this Agreement, Executive shall not,
directly or indirectly, communicate, disclose or divulge to any Person (as
defined in Section 22 below) or use for the benefit of any Person, any
confidential or proprietary knowledge or information, no matter when or how
acquired, concerning the business of the Corporation including, but not limited
to, (a) names of customers, locations, prospects and suppliers, (b) details of
contracts, proposals or other business arrangements with clients, prospects and
suppliers, (c) marketing methods, trade secrets, financial condition, and (d)
software, source code, technical documentation and other information. For
purposes of this Section 13, confidential information shall not include any
information which is known by the general public, or which becomes known by the
general public other than as a result of any improper act or omission of
Executive.
14. RESTRICTIVE COVENANT
a. Covenant Not to Compete or Solicit
The Corporation was founded for the purpose of being a
Registered Provider under Medicare to sell durable medical equipment, primarily
diabetic supplies throughout the United States. As a material inducement to
entering this Agreement, Executive agrees and covenants that while he is an
employee of the Corporation and for a period of two (2) years thereafter (unless
Executive's employment is terminated by the Corporation without cause or
following a Change in Control, in which event the provisions of this Section
14.a. will not be binding on Executive), he:
(1) shall be restricted from competing with the
Corporation, directly or indirectly on his own behalf or through third parties,
in any manner whatsoever as a shareholder, director, officer, joint venturer,
partner, sole proprietor, investor or, in any other ownership capacity
whatsoever, or as an employee, consultant, agent, or representatives of or for a
competing business within the fifty (50) states of the United States all
territories of the United States and Canada; provided, however, that nothing
contained herein shall be construed to prevent Executive from investing in the
stock of any competing corporation listed on a national securities exchange or
traded in the over-the-counter market, but only if Executive is not involved in
the business of such corporation and if Executive and his associates (as such
term is defined in Regulation 14(A) promulgated under the Securities Exchange
Act of 1934, as in effect on the date hereof), collectively, do not own more
than an aggregate of five percent of the stock of such corporation;
(2) shall not either directly or indirectly on his own
behalf or through third parties solicit or attempt to solicit advertisers,
agencies, developers, operators, owners, clients or
6
customers (collectively "Customers") of the Corporation who are or were
customers of the Corporation at any time during the proceeding two (2) years
prior to his termination of employment with respect to any of the Corporation's
business or business of its subsidiaries or affiliates for a competing business;
and
(3) shall not communicate with or solicit any person
or entity, who is, or during a six (6) month period prior to Executive's
termination of employment was, an employee, salesman, contractor, agent or
representative of the Corporation (hereinafter collectively "Employee or
Contractor"), in an effort to obtain such Person as an employee, salesman,
contractor, agent or representative of an entity or business which competes with
the Corporation`s business.
b. Convenient Not to Violate Corporate Confidences
The par6ties agree and acknowledge that the Executive
will have access to and will become aware of confidential information and trade
secrets including Customer data, files, and business techniques (collectively,
"Confidential Information") and that this Confidential Information (1) is not
generally available to the public, (2) has been compiled at the Corporation's
expense and over a substantial amount to time, (3) is critical to the
Corporation's ability to compete in the industry in which it does business, and
(4) if disclosed or released will be greatly and irreparably damage the
Corporation's business. Therefore, as a material inducement to entering into
this Agreement, Executive agrees and covenants that he will not, while he is an
Executive or during a two (2) year period beginning on the date of the
termination of his employment, either disclose or divulge this Confidential
Information to anyone or use this Confidential Information in any manner to
compete with the Corporation.
c. Enforcement
The Corporation may enforce the provisions of this
Section by suit for damages, injunction or both, as provided below:
(1) The parties agree and acknowledge that the
Corporation will be irreparably injured by the breach of any provision of this
Section, and that money damages alone will not be an appropriate measure of the
harm the Corporation will suffer from such continuing breach. Therefore, the
parties agree that the equitable relief, including specific performance of these
provisions by injunction, is an appropriate remedy for breach of these
provision.
(2) The parties also agree and acknowledge, however,
that money damages will be appropriate with respect to any past breach of any
provision of this Section. Therefore, in case of any breach of this Section, the
breaching party shall render a full and complete accounting of the gross
receipts, expenses, and net profits which have resulted from such breach and
shall be liable for money equal to the greater of (1) the actual profits
recognized by such breaching party from all transactions in breach of this
Section, or (2) profits that the Corporation could realize from the transactions
in breach of this Section.
7
(3) Notwithstanding anything to the contrary
contained in this Agreement neither the Corporation nor other Shareholders shall
be obligated to make any payments to the Executive under this or any other
Agreement between the parties if the Executive is deemed to have violated any
provision of this Section of this Agreement. Further, breach of this Section
shall be a complete defense to the non-payment by the Corporation of any
payments due Executive under the terms of this Agreement.
(4) The Corporation shall, in addition to the damages
described in this Section be entitled to be reimbursed for all reasonable legal
fees and costs necessary to prosecute any claim or action under this Section as
part of any award by a court or arbitrator. The term "costs" shall include all
the filing and court costs, investigation, witness and expert witness fees,
deposition costs, travel, long-distance telephone, photocopying, and printing
and any and all other costs necessary to prosecute the claim.
(5) If any portion of the provisions of this Section
or its application is construed to be invalid, illegal, or unenforceable, then
the other portions and their application shall not be affected thereby and shall
be enforceable without regard thereto. If any of the covenants set forth in this
Section are determined to be unenforceable because of their scope, duration,
geographic area or similar factor, then the court or arbitrator making such
determination shall have the power to reduce or limit such scope, duration, area
or other factor, and such covenant shall then be enforceable in its reduced or
limited form.
15. RELATIONSHIP OF PARTIES
The relationship between the parties is that of employer and
employee. The Executive shall be eligible to participate in any plans or
arrangements or distributions by the Corporation pertaining to any person and
any profit-sharing bonus or similar benefits provided for regular employees
and officers, directors and senior executives except to the extent that such
plans, arrangements, or distributions are superseded by more liberal
provisions in this Agreement.
16. MANAGEMENT RESPONSIBILITY
The parties recognize that the business affairs of the
corporation shall be managed by the Board of Directors of the Corporation in
accordance with the laws of the State of Delaware governing the organization
and administration of business corporations.
17. WAIVER OF BREACH
The waiver by either party hereto of a breach of any
provision of this Agreement shall not operate to be construed as a waiver of
subsequent breach of the same or any other provision of this Agreement.
8
18. NOTICES
All notices, consents or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three (3)
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one (1) business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page of this
Agreement (or such other address as the party receiving notice may specify in
accordance with this Section). Notices may also be given by prepaid telegram
or facsimile and be effective on the date transmitted if confirmed within
twenty-four (24) hours thereafter by a signed original sent in the manner
provided in the preceding sentence. Notice to the Corporation, addressed to
the attention of the Chairman of the Board, shall suffice as notice to the
Corporation, provided that a copy thereof is simultaneously sent to the
Corporate Attorney of record. Notice to Executive addressed to the address set
forth at the beginning of this Agreement and shall suffice. Any party may
change its address for notice and the address to which copies must be sent by
giving notice of the new addresses to the other parties in accordance with
this Section 18, except that any such change of address notice shall not be
effective unless and until received.
19. PRIOR AGREEMENTS
Executive represents to the Corporation (a) that there are
no restrictions, agreements or undertakings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
of his employment hereunder, (b) that his execution of this Agreement or his
employment hereunder do not constitute a breach of any contract, agreement or
understanding, oral or written to which he is a party of which he is bound,
and (c) that he is free and able to execute this Agreement and to enter into
employment by Executive.
20. ASSIGNMENT
This Agreement shall not be assigned by either party without
the prior written consent of the non-assigning party.
21. OTHER PROVISIONS
This Agreement and the Executive Agreement set forth the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous, oral or written, express
or implied, agreement and understandings. This Agreement shall not be modified
or terminated except in writing. The covenants set forth in Sections 10, 11,
12, 13, 14, 18 and this Section 21 shall survive the termination of this
agreement and the termination of Executive's employment with the Corporation.
No action taken by the Corporation under this Agreement, including without
limitation any waiver, consent or approval, shall be effective unless approved
by the Corporation's Chairman or the Board. This Agreement shall inure to the
benefit of and bind each of the parties hereto and the successors and assigns
of the Corporation and the personal representatives, estate and heirs of
Executive. Neither the
9
failure nor any delay on the part of either party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or any other right, remedy,
power or privilege with respect to any other occurrence or be construed as a
waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver. Any headings preceding the
text of any of the Sections or Subsections of this Agreement are inserted for
convenience of reference only, and shall neither constitute a part of this
Agreement nor affect its construction, meaning or effect.
22. DEFINITION
Person. "Person" means any individual, corporation,
partnership, sole proprietorship, joint venture, association, cooperative,
trust, estate, governmental body, administrative agency, regulatory authority or
other entity of any nature.
WITNESS the due execution and delivery hereof on the date
first above written.
THE CORPORATION: EXECUTIVE:
CERTIFIED DIABETIC SUPPLIES, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------- -------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
10
SCHEDULE A
COMPENSATION
1. MINIMUM BASE COMPENSATION
Subject to the termination provisions of the Agreement Executive
shall be paid an annual minimum base salary of $150,000 per year plus such
increase in annual minimum base salary as may be authorized by the Chairman or
the Board of Directors ("Minimum Base Compensation") for all services rendered
to the Corporation for the term of this Agreement in equal weekly or bi-weekly
installments with a deduction of all taxes and other amounts required to be
withheld or deducted by law. The Minimum Base Compensation will be reviewed in
good faith by the Board of Directors on an annual basis and may be increased
but not decreased from the prior level.
2. INCENTIVE BONUS COMPENSATION
In addition to his Minimum Base Compensation, Executive shall be
entitled to Incentive Bonus Compensation ("Incentive Bonus Compensation") as
determined as follows:
Starting from a base of $7,000,000 in sales and an EBITDA of
$2,000,000 and not taking into consideration the adjustment for (1) accounts
receivable and (2) officer's salaries. See Schedule Below.
--------------------------------------------------------------------------------
Annual Sales EBITDA Incentive Bonus
Compensation
--------------------------------------------------------------------------------
$ 7,000,000 $2,000,000 $150,000
--------------------------------------------------------------------------------
10,000,000 3,000,000 200,000
--------------------------------------------------------------------------------
15,000,000 3,500,000 250,000
--------------------------------------------------------------------------------
20,000,000 4,000,000 300,000
--------------------------------------------------------------------------------
25,000,000 5,000,000 350,000
--------------------------------------------------------------------------------
30,000,000 6,000,000 400,000
--------------------------------------------------------------------------------
Each Incentive Bonus shall be paid not more than (30) days after
a determination that the applicable performance goal has been met. EBITDA
means, for any period, the Corporation's consolidated earnings from continuing
operations before interest, taxes, depreciation and amortization for such
period.
11
The Executive shall be entitled to such other cash bonuses as
determined from time to time at the discretion of the Board of Directors based
upon the growth and success of the Corporation.
12
SCHEDULE B
STOCK
25,000 shares of common stock of the Corporation to be issued no
later than June 30, 1998.
Options to purchase 240,000 shares of common stock of the
Corporation, which will vest over a three year period commencing on the
Effective Date of this Agreement.