<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number: 0-26090
COMPDENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3185995
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CompDent Corporation
100 Mansell Court East, Suite 400
Roswell, Georgia 30076
(Address of principal executive offices)
(770) 998-8936
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
----- ----------------------------
Common Stock, $.01 par value 10,112,629
<PAGE> 2
COMPDENT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page #
<S> <C>
Part I. Financial Information 3
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports Filed on Form 8-K 17
Signatures 18
Exhibit Index 19
</TABLE>
2
<PAGE> 3
PART I. - FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include, among others, risk
associated with the general competitive and pricing pressures in the
marketplace, the risks associated with the successful completion of new
acquisitions, the effective integration of new acquisitions and continued growth
in the dental coverage marketplace. Other risk factors are described in CompDent
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997
and 1st Quarter Report on Form 10-Q, all on file with the Securities and
Exchange Commission.
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS
COMPDENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,726 $ 21,963
Premiums receivable from subscribers 4,440 5,554
Patient accounts receivable, net of allowance for
doubtful accounts of $167 in 1998 and
$1,188 in 1997 2,100 1,668
Income taxes receivable -- 175
Deferred income taxes 4,318 5,081
Other current assets 5,274 2,842
----------- ------------
Total current assets 25,858 37,283
----------- ------------
Restricted funds 2,320 2,321
Property and equipment, net of accumulated depreciation 12,265 6,292
Excess of purchase price over net assets acquired 100,736 96,296
Noncompetition agreements 13 325
Reinsurance receivable 5,493 5,417
Investment in DHDC 1,500 1,500
Other assets 2,177 1,437
----------- ------------
$ 150,362 $ 150,871
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Unearned revenue $ 9,197 $ 9,538
Accounts payable and accrued expenses 11,502 14,855
Accrued interest payable 109 109
Dental claims reserves 1,904 1,502
Income tax payable 140 --
Other current liabilities 63 63
----------- ------------
Total current liabilities 22,915 26,067
----------- ------------
Aggregate reserves for life policies and contracts 5,372 5,331
Notes payable 54,233 56,595
Deferred compensation expense 276 298
Deferred income taxes 1,740 1,887
Other liabilities 453 417
----------- ------------
Total liabilities 84,989 90,595
----------- ------------
Stockholders' equity:
Common stock 101 101
Additional paid-in capital 97,618 97,618
Retained deficit (32,346) (37,443)
----------- ------------
Total stockholders' equity 65,373 60,276
----------- ------------
$ 150,362 $ 150,871
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
COMPDENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------
1998 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Subscriber premiums $ 35,982 $ 35,852
Affiliated practice revenue 5,824 --
Other revenue 1,757 2,348
--------- ---------
Total revenue 43,563 38,200
--------- ---------
Expenses:
Dental care providers' fees and claim costs 19,505 19,906
Commissions 3,346 3,192
Premium taxes 194 256
DHMI operating expenses 5,262 --
General and administration 8,293 7,967
Depreciation and amortization 1,475 1,355
--------- ---------
Total expenses 38,075 32,676
--------- ---------
Operating income 5,488 5,524
--------- ---------
Other (income) expense:
Interest income (245) (254)
Interest expense 1,159 738
Other, net (3) (16)
--------- ---------
911 468
--------- ---------
Income before provision for income taxes 4,577 5,056
Income tax provision 1,972 2,172
--------- ---------
Net income $ 2,605 $ 2,884
========= =========
Net income per common share - basic $ 0.26 $ 0.29
========= =========
Net income per common share - fully diluted $ 0.26 $ 0.28
========= =========
Weighted average common shares outstanding - basic 10,113 10,106
========= =========
Weighted average common shares outstanding - fully diluted 10,181 10,179
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
COMPDENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Subscriber premiums $ 71,404 $ 71,488
Affiliated practice revenue 11,115 --
Other revenue 3,486 4,547
-------- --------
Total revenue 86,005 76,035
-------- --------
Expenses:
Dental care providers' fees and claim costs 38,934 39,450
Commissions 6,612 6,364
Premium taxes 455 521
DHMI operating expenses 9,867 --
General and administration 16,667 15,827
Depreciation and amortization 2,853 2,676
-------- --------
Total expenses 75,388 64,838
-------- --------
Operating income 10,617 11,197
-------- --------
Other (income) expense:
Interest income (499) (415)
Interest expense 2,172 1,446
Other, net (3) (61)
-------- --------
1,670 970
-------- --------
Income before provision for income taxes 8,947 10,227
Income tax provision 3,850 4,504
-------- --------
Net income $ 5,097 $ 5,723
======== ========
Net income per common share - basic $ 0.50 $ 0.57
======== ========
Net income per common share - fully diluted $ 0.50 $ 0.56
======== ========
Weighted average common shares outstanding - basic 10,113 10,106
======== ========
Weighted average common shares outstanding - fully diluted 10,178 10,172
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
COMPDENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,097 $ 5,723
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,854 2,676
Gain on sale of property and equipment -- (10)
Deferred income tax expense 616 1,281
Changes in assets and liabilities:
Premiums receivable from subscribers and patients accounts
receivable, net of allowance for doubtful accounts 682 (1,178)
Income taxes receivable/payable 315 1,156
Other assets (3,248) (1,652)
Unearned revenue (341) (144)
Accounts payable and accrued expenses (3,503) (1,723)
Other liabilities (453) (1,191)
-------- --------
Net cash provided by operating activities 2,019 4,938
-------- --------
Cash flows from investing activities:
Additions to property and equipment (7,041) (1,331)
Increase in restricted cash -- (107)
Proceeds from sale of property and equipment (3) 18
Payments made in connection with proposed business acquisitions -- (191)
Purchase of businesses, net of cash acquired (4,850) (476)
-------- --------
Net cash used in investing activities (11,894) (2,087)
-------- --------
Cash flows from financing activities:
Net (repayment)/borrowings under credit agreement (2,362) 13,337
Tax benefit realized from exercise of non-qualified stock options -- 583
-------- --------
Net cash (used in) provided by financing activities (2,362) 13,920
-------- --------
(Decrease) increase in cash and cash equivalents (12,237) 16,771
Cash and cash equivalents, beginning of period 21,963 26,959
-------- --------
Cash and cash equivalents, end of period $ 9,726 $ 43,730
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,172 $ 1,198
======== ========
Income taxes $ 2,919 $ 1,484
======== ========
Non-cash investing and financing activities:
Stock issued in exchange for business acquired $ -- $ 1,141
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
COMPDENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1998
1. BASIS OF PRESENTATION
The unaudited consolidated balance sheet as of June 30, 1998, the
unaudited consolidated statements of operations for the three months and six
months ended June 30, 1998 and 1997, and the unaudited consolidated statements
of cash flows for the six months ended June 30, 1998 and 1997, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and include all significant adjustments, consisting of
normal recurring adjustments, necessary for the fair presentation of the results
of the interim periods. The data disclosed in these notes to the financial
statements for these periods are also unaudited. The consolidated financial
statements and notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto as of December 31, 1997 and 1996, and for
the years ended December 31, 1997, 1996, and 1995, included in the 1997 Annual
Report of CompDent Corporation and Subsidiaries (the "Company", except as the
context otherwise requires) and on Form 10-K. Operating results of the Company
for the three months and six months ended June 30, 1998, are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998.
2. BUSINESS COMBINATIONS
Effective March 21, 1997, the Company completed the acquisition of
American Dental Providers, Inc. ("AMDP"), and Diamond Dental & Vision, Inc.
("DDV"). The aggregate purchase price of $1.7 million consisted of $0.5 million
in cash and $1.2 million of Company common stock issued at fair market value.
AMDP provides managed dental care services through a network of dental care
providers, and DDV provides a vision plan and referral fee-for-service dental
plan to the Arkansas market. The Company funded the cash portion of the purchase
with cash available from operations. The acquisition of AMDP and DDV was
accounted for using the purchase method of accounting with the results of
operations of the businesses acquired included from the effective date of the
acquisition. The acquisition resulted in excess of cost over fair value of net
assets acquired of $2.4 million which will be amortized over 40 years.
Effective for the fourth quarter of 1997, the Company changed policy
regarding the recoverability of goodwill to a discounted projection of future
cash flows using an economic rate of return that would be customary for dental
benefit company transactions. This resulted in AMDP's and DDV's goodwill being
reduced to $0.
The following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with the acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired $ 2,652,000
Cash paid and fair value of stock issued
for assets acquired, net of cash acquired (1,614,000)
Acquisition costs paid (416,000)
-----------
Liabilities assumed $ 622,000
===========
</TABLE>
Effective July 2, 1997, the Company completed the acquisition of 21
dental facilities from The Workman Management Group, Ltd. ("Workman"). The
dental facilities are located in central and southern Illinois. The purchase
price consisted of $15.5 million in cash and funding for the acquisition was
obtained from cash available from operations and from the Company's revolving
line of credit. In addition, the Company granted an aggregate of 70,000
non-qualified options to the selling shareholders. Concurrent with the
acquisition, the Company entered into a 40-year agreement to manage the dental
practices which are operating in the dental facilities. The acquisition of
Workman was accounted for using
8
<PAGE> 9
the purchase method of accounting with the results of operations of the
businesses acquired included from the effective date of the acquisition. The
acquisition resulted in excess of cost over fair value of net assets acquired of
$17.0 million which will be amortized over 40 years
The following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with the acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired $ 18,040,000
Cash paid, net of cash acquired (15,340,000)
Acquisition costs paid (990,000)
------------
Liabilities assumed $ 1,710,000
============
</TABLE>
During the third and fourth quarter of 1997, the Company completed the
acquisition of several dental facilities from three additional dental groups.
Effective July 2, 1997, the Company completed the acquisition of one dental
facility located in southern Florida from the Old Cutler Dental Associates, P.A.
("Old Cutler"). Effective September 26, 1997, the Company completed the
acquisition of one dental facility located in central Tennessee from Robert T.
Winfree, D.D.S., P.C. ("Winfree"). Effective November 7, 1997, the Company
completed the acquisition of Stratman Management Group ("Stratman") and its six
dental facilities located in Indiana. The purchase price of these facilities
consisted of $4,957 million in cash less discharge of liabilities related to the
purchased assets. Funding for the acquisitions was obtained from cash available
from operations and from the Company's revolving line of credit. Concurrent with
the acquisitions, the Company entered into 40-year agreements to manage the
dental practices which are operating in the dental facilities. Each acquisition
was accounted for using the purchase method of accounting with the results of
operations of the businesses acquired included from the effective date of the
acquisition. The acquisitions resulted in excess of cost over fair value of net
assets acquired of $5,528 which will be amortized over 40 years.
The following is a summary of assets acquired, liabilities assumed and
consideration paid in connection with the acquisitions:
<TABLE>
<S> <C>
Fair value of assets acquired $ 6,465,000
Cash paid, net of cash acquired (4,957,000)
Acquisition costs paid ( 227,000)
-----------
Liabilities assumed $ 1,281,000
===========
</TABLE>
Effective January 2, 1998, the Company completed the acquisition of
five dental facilities from Michael H. Reznik, D.D.S., P.C. ("Reznik"). The
dental facilities are located in Atlanta, Georgia. The purchase price consisted
of $3.5 million in cash less discharge of liabilities related to the purchased
assets. Funding for the acquisition was obtained from cash available from
operations and from the Company's revolving line of credit. Concurrent with the
acquisition, the Company entered into a 40-year agreement to manage the dental
practices which are operating in the dental facilities. The acquisition of
Reznik was accounted for using the purchase method of accounting with the
results of operations of the business acquired included from the effective date
of the acquisition. The acquisition resulted in excess of cost over fair value
of net assets acquired of $4.0 million which will be amortized over 40 years.
The following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with the acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired $ 4,149,000
Cash paid, net of cash acquired (3,500,000)
Acquisition costs paid (150,000)
------------
Liabilities assumed $ 499,000
============
</TABLE>
9
<PAGE> 10
Effective April 30, 1998, the Company completed the acquisition of two
dental facilities from R. Kendall Roberts, D.D.S., P.C., d/b/a Newhealth Dental
Group, ("Roberts"). The dental facilities are located in Fort Smith, Arkansas.
The purchase price consisted of $1.4 million in cash. Funding for the
acquisition was obtained from cash available from operations and from the
Company's revolving line of credit. Concurrent with the acquisition, the Company
entered into a 40-year agreement to manage the dental practices which are
operating in the dental facilities. The acquisition of Roberts was accounted for
using the purchase method of accounting with the results of operations of the
business acquired included from the effective date of the acquisition. There
were no liabilities, material assets acquired or material transaction costs
incurred. The acquisition resulted in excess of cost over fair value of net
assets acquired of $1.4 million which will be amortized over 40 years.
Unaudited pro forma results of operations of the Company for the six
months ended June 30, 1998 and 1997, are included below. Such pro forma
presentation has been prepared assuming that the AMDP, DDV, Workman, Old Cutler,
Winfree, Stratman, Reznik and Roberts acquisitions had occurred as of January 1,
1997.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
(in thousands, except per share data) 1998 1997
-------- --------
<S> <C> <C>
Revenues $ 86,733 $ 87,179
======== ========
Net income $ 5,078 $ 4,920
======== ========
Net income per common share $ 0.50 $ 0.49
======== ========
</TABLE>
The pro forma results include the historical accounts of the Company,
historical accounts of the acquired businesses, and pro forma adjustments
including the amortization of the excess purchase price over the fair value of
the net assets acquired, calculation of interest expense on amounts borrowed to
fund these acquisitions and the applicable income tax effects of these
adjustments. The pro forma results of operations are not necessarily indicative
of actual results which may have occurred had the operations of the acquired
companies been combined in prior periods.
3. CONTINGENT LIABILITIES
Management does not believe there are currently any asserted or
unasserted claims that will have a material, adverse effect on the financial
position, results of operations or cash flows of the Company.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1997.
Three months ended June 30, 1998 and 1997
Total revenue increased $5.4 million, or 14.0%, to $43.6 million in the
second quarter of 1998 as compared to $38.2 million for the same period in 1997.
This increase was attributable to $5.8 million of affiliated practice revenue
from Dental Health Management, Inc. ("DHMI"), the Company's dental practice
management company, which commenced operations in the third quarter of 1997, and
by a $0.1 million increase in subscriber premiums. Other revenue, which consists
of third party administrator fees and indemnity fees, decreased $0.5 million
during the second quarter of 1998 versus the same period in 1997.
Dental care providers' fees and claim costs decreased $0.4 million, or
2.0%, in the second quarter of 1998 to $19.5 million from $19.9 million for the
second quarter of 1997. Dental care providers' fees represent capitation
payments paid to dentists under the Company's managed dental care plans. Under
managed dental care plans, capitation payments to panel dentists are fixed under
the participating dental agreement regardless of the extent of services
provided. Dental claim costs represent amounts payable to dental care providers
under dental indemnity and specialty insurance plans. Dental care providers'
fees and claim costs were 54.2% of subscriber premiums in the second quarter of
1998 and 55.5% for the second quarter of 1997.
Commission expense increased $0.1, or 4.8%, to $3.3 million in the
second quarter of 1998 from $3.2 million in the second quarter of 1997. As a
percentage of subscriber premiums, commissions increased to 9.3% in the second
quarter of 1998 from 8.9% in the second quarter of 1997. This increase reflects
a shift in emphasis toward reliance on independent agents and away from a larger
direct sales force.
General and administrative expenses ("G&A") and DHMI operating expenses
increased $5.6 million, or 70.1%, to $13.6 million in the second quarter of 1998
from $8.0 million in the second quarter of 1997. Of the increase, $5.3 million
was the result of expenses related to the generation of affiliated practice
revenue from DHMI. As a percentage of revenues, G&A expenses, increased to 31.1%
in the second quarter of 1998 from 20.9% in the second quarter of 1997. This was
the result of increased operating expenses from DHMI and the reduction of other
revenue which was offset by the growth of affiliated practice revenue.
Depreciation and amortization expense increased $0.1, or 8.9%, to $1.5
million in the second quarter of 1998 from $1.4 million in the second quarter of
1997. The increase was primarily due to additional depreciation derived from
purchases of leasehold improvements and dental equipment for the Company's
dental office management business which was partially offset by a decrease in
amortization principally due to the goodwill impairment the Company realized
during the fourth quarter of 1997.
Interest expense increased $0.5 million, or 57.0%, to $1.2 million in
the second quarter of 1998 from $0.7 million in the second quarter of 1997. This
increase related principally to interest on additional debt incurred to finance
DHMI acquisitions during the last four quarters. Any future acquisitions may
cause the Company to incur additional indebtedness under its revolving credit
facility or otherwise.
In the second quarter of 1998, the Company's effective income tax rate
increased to 43.1% compared to 43.0% in the second quarter of 1997. This slight
increase resulted from net revenue generation with the investment expenditures
in infrastructure at DHMI which was almost completely offset by the reduced
goodwill amortization due to impairment and deductible goodwill recorded in
connection with the asset
11
<PAGE> 12
purchases made by DHMI.
As a result of the above mentioned factors, the net income for the
second quarter of 1998 was $2.6 million, or $0.26 per share, compared to net
income of $2.9 million, or $0.29 per share, for the same period in 1997.
Six months ended June 30, 1998 and 1997
Total revenue increased $10.0 million, or 13.1%, to $86.0 million in
the six months ended June 30, 1998 as compared to $76.0 million for the same
period in 1997. This increase was attributable to $11.1 million of affiliated
practice revenue from Dental Health Management, Inc. ("DHMI"), the Company's
dental practice management company, which commenced operations in the third
quarter of 1997, which was partially offset by a $1.1 million decrease in other
revenue, which consists of third party administrator fees and indemnity fees,
and subscriber premiums during the six months ended June 30, 1998 versus the
same period in 1997.
Dental care providers' fees and claim costs decreased $0.4 million, or
1.3% in the six months ended June 30, 1998 to $38.9 million from $39.5 million
for the same period in 1997. Dental care providers' fees represent capitation
payments paid to dentists under the Company's managed dental care plans. Under
managed dental care plans, capitation payments to panel dentists are fixed under
the participating dental agreement regardless of the extent of services
provided. Dental claim costs represent amounts payable to dental care providers
under dental indemnity and specialty insurance plans. Dental care providers'
fees and claim costs were 54.5% of subscriber premiums for the six months ended
June 30, 1998 as compared to 55.2% for the same period in 1997.
Commission expense increased $0.2, or 3.9%, to $6.6 million in the six
months ended June 30, 1998 from $6.4 million for the same period in 1997. As a
percentage of subscriber premiums, commissions increased to 9.3% in the six
months ended June 30, 1998 from 8.9% for the same period in 1997. This increase
reflects a shift in emphasis toward reliance on independent agents and away from
a larger direct sales force.
General and administrative expenses ("G&A") and DHMI operating expenses
increased $10.7 million, or 67.7%, to $26.5 million in the six months ended June
30, 1998 from $15.8 million for the same period in 1997. Of the increase, $9.9
million was the result of expenses related to the generation of affiliated
practice revenue from DHMI. As a percentage of revenues, G&A expenses, increased
to 30.9% in the six months ended June 30, 1998, from 20.8% for the same period
in 1997. This was the result of increased operating expenses from DHMI and the
reduction of other revenue which was offset by the growth of affiliated practice
revenue.
Depreciation and amortization expense increased $0.2, or 6.7%, to $2.9
million in the six months ended June 30, 1998, from $2.7 million for the same
period in 1997. The increase was primarily due to additional depreciation
derived from purchases of leasehold improvements and dental equipment for the
Company's dental office management business, which was partially offset by a
decrease in amortization principally due to the goodwill impairment the Company
realized during the fourth quarter of 1997.
Interest expense increased $0.8 million, or 50.2%, to $2.2 million in
the six months ended June 30, 1998, from $1.4 million for the same period in
1997. This increase related principally to interest on additional debt incurred
to finance DHMI acquisitions during the last four quarters. Any future
acquisitions may cause the Company to incur additional indebtedness under its
revolving credit facility or otherwise.
For the six months ended June 30, 1998, the Company's effective income
tax rate decreased to 43.0% compared to 44.0% for the same period in 1997. This
decrease resulted from reduced goodwill amortization due to impairment and
deductible goodwill recorded in connection with the asset purchases made by
DHMI.
12
<PAGE> 13
As a result of the above mentioned factors, the net income for the six
months ended June 30, 1998, was $5.1 million, or $0.50 per share, compared to
net income of $5.7 million, or $0.57 per share, for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash in the six months ended June 30,
1998, was $2.0 million of cash provided by operating activities. The primary
uses of cash for the period were the acquisitions of Reznik and Roberts and the
purchases of property and equipment.
Cash flows from operating activities were $2.0 million for the six
months ended June 30, 1998, and $4.9 million for the six months ended June 30,
1997. Cash flows from operations consist primarily of subscriber premiums and
affiliated practice revenue net of capitation payments to panel dentists, claims
paid, broker and agent commissions, general and administrative expenses and
income tax payments. The Company receives premium payments in advance of
anticipated capitation payments and claims and invests cash balances in excess
of current needs in interest-bearing accounts.
Cash used in investing activities was $11.9 million and $2.1 million
for the six months ended June 30, 1998 and 1997, respectively. The increase in
cash used during the six months ended June 30, 1998, related to increased use of
cash for acquisitions of dental practices, build out of dental offices, and
purchases of capital expenditures. Capital expenditures increased $5.7 million
during the six months ended June 30, 1998, compared to the six months ended June
30, 1997, due primarily to purchases of leasehold improvements and dental
equipment for the Company's dental office management business, and telephone and
computer purchases. The Company has entered into a joint initiative with Golder,
Thoma, Cressey, Rauner Fund V, a leading private equity firm ("GTCR"), relating
to the development of 35 to 50 de novo dental offices within the next two years.
Under this arrangement, the Company has agreed to fund certain development costs
(including the purchase of dental equipment, supplies, and leasehold
improvements) in an amount equal to amounts funded by GTCR in connection with
the joint initiative, not to exceed $15 million. During the remainder of 1998,
the Company will be focusing on the development and growth of the dental offices
already open and functioning, and will be limiting its capital expenditures
required under this arrangement.
Cash flows used in financing activities in the six months ended June
30, 1998, were $2.4 million, representing repayments under the Company's
revolving line of credit. For the six months ended June 30, 1997, financing
activities provided $13.9 million of cash flow, consisting almost entirely of
borrowings under the Company's revolving line of credit.
On June 30, 1995, the Company obtained a reducing revolving $35.0
million line of credit (the "Credit Facility") from banks. The Credit Facility
subsequently was amended to increase the available line of credit to $65.0
million. The Credit Facility pursuant to a second amendment entered into on
March 16, 1998, requires a 50% reduction in available borrowings on December 31,
1999, and expiration of the Credit Facility on December 31, 2000. Outstanding
indebtedness under the Credit Facility bears interest, at the Company's option,
at a rate equal to the prime rate plus up to .25% of LIBOR plus up to 1.75%,
with the margin over the prime rate and LIBOR decreasing as the ratio of
consolidated debt to EBITDA decreases. Currently, borrowings under the Credit
Facility bear interest at the LIBOR-based rate. The Credit Facility prohibits
payment of dividends and other distributions and restricts or prohibits the
Company from making certain acquisitions, incurring indebtedness, incurring
liens, disposing of assets or making investments, and requires it to maintain
certain financial ratios on an ongoing basis. The Credit Facility is
collateralized by pledges of the stock of the Company's direct and indirect
subsidiaries. At June 30, 1998, the Company was in technical violation of one of
the financial ratios as a result of increased capital expenditures incurred in
DHMI. The Company has received a waiver with respect to this covenant from its
lenders. On August 10, 1998, the Company entered into a fourth amendment to
adjust this financial ratio to a more appropriate
13
<PAGE> 14
level. The Company had $54.2 million of borrowings outstanding as of June 30,
1998, under the Credit Facility.
The Company believes that cash flow generated by operations will be
sufficient to fund its normal working capital needs and capital expenditures for
at least the next 24 months. Historically, the Company's operations have not
been capital intensive; however, the Company's recent initiative in the
establishment of dental offices through its subsidiary operation, DHMI, will
present capital needs, the extent of which is indeterminate. Any acquisitions
the Company may consummate in the future may require additional financing under
the Credit Facility or otherwise.
Under applicable insurance laws of most states in which the Company
conducts business, the Company's subsidiaries operating in the particular states
are required to maintain a minimum level of net worth and reserves. The Company
may be required from time to time to invest funds in one or more of its
subsidiaries to meet regulatory capital requirements. Applicable laws generally
limit the ability of the Company's subsidiaries to pay dividends to the extent
that required regulatory capital would be impaired and dividend payments are
further restricted under the Credit Facility.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "Board") has issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports.
This Statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
The financial information required includes a measure of segment profit
or loss, certain specific revenue and expense items, segment assets and a
reconciliation of each category to the general financial statements. The
descriptive information required includes the way that the operating segments
were determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the general purpose financial statements, and changes in the
measurement of segment amounts from period to period.
This Statement is effective for financial statements for fiscal years
beginning after December 15, 1997, with restatement of earlier periods required
in the initial year of application. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. The Company is currently determining if these disclosure
requirements will be applicable and, therefore, required in annual reporting for
1998.
The Emerging Issues Task Force (EITF) has issued EITF Issue No. 97-2
("Issue 97-2"), Application of FASB Statement No. 94, Consolidation of All
Majority-Owned Subsidiaries, and APB Opinion No. 16, Business Combinations, to
Physician Practice Management Entities and Certain Other Entities with
Contractual Management Arrangements, that establishes standards for determining
whether a physician practice management group ("PPM") has a controlling
financial interest in a physician practice based on a contractual management
agreement. For purposes of Issue 97-2, the practices of medicine, dentistry, and
veterinary science are collectively referred to as "physician practices."
Under Issue 97-2, when such a controlling financial interest exists,
consolidation of the physician
14
<PAGE> 15
practice's financial results is required. A controlling financial interest is
defined when referenced to the term of the contractual arrangement, control over
decision making, and the extent of the PPM's financial interest in the physician
practice, and is deemed to exist if the following six criteria are met: 1) the
contractual arrangement has a term that is either (i) the entire remaining legal
life of the physician practice entity or (ii) a period of 10 years or more; 2)
the contractual arrangement is not terminable by the physician practice except
in the case of gross negligence, fraud or other illegal acts by the PPM, or
bankruptcy of the PPM; 3) the PPM has exclusive authority over all decision
making related to ongoing, major or central operations of the physician
practice, except for the dispensing of medical services; 4) the PPM has
exclusive authority over all decision making related to total practice
compensation of the licensed medical professionals as well as the ability to
establish and implement guidelines for the selection, hiring and firing of them;
5) the PPM's financial interest in the physician practice is unilaterally
salable or transferable by the PPM; 6) the PPM's financial interest in the
physician practice provides the PPM with the right to receive income as on-going
fees and as proceeds from the sale of its interest in the physician practice, in
an amount that fluctuates based on the performance of the operations of the
physician practice and the change in the fair value thereof. If the six criteria
are met, then the transaction between the PPM and physician practice in which
the PPM executes a management agreement with the physician practice is
considered to be a business combination to be accounted for under APB 16 .
Finally, Issue 97-2 establishes the presumption that an employee of a physician
practice that is consolidated by the PPM should be considered an employee of the
PPM and its subsidiaries for purposes of determining the method of accounting
for stock-based compensation.
For all arrangements that exist on November 20, 1997, this Issue is
effective for financial statements for fiscal years ending after December 15,
1998. The effect of initially applying the consensus may be reported as the
effect of a change in accounting principle or may be retroactively reported by
restating the financial statements of prior periods.
The Company has been evaluating the dental acquisitions made prior to
November 20, 1997, to determine the effect of Issue 97-2.
YEAR 2000 COMPLIANCE
By the end of 1998, the Company expects that its various administrative
systems will have the capability to process transactions dated beyond 1999. The
costs to complete its efforts to modify or replace such systems are not expected
to be material.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 10, 1998, the Company received notice of a Complaint filed by
Shenandoah Life Insurance Company ("Shenandoah") against the Company in the
United States District Court for the Western District of Virginia, Roanoke
Division. The complaint alleges that there is a real, substantial and
justiciable controversy between the parties with respect to payment owed to
Shenandoah by CompDent under an outstanding Marketing Agreement between the
parties for the calendar year 1997. In its Complaint, Shenandoah seeks
declaratory relief holding that CompDent is wrongfully withholding payment to
Shenandoah pursuant to the terms of said Marketing Agreement. Management does
not expect this matter will have a material adverse effect on the consolidated
financial position, results of operations, or cash flows of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of Shareholders was held on April 30,
1998. A total of 9,008,640 shares were represented by proxy at the meeting,
representing 89% of the 10,109,539 shares eligible to vote. David R. Klock and
Joseph Ciffolillo were re-elected to the Board of Directors as Class III
Directors. With respect to Mr. Klock, 8,950,791 shares of Common Stock were
voted for his election and votes with respect to 57,849 shares were withheld.
With respect to Mr. Ciffolillo, 8,960,891 shares of Common Stock were voted for
his election and votes with respect to 47,749 were withheld.
Also, at the meeting, the Company's 1997 Stock Option Plan was
approved, with 7,686,267 shares of Common Stock voting in favor of the plan,
1,282,818 shares of Common Stock voting against approval of the plan, and 14,056
shares of Common Stock abstaining.
ITEM 5. OTHER INFORMATION
On July 28, 1998, the Company's Board of Directors approved the terms
of a definitive merger agreement ("Merger Agreement") with a new company formed
by Golder, Thoma, Cressey, Rauner, Inc., TA Associates, Inc. and NMS Capital
Partners which will effect a re-capitalization of CompDent Corporation
("CompDent"). Under the Merger Agreement, CompDent will be re-capitalized and
each outstanding share of CompDent's common stock, other than certain shares
held by management, will be converted into the right to receive $18.00 in cash,
and the existing funded indebtedness of CompDent will be refinanced. Certain
shares held by management will be converted into shares of the surviving
corporation and management will maintain an equity interest in the surviving
corporation.
The proposed transaction is subject to certain conditions including
approval by stockholders of CompDent holding a majority of the outstanding
shares, regulatory approval, the closing of equity and debt financing
commitments and other customary closing conditions. The transaction will be
funded by equity commitments of Golder, Thoma, Cressey, Rauner, Inc., TA
Associates, Inc. and NMS Capital Partners. NationsBank, N.A. and NationsBridge,
L.L.C. together have committed subject to certain terms and conditions, to
provide the necessary debt financing for the transaction.
Prior to the execution of the Merger Agreement, CompDent amended its
Shareholder Rights Agreement (the "Rights Agreement"). This amendment (the
"Rights Amendment") provides, among other things, that neither TAGTCR
Acquisition, Inc. ("TAGTCR"), nor any of its affiliates or associates, shall be
deemed an "Acquiring Person" (as such term is defined in the Rights Agreements),
and no "Stock Acquisition Date" or "Distribution Date" (as such terms are
defined in the Rights Agreement) shall be deemed to occur as a result of (i) the
execution and delivery of the Merger Agreement, (ii) any action taken by TAGTCR
or any of its affiliates, associates, or shareholders in accordance with the
provisions of the Merger Agreement, or (iii) the consummation of the Merger (as
such term is defined in the Merger Agreement) in accordance with the Merger
Agreement.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) Exhibits.
<TABLE>
<S> <C>
10.2 Employment Contract between CompDent Corporation and David R. Klock
10.3 Employment Contract between CompDent Corporation and Phyllis A. Klock
10.4 Employment Contract between CompDent Corporation and Bruce A. Mitchell
10.5 Employment Contract between CompDent Corporation and Keith J. Yoder
10.6 Form of Employment Contract for Vice President
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) The registrant filed a Form 8-K dated July 28, 1998, disclosing
the agreement and Plan of Merger and the amendment to the
Shareholder Rights Agreement as explained in Part II, Item 5
(Other Information) of this Form 10-Q filing.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPDENT CORPORATION
Date: August 14, 1998 By: /s/ Keith J. Yoder
---------------------------------------
Keith J. Yoder
Chief Financial Officer and Treasurer
(Signing as duly authorized officer and
chief financial officer)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<S> <C>
10.2 Employment Contract between CompDent Corporation and David R. Klock
10.3 Employment Contract between CompDent Corporation and Phyllis A. Klock
10.4 Employment Contract between CompDent Corporation and Bruce A. Mitchell
10.5 Employment Contract between CompDent Corporation and Keith J. Yoder
10.6 Form of Employment Contract for Vice President
27 Financial Data Schedule (for SEC use only).
</TABLE>
19
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 1st day of July, 1998, by and between COMPDENT CORPORATION, a Delaware
corporation (the "Company") and DAVID R. KLOCK (the "Employee").
I. STATEMENT OF BACKGROUND INFORMATION
The Employee has been an officer and a key employee of the Company and the
parties desire to ensure that the Employee's expertise, knowledge and experience
will continue to be available to the Company in providing full-service dental
benefits and offering network-based dental care, reduced fee-for-service, third
party administration and dental practice management (the "Business").
II. STATEMENT OF AGREEMENT
In consideration of the mutual covenants, promises and conditions set forth
in this Agreement, and for other good and valuable consideration, the parties
hereto hereby agree as follows:
1. Employment. The Company hereby employs Employee in the position of Chairman
and Chief Executive Officer of the Company and/or such other position(s) as
determined by the Board of Directors, and Employee hereby accepts such
employment upon the terms and conditions set forth in this Agreement. For
purposes of Sections 6, 7 and 8 of this Agreement, "employment" shall mean
any period of time during the term hereof which the Company is paying the
Employee salary or wages. By execution of this Agreement, the parties
hereby: (a) terminate, as of the date hereof, that certain Employment
Agreement between the Company and Employee dated May 24, 1995 (the "Prior
Employment Agreement") and (b) acknowledge and agree that no provisions of
the Prior Employment Agreement shall survive the execution and delivery of
this Agreement.
2. Duties of Employee. Employee agrees to perform and discharge the duties
which may be assigned to Employee from time to time by the Company's Board
of Directors. Employee also agrees to materially comply with all of the
Company's material policies, standards and regulations and to follow the
reasonable instructions and directives of Employee's superiors within the
Company, as promulgated by the Board of Directors of the Company. Employee
will devote his full professional and business related time, skills and
commercially reasonable efforts to the Business and Employee will not,
during the term of this Agreement, be engaged (whether or not during normal
business hours) in any other business or professional activity (excluding
reasonable and appropriate charitable activities), whether or not such
activity is pursued for gain, profit
<PAGE> 2
or other pecuniary advantage without the prior written consent of the Board
of Directors of the Company, which consent will not be unreasonably
withheld.
3. Term. The term of this Agreement will be for a period commencing on the
date hereof and expiring on the later of the fifth anniversary of such date
or, if there is a Change in Control (as defined herein) before such fifth
anniversary date, the date which is 25 months following any Change in
Control, subject to earlier termination as provided for in Section 4 below.
4. Termination.
(a) By the Company. Notwithstanding anything contained in Section 3
to the contrary, the Company may terminate this Agreement and all of its
obligations hereunder immediately if any of the following events (any of
which shall constitute "cause" for purposes of this Agreement) occur:
(i) Employee (A) materially breaches any of the terms or conditions
set forth in Sections 6, 7 or 8 of this Agreement including, without
limitation, the failure to use commercially reasonable efforts in the
performance of duties assigned to the Employee on a full time basis, or (B)
materially breaches any of the other terms and conditions set forth in this
Agreement and fails to cure such breach within twenty days after Employee's
receipt from the Company of written notice of such breach, which notice
shall describe in reasonable detail the basis for the Company's belief that
Employee is in breach hereof;
(ii) Employee commits any act in bad faith materially detrimental to
the business or reputation of the Company;
(iii) Employee is convicted of any crime involving fraud, deceit or
moral turpitude or Employee intentionally engages in dishonest or illegal
activities that have a material adverse effect upon the business or
reputation of the Company; or
(iv) Employee dies or becomes mentally or physically incapacitated or
disabled so as to be unable to perform Employee's duties under this
Agreement. For purposes of this Agreement, Employee shall be deemed to be
mentally or physically incapacitated or disabled so as to be unable to
perform his duties if and to the extent he becomes permanently disabled
under the Company's long-term disability policy then in effect.
The Company may also terminate the Employee's employment, upon reasonable
written notice to the Employee, at any time subject to the fulfillment of
the Company's obligations under this Agreement and such termination by the
Company for any other reason shall be deemed termination "without cause."
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<PAGE> 3
(b) By Employee. The Employee may terminate this Agreement:
(i) if the Company materially breaches any of the terms or
conditions set forth in this Agreement and fails to cure its breach within
twenty days after its receipt from Employee of written notice of such
breach, which notice describes in reasonable detail Employee's belief that
the Company is in breach hereof;
(ii) for "good reason" (as herein defined) at any time during the
two-year period following a Change in Control upon written notice to the
Company; or
(iii) for any reason or for no reason during the 30-day period
beginning on the first anniversary of the consummation of a Change in
Control (as herein defined) of the Company.
The Employee may also resign and terminate his employment on reasonable
written notice at any time and such termination by Employee for any other
reason (other than provided in Sections 4(b)(i) or (ii)) and in such event,
the Employee shall receive no severance benefits under this Agreement as a
result of such termination.
(c) Certain definitions.
(i) For purposes of this Agreement, "good reason" shall mean the
following:
(A) any diminution of the Employee's duties or a reassignment
of the Employee to a position not consistent with the
Employee's general area of knowledge, experience and
skills, or the assignment of substantial additional
responsibilities to the Employee;
(B) any diminution of the Employee's compensation or a material
diminution of the Employee's bonus, long-term incentives,
employee benefits or perquisites as in effect immediately
preceding the Change in Control;
(C) any relocation of Employee's principal place of employment
to more than 35 miles from the principal place of employment
immediately preceding the Change in Control;
(D) any material increase in Employee's travel obligations;
(E) any failure of any successors to the Company to assume this
agreement; or
(F) any breach of this Agreement by the Company not cured
within ten days after its receipt of notice from Employee
of such breach (in
-3-
<PAGE> 4
the event of such a breach and a termination of this Agreement
following a Change in Control, such termination shall be deemed
to have occurred under this Section 4(c)(i)(F) and not under
Section 4(b)(i)).
(ii) For purposes of this Agreement, "Change in Control" shall mean
any of the following events:
(A) the direct or indirect beneficial ownership (within the
meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Regulation 13D
thereof) of a majority of the outstanding common stock of
the Company is acquired or becomes held by any person or
group of persons (within the meaning of Section 13(d)(3) of
the Exchange Act);
(B) a change of stock ownership of the Company of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Exchange Act, and any
successor Item of a similar nature;
(C) the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) of securities of the
Company representing 25 percent or more of the voting power
of the then outstanding securities of the Company;
(D) the stockholders of the Company shall approve (provided,
however, if the transaction approved by the stockholders is
subsequently terminated, and the Employee is still employed
by the Company at the termination of the transaction, then
no "Change in Control" shall be deemed to have taken place):
(1) any consolidation, merger, share exchange or other
extraordinary transaction related to the Company where the
stockholders of the Company, immediately prior to the
consolidation, merger, share exchange or other extraordinary
transaction, would not, immediately after the consolidation,
merger, share exchange or other extraordinary transaction,
beneficially own (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, shares
representing in the aggregate 50 percent of the voting
securities of the corporation issuing cash or securities in
the consolidation, merger, share exchange or other
extraordinary transaction (or of its ultimate parent
corporation, if any), (2) any lease, exchange, mortgage or
other transfer (in one transaction or series of transactions
contemplated or arranged by any party as a
-4-
<PAGE> 5
single plan) of all or substantially all of the assets of
the Company and its subsidiaries (taken as a whole), or (3)
any plan or proposal for the liquidation or dissolution of
the Company; or
(E) the following individuals cease for any reason to constitute
a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board of
Directors and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to
a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by
the Board of Directors or nomination for election by the
Company's stockholders was approved or recommended by a vote
of at least two-thirds of the directors then still in office
who either were directors on the date hereof or whose
appointment, election or nomination for election was
previously so approved or recommended.
(iii) For purposes of this Agreement, "termination of employment,"
"termination of Employee" and "termination of this Agreement" shall have
the same meaning unless otherwise agreed to in writing by the parties
hereto.
(d) Severance Payments.
(i) In the event of termination of the Employee by the Company
without cause or termination by Employee pursuant to Section 4(b)(i)
hereof, the Company shall: (A) pay to Employee an amount equal to two
times the Employee's annual salary in effect at the time of the
termination (not giving effect to any salary reduction giving rise to
such termination) plus two times the greater of (1) the average bonus
received by the Employee for the last three fiscal years (or such
shorter time if Employee has been employed by the Company for less than
three years) or (2) the bonus earned by Employee for the most recently
ended fiscal year and (B) either continue the Employee's health
(medical and dental) insurance as provided in Section 5(c) for two
years following the date of such termination to the extent permitted
under applicable law and the Company's group health insurance policies
or reimburse the Employee for his cost for comparable coverage to the
extent such coverage cannot be provided under such policies. Such
severance pay shall be payable in equal monthly installments over the
two-year period beginning on the date of termination of this Agreement
and shall be subject to tax withholding to the extent required under
applicable law. Notwithstanding anything herein to the contrary, the
Company shall not be required to continue to provide Employee with
health benefits under this paragraph if Employee becomes entitled to
receive benefits substantially similar to those which Employee
otherwise would have been entitled to receive hereunder. This severance
pay and continuation of health benefits contemplated by this paragraph
are agreed by the parties hereto to be in full
-5-
<PAGE> 6
satisfaction and compromise of any claim arising out of any
termination of Employee's employment without cause or pursuant to
Section 4(b)(i).
(ii) Notwithstanding anything herein to the contrary, in the
event of termination of the Employee by the Company without cause
within the two-year period following a Change in Control or termination
by Employee under Section 4(b)(i), (ii), or (iii) of this Agreement,
then in lieu of the severance pay and benefit continuation provided in
Section 4(d)(i) above, the Company shall: (A) pay to Employee an amount
equal to three times the Employee's annual salary in effect at the time
of the termination (not giving effect to any salary reduction giving
rise to such termination) plus three times the greater of (1) the
average bonus received by the Employee for the three fiscal years
preceding such termination (or such shorter time if Employee has been
employed by the Company for less than three years) or (2) the bonus
earned by Employee for the most recently ended fiscal year, (B) either
continue the Employee's health (medical and dental) insurance as
provided in Section 5(c) for three years following the date of such
termination to the extent permitted under applicable law and the
Company's group health insurance policies or reimburse the Employee for
his cost for comparable coverage to the extent such coverage cannot be
provided under such policies and (C) pay to Employee the prorated
portion of the greater of (1) the average bonus received by the
Employee for the three fiscal years preceding such termination (or such
shorter time if Employee has been employed by the Company for less than
three years) or (2) the bonus earned by Employee for the most recently
ended fiscal year. Such severance pay shall be payable in equal monthly
installments over the three-year period beginning on the date of
termination of this Agreement and shall be subject to tax withholding
to the extent required under applicable law. Notwithstanding anything
herein to the contrary, the Company shall not be required to continue
to provide Employee with health benefits under this paragraph if
Employee becomes entitled to receive benefits substantially similar to
those which Employee otherwise would have been entitled to receive
hereunder. Notwithstanding anything herein to the contrary, the Company
shall not be required to pay any amount (the "Excess Amount") that,
upon advice of the Company's independent tax advisor or counsel, would
be in excess of 2.99 times Employee's Base Amount, as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), and, therefore, would trigger the tax (the "Excise Tax")
imposed by Section 4999 of the Code, unless Employee agrees to be bound
by the noncompetition provisions of Section 7 hereof for one additional
year following the termination. Payment of the Excess Amount shall be
consideration for the Employee agreeing to be bound by such
noncompetition provision for such additional year. Election by the
Employee to receive the Excess Amount shall be given in writing to the
Company not later than five days after the date on which the Company
notifies Employee in writing that an Excess Amount may be payable
absent such agreement, and, upon receipt of such notice, the Company
shall be obligated to pay the Excess Amount to Employee.
(e) Gross-Up. If any payment or other benefit (a "Termination
Payment") received or to be received by Employee in connection with a
Change in Control event
-6-
<PAGE> 7
(whether or not this Agreement is terminated) or Employee's
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, with any person whose actions result in a Change in Control
event or with any person affiliated with the Company or such person)
is or will be subject to the Excise Tax, and provided Employee agrees
to be bound by the noncompetition provisions of Section 7 as extended
by Section 4(d)(ii) and/or Section 4(f), the Company shall pay to
Employee a Gross-Up Payment (as herein defined) to the extent provided
by Section 4(e)(i).
A Gross-Up Payment shall be payable pursuant to this Section 4(e)
on and subject to the following terms and conditions:
(i) At the time the applicable Termination Payment is made, an
additional amount (the "Gross-Up Payment") shall be paid by the
Company such that the net amount retained by Employee, after deduction
of any Excise Tax on such Termination Payment and any federal, state
and local income tax, employment tax and Excise Tax on the Gross-Up
Payment, shall be equal to the amount or value of such Termination
Payment. For purposes of determining whether any such Termination
Payment will be subject to the Excise Tax, all Termination Payments
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as being
subject to the Excise Tax, unless in the opinion of tax counsel
reasonably acceptable to Employee and selected by the accounting firm
which, immediately prior to the Change in Control event, was the
Company's independent auditors, such payments (in whole or in part) do
not constitute "parachute payments" within the meaning of Section 280G
of the Code or represent reasonable compensation for services actually
rendered in excess of the "base amount" allocable to such reasonable
compensation. The full amount of the Gross-Up Payment shall be treated
as being subject to the Excise Tax. The value of any non-cash benefits
or any deferred payment or benefit shall be determined in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
(ii) For purposes of determining the amount of any Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year
in which the applicable Termination Payment or Gross-Up Payment is
made, and shall be deemed to pay state and local income taxes at the
highest marginal rates of taxation in the state and locality of his
residence on the date the applicable Termination Payment or Gross-Up
Payment is made, net of the maximum reduction in federal income taxes
that could be obtained from deduction of such state and local taxes.
(iii) If the Excise Tax or income tax payable with respect to a
Gross-Up Payment as finally determined exceeds the amount taken into
account or paid to Employee at the time the applicable Termination
Payment or Gross-Up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the
time
-7-
<PAGE> 8
of the applicable Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any
interest payable by Employee with respect to such excess) at the time
that the amount of such excess is finally determined.
(f) Continuation Bonus. Upon (i) the consummation of a Change in
Control, and (ii) Employee agreeing (A) to remain employed by the
Company until the first anniversary of the consummation of the Change
in Control and (B) to be bound by the noncompetition provisions of
Section 7 of this Agreement for the Extended Period (as herein
defined) and to render consulting services to the Company (up to 500
hours per year) for the Extended Period, Employee shall be entitled to
receive a single payment of $1,000,000. Employee shall fulfill his
obligations under this Section 4(f) by notifying the Company in
writing of his decision to be bound by the terms of this Section 4(f).
The Company shall pay amounts due under this Section 4(f) within five
days of receipt of such notice from Employee. If termination of this
Agreement occurs prior to the third anniversary of a Change in
Control, the Extended Period shall be the four year period from the
date of termination of this Agreement or if termination of this
Agreement occurs after the third anniversary of a Change in Control,
the Extended Period shall be the period ending on the date this
Agreement terminates.
(g) Security Obligation. The Company shall establish and fund,
not later than 30 days prior to the consummation of a Change in
Control, a grantor trust in an amount sufficient to satisfy the
Company's obligations under Sections 4(d), (e) and (f). If the Company
fails to fund such trust within such thirty day period, the entire
amount of the Company's severance obligations to the Employee will
accelerate and become immediately due and payable.
-8-
<PAGE> 9
5. Compensation and Benefits.
(a) Annual Salary. For all services rendered by Employee under this
Agreement, the Company will pay Employee a base salary of at least two
hundred fifty thousand dollars ($250,000) per annum in equal monthly
installments, or a greater amount as determined by the Board of Directors
of the Company.
(b) Annual Bonus Payment. Upon completion of each fiscal year and as
determined by the Board of Directors of the Company, Employee shall be
eligible to receive a bonus ("Bonus") in accordance with any bonus plan
then in effect for executives of the Company of equivalent position and
title, provided Employee is employed by the Company at the end of such
fiscal year. Notwithstanding anything herein to the contrary, Employee's
bonus for any fiscal year ending after a Change in Control shall not be
less than 30% of his base salary then in effect.
(c) Other Benefits. Employee will be entitled to such fringe benefits
as may be provided from time-to-time by the Company to its employees,
including, but not limited to, group health insurance, disability, dental,
retirement and any other fringe benefits now or hereafter provided by the
Company to its employees, if and when Employee meets the eligibility
requirements for any such benefit. The Company reserves the right to change
or discontinue any employee benefit plans or programs now being offered to
its employees; provided, however, that all benefits provided for employees
of the same position and status as Employee will be provided to Employee on
an equal basis and the aggregate of such benefits shall not be less than
those currently in effect or otherwise be materially less favorable to the
Employee.
(d) Business Expenses. Employee will be reimbursed for all reasonable
expenses incurred in the discharge of Employee's duties under this
Agreement pursuant to the Company's standard reimbursement policies.
(e) Vacation. Employee shall receive paid vacation annually in
accordance with the Company's practices for employees of the Company of the
same position and status as Employee.
(f) Car Allowance. Employee shall receive a car allowance of $800 per
month during the term of this Agreement. Employee otherwise shall bear all
expenses and liabilities with respect to such car.
(g) Withholding. The Company will deduct and withhold from the
payments made to Employee under this Agreement, state and federal income
taxes, FICA and other amounts normally withheld from compensation due
employees.
6. Non-Disclosure and Use of Confidential Information. Employee recognizes and
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<PAGE> 10
acknowledges that the trade secrets and confidential information of the
Company (the "Proprietary Information"), as they may exist from
time-to-time, are valuable, special and unique assets of the Business.
Employee further acknowledges that access to such Proprietary Information
relating to the Business of the Company is essential to the performance of
Employee's duties under this Agreement. Therefore, in order to obtain
access to such Proprietary Information, Employee agrees that Employee will
not, in whole or in part, disclose such Proprietary Information to any
person, firm, corporation, association or any other entity for any reason
or purpose whatsoever, nor will Employee make use of any such information
for Employee's own purposes or for the benefit of any person, firm,
corporation, association or other entity (except the Company). For purposes
of this Agreement, the term "trade secrets" means the whole or any portion
of any scientific or technical or non-technical information, design,
process, procedure, formula, computer software product, documentation or
improvement relating to the Business which: (1) derives economic value,
actual or potential, from not being generally known to other persons who
can obtain economic value from its disclosure or use; and (2) is the
subject of efforts that are reasonable under the circumstances to maintain
its secrecy or confidentiality. The term "confidential information" means
any and all other data and information relating to the Business which: (1)
has value to the Company; (2) is not generally known by its competitors or
the public; and (3) is treated as confidential by the Company. The
provisions of this Section 6 will apply during Employee's employment by the
Company and, with respect to trade secrets, at any and all times thereafter
and, with respect to confidential information, for three years thereafter.
These restrictions will not apply to any Proprietary Information which: (i)
is in the public domain, provided that Employee was not responsible,
directly or indirectly, for such Proprietary Information entering the
public domain without the Company's consent; (ii) becomes known to
Employee, during the term of this Agreement, from a third party not known
to Employee to be under a confidential relationship with the Company; or
(iii) is required by law or governmental tribunal to be disclosed;
provided, however, that if Employee is legally compelled to disclose any
Proprietary Information, Employee will provide the Company with prompt
written notice of such legal compulsion so that the Company may seek a
protective order or other available remedy.
7. (a) Non-Competition Covenant. During the term of this Agreement and for a
period of two years following termination of this Agreement for any
reason, Employee will not, directly or indirectly, on Employee's own
behalf or in the service of or on behalf of any other individual or
entity, compete with the Company in the Business within the
Geographical Area (as hereinafter defined); provided, however, that
the noncompetition period imposed under this Section 7(a) shall not
apply if the noncompetition period imposed under Section 4(f) of this
Agreement applies. The term "compete" means to engage, directly or
indirectly, on Employee's own behalf or in the service of or on behalf
of any other individual or
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<PAGE> 11
entity, either as a proprietor, employee, agent, independent
contractor, consultant, director, officer, partner or stockholder
(other than a stockholder of a corporation listed on a national
securities exchange or whose stock is regularly traded in the
over-the-counter market, provided that Employee at no time owns,
directly or indirectly, in excess of five percent of the outstanding
stock of any class of any such corporation) in providing management,
executive, marketing or other services. For purposes of this
Agreement, the term "Geographical Area" means those areas in the
United States and in foreign countries in which Employee is or has
engaged in providing or marketing Business products or services as of
the date of this Agreement. The Geographical Area currently includes
Alabama, Arkansas, Colorado, Florida, Georgia, Illinois, Indiana,
Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, New
Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina,
Tennessee, Texas, Virginia and West Virginia. The Company may, from
time to time and after giving Employee notice (but only while the
Employee is employed by the Company), amend this Agreement to expand
the Geographical Area to include additional areas in which the Company
may conduct the Business after the date hereof.
(b) Non-Interference. During the term of this Agreement and for a period
of two years following termination of this Agreement for any reason
(and during the Extended Period, if any), Employee will not, directly
or indirectly, on Employee's own behalf or in the service of or on
behalf of any other individual or entity, interfere with, disrupt, or
attempt to disrupt the past, present or prospective relationships,
contractual or otherwise, between the Company and any supplier,
consultant, or client of the Company with whom Employee had material
business contact during the two-year period ending on the date of the
termination of this Agreement. The term "prospective relationship" is
defined as any relationship where the Company has actively sought an
individual or entity as a prospective supplier, consultant, or client.
(c) Construction. The parties hereto agree that any judicial authority
construing all or any portion of this Section 7 or Section 8 below
will be empowered to sever any portion of the Geographical Area,
Business or time period, client base, prospective relationship or
prospect list or any prohibited business activity from the coverage of
such Section and to apply the provisions of such Section to the
remaining portion of the Geographical Area, Business or time period,
the client base or the prospective relationship or prospect list, or
the remaining business activities not so severed by such judicial
authority. In addition, it is the intent of the parties that the
judicial authority replace each such severed provision with a
provision as similar in terms to such severed provision as may be
possible and be legal, valid and enforceable. It is the intent of the
parties that Sections 7 and 8 be enforced to the maximum extent
permitted by law. In the event that any provision
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<PAGE> 12
of either such Section is determined not to be specifically
enforceable, the Company shall nevertheless be entitled to bring an
action to seek to recover monetary damages as a result of the breach
of such provision by Employee.
8. Non-Solicitation of Employees Covenant. Employee further agrees and
represents that during Employee's employment by the Company and for a
period of two years following any termination of this Agreement for
whatever reason (and during the Extended Period, if any), Employee will
not, directly or indirectly, on Employee's own behalf or in the service of,
or on behalf of any other individual or entity, divert or solicit, or
attempt to divert or solicit, to or for any individual or entity which is
engaged in providing Business services, any person employed by the Company
(a) who was employed by the Company during the two-year period ending on
the date of the termination of this Agreement and (b) with whom Employee
was familiar during the term of this Agreement, whether or not such
employee is a full-time employee or temporary employee of the Company
whether or not such employee is employed pursuant to a written agreement
and whether or not such employee is employed for a determined period or
at-will, except as agreed to by the Company.
9. Existing Restrictive Covenants. Employee represents and warrants that
Employee's employment with the Company does not and will not breach any
agreement which Employee has with any individual or entity to keep in
confidence confidential information or not to compete with any such
individual or entity. Employee will not disclose to the Company or use on
either of their behalf any confidential information of any other party
required to be kept confidential by Employee.
10. Return of Confidential Information. Employee acknowledges that as a result
of Employee's employment with the Company, Employee may come into the
possession and control of Proprietary Information, such as proprietary
documents, drawings, specifications, manuals, notes, computer programs, or
other proprietary material. Employee acknowledges, warrants and agrees that
Employee will return to the Company all such items and any copies or
excerpts thereof, and any other properties, client lists, client contracts,
files or documents obtained as a result of Employee's employment with the
Company, immediately upon the termination of Employee's employment with the
Company.
11. Remedies. Employee agrees and acknowledges that the violation of any of the
covenants or agreements contained in Sections 6, 7, 8, 9 and 10 of this
Agreement would cause irreparable injury to the Company, that the remedy at
law for any such violation or threatened violation thereof would be
inadequate, and that the Company will be entitled, in addition to any other
remedy, to temporary and permanent injunctive or other equitable relief
without the necessity of proving actual damages including, without
limitation, the right to terminate all payments under this Agreement.
Sections
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<PAGE> 13
4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15,16, and 17 of this Agreement, shall
survive termination of the Employee's employment under this Agreement.
12. Notices. Any notice or communication under this Agreement will be in
writing and sent by registered or certified mail addressed to the
respective parties as follows:
<TABLE>
<S> <C>
If to the Company: If to the Employee:
CompDent Corporation David R. Klock
100 Mansell Court East, Suite 400 8940 Ridgemont Drive
Roswell, Georgia 30076 Dunwoody, Georgia 30350
Attention: David R. Klock
</TABLE>
13. Severability. Subject to the application of Section 7(c) to the
interpretation of Sections 7 and 8, in case one or more of the provisions
contained in this Agreement is for any reason held to be invalid, illegal
or unenforceable in any respect, the same will not affect any other
provision in this Agreement, and this Agreement will be construed as if
such invalid or illegal or unenforceable provision had never been contained
therein. It is the intent of the parties that this Agreement be enforced to
the maximum extent permitted by law.
14. Entire Agreement. This Agreement embodies the entire agreement of the
parties relating to the subject matter hereof and supersedes all prior
agreements, oral or written, regarding such subject matter. Except as
otherwise provided in Section 7(a) of this Agreement, no amendment or
modification of this Agreement will be valid or binding upon the parties
unless made in writing and signed by the parties.
15. Binding Effect. This Agreement will be binding upon the parties and their
respective heirs, representatives, successors, transferees and permitted
assigns, as applicable.
16. Assignment. This Agreement is one for personal services and is not
assignable by Employee. The Company may assign this Agreement to any of its
affiliates; provided that the Company shall remain liable for the
obligations of its affiliates under this Agreement.
17. Governing Law. This Agreement is entered into and will be interpreted and
enforced pursuant to the laws of the State of Delaware. The parties hereto
hereby agree that the appropriate forum and venue for any disputes between
any of the parties hereto arising out of this Agreement shall be any
federal court in the State of Delaware and each of the parties hereto
hereby submits to the personal jurisdiction of any such court. The
foregoing shall not limit the rights of any party to obtain execution of
judgment in any other jurisdiction. The parties further agree, to the
extent permitted by law, that a final
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<PAGE> 14
and unappealable judgment against either of them in any action or
proceeding contemplated above shall be conclusive and may be enforced in
any other jurisdiction within or outside the United States by suit on the
judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and amount of such judgment.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPDENT CORPORATION DAVID R. KLOCK
By: /s/ David Klock /s/ David Klock
--------------------------- -----------------------------------
Title: Chairman
-------------------------
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 26th day of June, 1998, by and between COMPDENT CORPORATION, a Delaware
corporation (the "Company") and PHYLLIS A. KLOCK (the "Employee").
I. STATEMENT OF BACKGROUND INFORMATION
The Employee has been an officer and a key employee of the Company and the
parties desire to ensure that the Employee's expertise, knowledge and experience
will continue to be available to the Company in providing full-service dental
benefits and offering network-based dental care, reduced fee-for-service, third
party administration and dental practice management (the "Business").
II. STATEMENT OF AGREEMENT
In consideration of the mutual covenants, promises and conditions set forth
in this Agreement, and for other good and valuable consideration, the parties
hereto hereby agree as follows:
1. Employment. The Company hereby employs Employee in the position of
President and Chief Operating Officer of the Company and/or such other
position(s) as determined by the Board of Directors or its designees and
consistent with the Employee's general area of experience, knowledge and
skill, and Employee hereby accepts such employment upon the terms and
conditions set forth in this Agreement. For purposes of Sections 6, 7 and 8
of this Agreement, "employment" shall mean any period of time during the
term hereof which the Company is paying the Employee salary or wages. By
execution of this Agreement, the parties hereby: (a) terminate, as of the
date hereof, that certain Employment Agreement between the Company and
Employee dated May 24, 1995 (the "Prior Employment Agreement") and (b)
acknowledge and agree that no provisions of the Prior Employment Agreement
shall survive the execution and delivery of this Agreement.
2. Duties of Employee. Employee agrees to perform and discharge the duties
which may be assigned to Employee from time to time by the Company's Board
of Directors or its designees and consistent with the Employee's general
area of experience, knowledge and skill. Employee also agrees to materially
comply with all of the Company's material policies, standards and
regulations and to follow the reasonable instructions and directives of
Employee's superiors within the Company, as promulgated by the Board of
Directors of the Company. Employee will devote her full professional and
business related time, skills and commercially reasonable efforts to the
Business and Employee will not, during the term of this Agreement, be
engaged (whether or not
<PAGE> 2
during normal business hours) in any other business or professional
activity (excluding reasonable and appropriate charitable activities),
whether or not such activity is pursued for gain, profit or other pecuniary
advantage without the prior written consent of the Board of Directors of
the Company, which consent will not be unreasonably withheld.
3. Term. The term of this Agreement will be for a period commencing on the
date hereof and expiring on the later of the fifth anniversary of such date
or, if there is a Change in Control (as defined herein) before such fifth
anniversary date, the date which is 25 months following any Change in
Control, subject to earlier termination as provided for in Section 4 below.
4. Termination.
(a) By the Company. Notwithstanding anything contained in Section 3 to
the contrary, the Company may terminate this Agreement and all of its
obligations hereunder immediately if any of the following events (any of
which shall constitute "cause" for purposes of this Agreement) occur:
(i) Employee (A) materially breaches any of the terms or conditions
set forth in Sections 6, 7 or 8 of this Agreement including, without
limitation, the failure to use commercially reasonable efforts in the
performance of duties assigned to the Employee on a full time basis, or (B)
materially breaches any of the other terms and conditions set forth in this
Agreement and fails to cure such breach within twenty days after Employee's
receipt from the Company of written notice of such breach, which notice
shall describe in reasonable detail the basis for the Company's belief that
Employee is in breach hereof;
(ii) Employee commits any act in bad faith materially detrimental to
the business or reputation of the Company;
(iii) Employee is convicted of any crime involving fraud, deceit or
moral turpitude or Employee intentionally engages in dishonest or illegal
activities that have a material adverse effect upon the business or
reputation of the Company; or
(iv) Employee dies or becomes mentally or physically incapacitated or
disabled so as to be unable to perform Employee's duties under this
Agreement. For purposes of this Agreement, Employee shall be deemed to be
mentally or physically incapacitated or disabled so as to be unable to
perform her duties if and to the extent he becomes permanently disabled
under the Company's long-term disability policy then in effect.
The Company may also terminate the Employee's employment, upon reasonable
written notice to the Employee, at any time subject to the fulfillment of
the Company's
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<PAGE> 3
obligations under this Agreement and such termination by the Company for
any other reason shall be deemed termination "without cause."
(b) By Employee. The Employee may terminate this Agreement:
(i) if the Company materially breaches any of the terms or conditions
set forth in this Agreement and fails to cure its breach within twenty days
after its receipt from Employee of written notice of such breach, which
notice describes in reasonable detail Employee's belief that the Company is
in breach hereof;
(ii) for "good reason" (as herein defined) at any time during the
two-year period following a Change in Control upon written notice to the
Company; or
(iii) for any reason or for no reason during the 30-day period
beginning on the first anniversary of the consummation of a Change in
Control (as herein defined) of the Company.
The Employee may also resign and terminate her employment on reasonable
written notice at any time and such termination by Employee for any other
reason (other than as provided in Sections 4(b)(i) or (ii)) and in such
event, the Employee shall receive no severance benefits under this
Agreement as a result of such termination.
(c) Certain definitions.
(i) For purposes of this Agreement, "good reason" shall mean the
following:
(A) any diminution of the Employee's duties or a reassignment of
the Employee to a position not consistent with the Employee's
general area of knowledge, experience and skills, or the
assignment of substantial additional responsibilities to the
Employee;
(B) any diminution of the Employee's compensation or a material
diminution of the Employee's bonus, long-term incentives,
employee benefits or perquisites as in effect immediately
preceding the Change in Control;
(C) any relocation of Employee's principal place of employment to
more than 35 miles from the principal place of employment
immediately preceding the Change in Control;
(D) any material increase in Employee's travel obligations;
(E) any failure of any successors to the Company to assume this
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<PAGE> 4
agreement; or
(F) any breach of this Agreement by the Company not cured within
ten days after its receipt of notice from Employee of such
breach (in the event of such a breach and a termination of
this Agreement following a Change in Control, such
termination shall be deemed to have occurred under this
Section 4(c)(i)(F) and not under Section 4(b)(i)).
(ii) For purposes of this Agreement, "Change in Control" shall mean
any of the following events:
(A) the direct or indirect beneficial ownership (within the
meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Regulation 13D
thereof) of a majority of the outstanding common stock of
the Company is acquired or becomes held by any person or
group of persons (within the meaning of Section 13(d)(3) of
the Exchange Act);
(B) a change of stock ownership of the Company of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Exchange Act, and any
successor Item of a similar nature;
(C) the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) of securities of the
Company representing 25 percent or more of the voting power
of the then outstanding securities of the Company;
(D) the stockholders of the Company shall approve (provided,
however, if the transaction approved by the stockholders is
subsequently terminated, and the Employee is still employed
by the Company at the termination of the transaction, then
no "Change in Control" shall be deemed to have taken place):
(1) any consolidation, merger, share exchange or other
extraordinary transaction related to the Company where the
stockholders of the Company, immediately prior to the
consolidation, merger, share exchange or other extraordinary
transaction, would not, immediately after the consolidation,
merger, share exchange or other extraordinary transaction,
beneficially own (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, shares
representing in the aggregate 50 percent of the
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<PAGE> 5
voting securities of the corporation issuing cash or
securities in the consolidation, merger, share exchange or
other extraordinary transaction (or of its ultimate parent
corporation, if any), (2) any lease, exchange, mortgage or
other transfer (in one transaction or series of transactions
contemplated or arranged by any party as a single plan) of
all or substantially all of the assets of the Company and
its subsidiaries (taken as a whole), or (3) any plan or
proposal for the liquidation or dissolution of the Company;
or
(E) the following individuals cease for any reason to constitute
a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board of
Directors and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to
a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by
the Board of Directors or nomination for election by the
Company's stockholders was approved or recommended by a vote
of at least two-thirds of the directors then still in office
who either were directors on the date hereof or whose
appointment, election or nomination for election was
previously so approved or recommended.
(iii) For purposes of this Agreement, "termination of employment,"
"termination of Employee" and "termination of this Agreement" shall have
the same meaning unless otherwise agreed to in writing by the parties
hereto.
(d) Severance Payments.
(i) In the event of termination of the Employee by the Company without
cause or termination by Employee pursuant to Section 4(b)(i) hereof, the
Company shall: (A) pay to Employee an amount equal to two times the
Employee's annual salary in effect at the time of the termination (not
giving effect to any salary reduction giving rise to such termination) plus
two times the greater of (1) the average bonus received by the Employee for
the last three fiscal years (or such shorter time if Employee has been
employed by the Company for less than three years) or (2) the bonus earned
by Employee for the most recently ended fiscal year and (B) either continue
the Employee's health (medical and dental) insurance as provided in Section
5(c) for two years following the date of such termination to the extent
permitted under applicable law and the Company's group health insurance
policies or reimburse the Employee for her cost for comparable coverage to
the extent such coverage cannot be provided under such policies. Such
severance pay shall be payable in equal monthly installments over the
two-year period beginning on the date of termination of this Agreement and
shall be subject to tax withholding to the extent
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<PAGE> 6
required under applicable law. Notwithstanding anything herein to the
contrary, the Company shall not be required to continue to provide Employee
with health benefits under this paragraph if Employee becomes entitled to
receive benefits substantially similar to those which Employee otherwise
would have been entitled to receive hereunder. This severance pay and
continuation of health benefits contemplated by this paragraph are agreed
by the parties hereto to be in full satisfaction and compromise of any
claim arising out of any termination of Employee's employment without cause
or pursuant to Section 4(b)(i).
(ii) Notwithstanding anything herein to the contrary, in the event of
termination of the Employee by the Company without cause within the
two-year period following a Change in Control or termination by Employee
under Section 4(b)(i), (ii) or (iii) of this Agreement, then in lieu of the
severance pay and benefit continuation provided in Section 4(d)(i) above,
the Company shall: (A) pay to Employee an amount equal to three times the
Employee's annual salary in effect at the time of the termination (not
giving effect to any salary reduction giving rise to such termination) plus
three times the greater of (1) the average bonus received by the Employee
for the three fiscal years preceding such termination (or such shorter time
if Employee has been employed by the Company for less than three years) or
(2) the bonus earned by Employee for the most recently ended fiscal year,
(B) either continue the Employee's health (medical and dental) insurance as
provided in Section 5(c) for three years following the date of such
termination to the extent permitted under applicable law and the Company's
group health insurance policies or reimburse the Employee for her cost for
comparable coverage to the extent such coverage cannot be provided under
such policies and (C) pay to Employee the prorated portion of the greater
of (1) the average bonus received by the Employee for the three fiscal
years preceding such termination (or such shorter time if Employee has been
employed by the Company for less than three years) or (2) the bonus earned
by Employee for the most recently ended fiscal year. Such severance pay
shall be payable in equal monthly installments over the three-year period
beginning on the date of termination of this Agreement and shall be subject
to tax withholding to the extent required under applicable law.
Notwithstanding anything herein to the contrary, the Company shall not be
required to continue to provide Employee with health benefits under this
paragraph if Employee becomes entitled to receive benefits substantially
similar to those which Employee otherwise would have been entitled to
receive hereunder. Notwithstanding anything herein to the contrary, the
Company shall not be required to pay any amount (the "Excess Amount") that,
upon advice of the Company's independent tax advisor or counsel, would be
in excess of 2.99 times Employee's Base Amount, as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and, therefore, would trigger the tax (the "Excise Tax") imposed by Section
4999 of the Code, unless Employee agrees to be bound by the noncompetition
provisions of Section 7 hereof for one additional year following the
termination. Payment of the Excess Amount shall be consideration for the
Employee agreeing to be bound by such noncompetition provision for such
additional year. Election by the Employee to receive the Excess Amount
shall be
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<PAGE> 7
given in writing to the Company not later than five days after the date on
which the Company notifies Employee in writing that an Excess Amount may be
payable absent such agreement, and, upon receipt of such notice, the
Company shall be obligated to pay the Excess Amount to Employee.
(e) Gross-Up. If any payment or other benefit (a "Termination
Payment") received or to be received by Employee in connection with a
Change in Control event (whether or not this Agreement is terminated) or
Employee's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company,
with any person whose actions result in a Change in Control event or with
any person affiliated with the Company or such person) is or will be
subject to the Excise Tax, and provided Employee agrees to be bound by the
noncompetition provisions of Section 7 as extended by Section 4(d)(ii)
and/or Section 4(f), the Company shall pay to Employee a Gross-Up Payment
(as herein defined) to the extent provided by Section 4(e)(i).
A Gross-Up Payment shall be payable pursuant to this Section 4(e) on
and subject to the following terms and conditions:
(i) At the time the applicable Termination Payment is made, an
additional amount (the "Gross-Up Payment") shall be paid by the Company
such that the net amount retained by Employee, after deduction of any
Excise Tax on such Termination Payment and any federal, state and local
income tax, employment tax and Excise Tax on the Gross-Up Payment, shall be
equal to the amount or value of such Termination Payment. For purposes of
determining whether any such Termination Payment will be subject to the
Excise Tax, all Termination Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as being subject to the Excise Tax, unless in the
opinion of tax counsel reasonably acceptable to Employee and selected by
the accounting firm which, immediately prior to the Change in Control
event, was the Company's independent auditors, such payments (in whole or
in part) do not constitute "parachute payments" within the meaning of
Section 280G of the Code or represent reasonable compensation for services
actually rendered in excess of the "base amount" allocable to such
reasonable compensation. The full amount of the Gross-Up Payment shall be
treated as being subject to the Excise Tax. The value of any non-cash
benefits or any deferred payment or benefit shall be determined in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
(ii) For purposes of determining the amount of any Gross-Up Payment,
Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
applicable Termination Payment or Gross-Up Payment is made, and shall be
deemed to pay state and local income taxes at the highest marginal rates of
taxation in the state and locality of her residence on the date
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<PAGE> 8
the applicable Termination Payment or Gross-Up Payment is made, net of
the maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) If the Excise Tax or income tax payable with respect to a
Gross-Up Payment as finally determined exceeds the amount taken into
account or paid to Employee at the time the applicable Termination Payment
or Gross-Up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
applicable Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest payable by Employee
with respect to such excess) at the time that the amount of such excess is
finally determined.
(f) Continuation Bonus. Upon (i) the consummation of a Change in
Control, and (ii) Employee agreeing (A) to remain employed by the Company
until the first anniversary of the consummation of the Change in Control
and (B) to be bound by the noncompetition provisions of Section 7 of this
Agreement for the Extended Period (as herein defined) and to render
consulting services to the Company (up to 375 hours per year) for the
Extended Period, Employee shall be entitled to receive a single payment of
$750,000. Employee shall fulfill her obligations under this Section 4(f) by
notifying the Company in writing of her decision to be bound by the terms
of this Section 4(f). The Company shall pay amounts due under this Section
4(f) within five days of receipt of such notice from Employee. If
termination of this Agreement occurs prior to the third anniversary of a
Change in Control, the Extended Period shall be the three year period from
the date of termination of this Agreement or if termination of this
Agreement occurs after the third anniversary of a Change in Control, the
Extended Period shall be the period ending on the date this Agreement
terminates.
(g) Security Obligation. The Company shall establish and fund, not
later than 30 days prior to the consummation of a Change in Control, a
grantor trust in an amount sufficient to satisfy the Company's obligations
under Sections 4(d), (e) and (f). If the Company fails to fund such trust
within such thirty day period, the entire amount of the Company's severance
obligations to the Employee will accelerate and become immediately due and
payable.
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<PAGE> 9
5. Compensation and Benefits.
(a) Annual Salary. For all services rendered by Employee under this
Agreement, the Company will pay Employee a base salary of at least two
hundred fifteen thousand dollars ($215,000) per annum in equal monthly
installments, or a greater amount as determined by the Board of Directors
of the Company.
(b) Annual Bonus Payment. Upon completion of each fiscal year and as
determined by the Board of Directors of the Company, Employee shall be
eligible to receive a bonus ("Bonus") in accordance with any bonus plan
then in effect for executives of the Company of equivalent position and
title, provided Employee is employed by the Company at the end of such
fiscal year. Notwithstanding anything herein to the contrary, Employee's
bonus for any fiscal year ending after a Change in Control shall not be
less than 30% of her base salary then in effect.
(c) Other Benefits. Employee will be entitled to such fringe benefits
as may be provided from time-to-time by the Company to its employees,
including, but not limited to, group health insurance, disability, dental,
retirement and any other fringe benefits now or hereafter provided by the
Company to its employees, if and when Employee meets the eligibility
requirements for any such benefit. The Company reserves the right to change
or discontinue any employee benefit plans or programs now being offered to
its employees; provided, however, that all benefits provided for employees
of the same position and status as Employee will be provided to Employee on
an equal basis.
(d) Business Expenses. Employee will be reimbursed for all reasonable
expenses incurred in the discharge of Employee's duties under this
Agreement pursuant to the Company's standard reimbursement policies.
(e) Vacation. Employee shall receive paid vacation annually in
accordance with the Company's practices for employees of the Company of the
same position and status as Employee.
(f) Car Allowance. Employee shall receive a car allowance of $800 per
month during the term of this Agreement. Employee otherwise shall bear all
expenses and liabilities with respect to such car.
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<PAGE> 10
(g) Withholding. The Company will deduct and withhold from the
payments made to Employee under this Agreement, state and federal income
taxes, FICA and other amounts normally withheld from compensation due
employees.
6. Non-Disclosure and Use of Confidential Information. Employee recognizes and
acknowledges that the trade secrets and confidential information of the
Company (the "Proprietary Information"), as they may exist from
time-to-time, are valuable, special and unique assets of the Business.
Employee further acknowledges that access to such Proprietary Information
relating to the Business of the Company is essential to the performance of
Employee's duties under this Agreement. Therefore, in order to obtain
access to such Proprietary Information, Employee agrees that Employee will
not, in whole or in part, disclose such Proprietary Information to any
person, firm, corporation, association or any other entity for any reason
or purpose whatsoever, nor will Employee make use of any such information
for Employee's own purposes or for the benefit of any person, firm,
corporation, association or other entity (except the Company). For purposes
of this Agreement, the term "trade secrets" means the whole or any portion
of any scientific or technical or non-technical information, design,
process, procedure, formula, computer software product, documentation or
improvement relating to the Business which: (1) derives economic value,
actual or potential, from not being generally known to other persons who
can obtain economic value from its disclosure or use; and (2) is the
subject of efforts that are reasonable under the circumstances to maintain
its secrecy or confidentiality. The term "confidential information" means
any and all other data and information relating to the Business which: (1)
has value to the Company; (2) is not generally known by its competitors or
the public; and (3) is treated as confidential by the Company. The
provisions of this Section 6 will apply during Employee's employment by the
Company and, with respect to trade secrets, at any and all times thereafter
and, with respect to confidential information, for three years thereafter.
These restrictions will not apply to any Proprietary Information which: (i)
is in the public domain, provided that Employee was not responsible,
directly or indirectly, for such Proprietary Information entering the
public domain without the Company's consent; (ii) becomes known to
Employee, during the term of this Agreement, from a third party not known
to Employee to be under a confidential relationship with the Company; or
(iii) is required by law or governmental tribunal to be disclosed;
provided, however, that if Employee is legally compelled to disclose any
Proprietary Information, Employee will provide the Company with prompt
written notice of such legal compulsion so that the Company may seek a
protective order or other available remedy.
7. (a) Non-Competition Covenant. During the term of this Agreement and
for a period of two years following termination of this Agreement for
any reason, Employee will not, directly or indirectly, on Employee's
own behalf or in the service of or on behalf of any other individual
or entity, compete with the Company in the
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<PAGE> 11
Business within the Geographical Area (as hereinafter defined);
provided, however, that the noncompetition period imposed under this
Section 7(a) shall not apply if the noncompetition period imposed
under Section 4(f) of this Agreement applies. The term "compete" means
to engage, directly or indirectly, on Employee's own behalf or in the
service of or on behalf of any other individual or entity, either as a
proprietor, employee, agent, independent contractor, consultant,
director, officer, partner or stockholder (other than a stockholder of
a corporation listed on a national securities exchange or whose stock
is regularly traded in the over-the-counter market, provided that
Employee at no time owns, directly or indirectly, in excess of five
percent of the outstanding stock of any class of any such corporation)
in providing management, executive, marketing, or other services. For
purposes of this Agreement, the term "Geographical Area" means those
areas in the United States and in foreign countries in which Employee
is or has engaged in providing or marketing Business products or
services as of the date of this Agreement. The Geographical Area
currently includes Alabama, Arkansas, Colorado, Florida, Georgia,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Mississippi,
Missouri, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia and West Virginia. The
Company may, from time to time and after giving Employee notice (but
only while the Employee is employed by the Company), amend this
Agreement to expand the Geographical Area to include additional areas
in which the Company may conduct the Business after the date hereof.
(b) Non-Interference. During the term of this Agreement and for a period
of two years following termination of this Agreement for any reason
(and during the Extended Period, if any), Employee will not, directly
or indirectly, on Employee's own behalf or in the service of or on
behalf of any other individual or entity, interfere with, disrupt, or
attempt to disrupt the past, present or prospective relationships,
contractual or otherwise, between the Company and any supplier,
consultant, or client of the Company with whom Employee had material
business contact during the two-year period ending on the date of the
termination of this Agreement. The term "prospective relationship" is
defined as any relationship where the Company has actively sought an
individual or entity as a prospective supplier, consultant, or client.
(c) Construction. The parties hereto agree that any judicial authority
construing all or any portion of this Section 7 or Section 8 below
will be empowered to sever any portion of the Geographical Area,
Business or time period, client base, prospective relationship or
prospect list or any prohibited business activity from the coverage of
such Section and to apply the provisions of such Section to the
remaining portion of the Geographical Area, Business or time period,
the client
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<PAGE> 12
base or the prospective relationship or prospect list, or the
remaining business activities not so severed by such judicial
authority. In addition, it is the intent of the parties that the
judicial authority replace each such severed provision with a
provision as similar in terms to such severed provision as may be
possible and be legal, valid and enforceable. It is the intent of the
parties that Sections 7 and 8 be enforced to the maximum extent
permitted by law. In the event that any provision of either such
Section is determined not to be specifically enforceable, the Company
shall nevertheless be entitled to bring an action to seek to recover
monetary damages as a result of the breach of such provision by
Employee.
8. Non-Solicitation of Employees Covenant. Employee further agrees and
represents that during Employee's employment by the Company and for a
period of two years following any termination of this Agreement for
whatever reason (and during the Extended Period, if any), Employee will
not, directly or indirectly, on Employee's own behalf or in the service of,
or on behalf of any other individual or entity, divert or solicit, or
attempt to divert or solicit, to or for any individual or entity which is
engaged in providing Business services, any person employed by the Company
(a) who was employed by the Company during the two-year period ending on
the date of the termination of this Agreement and (b) with whom Employee
was familiar during the term of this Agreement, whether or not such
employee is a full-time employee or temporary employee of the Company
whether or not such employee is employed pursuant to a written agreement
and whether or not such employee is employed for a determined period or
at-will, except as agreed to by the Company.
9. Existing Restrictive Covenants. Employee represents and warrants that
Employee's employment with the Company does not and will not breach any
agreement which Employee has with any individual or entity to keep in
confidence confidential information or not to compete with any such
individual or entity. Employee will not disclose to the Company or use on
either of their behalf any confidential information of any other party
required to be kept confidential by Employee.
10. Return of Confidential Information. Employee acknowledges that as a result
of Employee's employment with the Company, Employee may come into the
possession and control of Proprietary Information, such as proprietary
documents, drawings, specifications, manuals, notes, computer programs, or
other proprietary material. Employee acknowledges, warrants and agrees that
Employee will return to the Company all such items and any copies or
excerpts thereof, and any other properties, client lists, client contracts,
files or documents obtained as a result of Employee's employment with the
Company, immediately upon the termination of Employee's employment with the
Company.
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<PAGE> 13
11. Remedies. Employee agrees and acknowledges that the violation of any of the
covenants or agreements contained in Sections 6, 7, 8, 9 and 10 of this
Agreement would cause irreparable injury to the Company, that the remedy at
law for any such violation or threatened violation thereof would be
inadequate, and that the Company will be entitled, in addition to any other
remedy, to temporary and permanent injunctive or other equitable relief
without the necessity of proving actual damages including, without
limitation, the right to terminate all payments under this Agreement.
Sections 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, and 17 of this
Agreement, shall survive termination of the Employee's employment under
this Agreement.
12. Notices. Any notice or communication under this Agreement will be in
writing and sent by registered or certified mail addressed to the
respective parties as follows:
<TABLE>
<S> <C>
If to the Company: If to the Employee:
CompDent Corporation Phyllis A. Klock
100 Mansell Court East, Suite 400 8940 Ridgemont Drive
Roswell, Georgia 30076 Dunwoody, Georgia 30350
Attention: David R. Klock
</TABLE>
13. Severability. Subject to the application of Section 7(c) to the
interpretation of Sections 7 and 8, in case one or more of the provisions
contained in this Agreement is for any reason held to be invalid, illegal
or unenforceable in any respect, the same will not affect any other
provision in this Agreement, and this Agreement will be construed as if
such invalid or illegal or unenforceable provision had never been contained
therein. It is the intent of the parties that this Agreement be enforced to
the maximum extent permitted by law.
14. Entire Agreement. This Agreement embodies the entire agreement of the
parties relating to the subject matter hereof and supersedes all prior
agreements, oral or written, regarding such subject matter. Except as
otherwise provided in Section 7(a) of this Agreement, no amendment or
modification of this Agreement will be valid or binding upon the parties
unless made in writing and signed by the parties.
15. Binding Effect. This Agreement will be binding upon the parties and their
respective heirs, representatives, successors, transferees and permitted
assigns, as applicable.
16. Assignment. This Agreement is one for personal services and is not
assignable by Employee. The Company may assign this Agreement to any of its
affiliates; provided that the Company shall remain liable for the
obligations of its affiliates under this Agreement.
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<PAGE> 14
17. Governing Law. This Agreement is entered into and will be interpreted and
enforced pursuant to the laws of the State of Delaware. The parties hereto
hereby agree that the appropriate forum and venue for any disputes between
any of the parties hereto arising out of this Agreement shall be any
federal court in the State of Delaware and each of the parties hereto
hereby submits to the personal jurisdiction of any such court. The
foregoing shall not limit the rights of any party to obtain execution of
judgment in any other jurisdiction. The parties further agree, to the
extent permitted by law, that a final and unappealable judgment against
either of them in any action or proceeding contemplated above shall be
conclusive and may be enforced in any other jurisdiction within or outside
the United States by suit on the judgment, a certified or exemplified copy
of which shall be conclusive evidence of the fact and amount of such
judgment.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPDENT CORPORATION PHYLLIS A. KLOCK
By: /s/ David Klock /s/ Phyllis A. Klock
------------------------------ -----------------------------------
Title: CEO & Chairman
---------------------------
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 6th day of July, 1998, by and between COMPDENT CORPORATION, a Delaware
corporation (the "Company") and BRUCE A. MITCHELL (the "Employee").
I. STATEMENT OF BACKGROUND INFORMATION
The Employee has been an officer and a key employee of the Company and
the parties desire to ensure that the Employee's expertise, knowledge and
experience will continue to be available to the Company in providing
full-service dental benefits and offering network-based dental care, reduced
fee-for-service, third party administration and dental practice management (the
"Business").
II. STATEMENT OF AGREEMENT
In consideration of the mutual covenants, promises and conditions set
forth in this Agreement, and for other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Employment. The Company hereby employs Employee in the position of
Executive Vice President and General Counsel of the Company and/or such
other position(s) as determined by the Board of Directors or its
designees and consistent with the Employee's general area of
experience, knowledge and skill, and Employee hereby accepts such
employment upon the terms and conditions set forth in this Agreement.
For purposes of Sections 6, 7 and 8 of this Agreement, "employment"
shall mean any period of time during the term hereof which the Company
is paying the Employee salary or wages. By execution of this Agreement,
the parties hereby: (a) terminate, as of the date hereof, that certain
Employment Agreement between the Company and Employee dated February 1,
1996 (the "Prior Employment Agreement") and (b) acknowledge and agree
that no provisions of the Prior Employment Agreement shall survive the
execution and delivery of this Agreement.
2. Duties of Employee. Employee agrees to perform and discharge the duties
which may be assigned to Employee from time to time by the Company's
Board of Directors or its designees and consistent with the Employee's
general area of experience, knowledge and skill. Employee also agrees
to materially comply with all of the Company's material policies,
standards and regulations and to follow the reasonable instructions and
directives of Employee's superiors within the Company, as promulgated
by the Board of Directors or its designees. Employee will devote his
full professional and business related time, skills and commercially
reasonable efforts to the Business and Employee will not, during the
term of this Agreement, be engaged (whether or not
<PAGE> 2
during normal business hours) in any other business or professional
activity (excluding reasonable and appropriate charitable activities),
whether or not such activity is pursued for gain, profit or other
pecuniary advantage without the prior written consent of the Chief
Executive Officer of the Company, which consent will not be
unreasonably withheld.
3. Term. The term of this Agreement will be for a period commencing on the
date hereof and expiring on the later of the fifth anniversary of such
date or, if there is a Change in Control (as defined herein) before
such fifth anniversary date, the date which is 25 months following any
Change in Control, subject to earlier termination as provided for in
Section 4 below.
4. Termination.
(a) By the Company. Notwithstanding anything contained in
Section 3 to the contrary, the Company may terminate this Agreement and
all of its obligations hereunder immediately if any of the following
events (any of which shall constitute "cause" for purposes of this
Agreement) occur:
(i) Employee (A) materially breaches any of the terms or
conditions set forth in Sections 6, 7 or 8 of this Agreement including,
without limitation, the failure to use commercially reasonable efforts
in the performance of duties assigned to the Employee on a full time
basis, or (B) materially breaches any of the other terms and conditions
set forth in this Agreement and fails to cure such breach within twenty
days after Employee's receipt from the Company of written notice of
such breach, which notice shall describe in reasonable detail the basis
for the Company's belief that Employee is in breach hereof;
(ii) Employee commits any act in bad faith materially
detrimental to the business or reputation of the Company;
(iii) Employee is convicted of any crime involving fraud,
deceit or moral turpitude or Employee intentionally engages in
dishonest or illegal activities that have a material adverse effect
upon the business or reputation of the Company; or
(iv) Employee dies or becomes mentally or physically
incapacitated or disabled so as to be unable to perform Employee's
duties under this Agreement. For purposes of this Agreement, Employee
shall be deemed to be mentally or physically incapacitated or disabled
so as to be unable to perform his duties if and to the extent he
becomes permanently disabled under the Company's long-term disability
policy then in effect.
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<PAGE> 3
The Company may also terminate the Employee's employment, upon
reasonable written notice to the Employee, at any time subject to the
fulfillment of the Company's obligations under this Agreement and such
termination by the Company for any other reason shall be deemed
termination "without cause."
(b) By Employee. The Employee may terminate this Agreement:
(i) if the Company materially breaches any of the terms or
conditions set forth in this Agreement and fails to cure its breach
within twenty days after its receipt from Employee of written notice of
such breach, which notice describes in reasonable detail Employee's
belief that the Company is in breach hereof; or
(ii) for "good reason" (as herein defined) at any time during
the two-year period following a Change in Control upon written notice
to the Company.
The Employee may also resign and terminate his employment on reasonable
written notice at any time and such termination by Employee for any
other reason (other than as provided in Sections 4(b)(i) or (ii)) and
in such event, the Employee shall receive no severance benefits under
this Agreement as a result of such termination.
(c) Certain definitions.
(i) For purposes of this Agreement, "good reason" shall mean
the following:
(A) any material diminution of the Employee's duties or a
reassignment of the Employee to a position not
consistent with the Employee's general area of
knowledge, experience and skills, or the assignment
of substantial additional responsibilities to the
Employee;
(B) any material diminution of the Employee's
compensation or a material diminution of the
Employee's bonus, long-term incentives, employee
benefits or perquisites as in effect immediately
preceding the Change in Control;
(C) any relocation of Employee's principal place of
employment to more than 35 miles from the principal
place of employment immediately preceding the Change
in Control;
(D) any material increase in Employee's travel
obligations;
(E) any failure of any successors to the Company to
assume this agreement; or
(F) any breach of this Agreement by the Company not cured
within ten
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<PAGE> 4
days after its receipt of notice from Employee of
such breach (in the event of such a breach and a
termination of this Agreement by Employee following a
Change in Control, such termination shall be deemed
to have occurred under this Section 4(c)(i)(F) and
not under Section 4(b)(i) of this Agreement).
(ii) For purposes of this Agreement, "Change in Control" shall
mean any of the following events:
(A) the direct or indirect beneficial ownership (within
the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
and Regulation 13D thereof) of a majority of the
outstanding common stock of the Company is acquired
or becomes held by any person or group of persons
(within the meaning of Section 13(d)(3) of the
Exchange Act);
(B) a change of stock ownership of the Company of a
nature that would be required to be reported in
response to Item 6(e) of Schedule 14A promulgated
under the Exchange Act, and any successor Item of a
similar nature;
(C) the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) of
securities of the Company representing 25 percent or
more of the voting power of the then outstanding
securities of the Company;
(D) the stockholders of the Company shall approve
(provided, however, if the transaction approved by
the stockholders is subsequently terminated, and the
Employee is still employed by the Company at the
termination of the transaction, then no "Change in
Control" shall be deemed to have taken place): (1)
any consolidation, merger, share exchange or other
extraordinary transaction related to the Company
where the stockholders of the Company, immediately
prior to the consolidation, merger, share exchange or
other extraordinary transaction would not,
immediately after the consolidation, merger, share
exchange or other extraordinary transaction,
beneficially own (as such term is defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, shares representing in the aggregate 50
percent of the voting securities of the corporation
issuing cash or securities in the consolidation,
merger, share exchange or other extraordinary
transaction (or of its ultimate parent corporation,
if any), (2) any lease, exchange, mortgage or other
transfer (in one transaction or
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<PAGE> 5
series of transactions contemplated or arranged by
any party as a single plan) of all or substantially
all of the assets of the Company and its subsidiaries
(taken as a whole), or (3) any plan or proposal for
the liquidation or dissolution of the Company; or
(E) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on the date hereof,
constitute the Board of Directors and any new
director (other than a director whose initial
assumption of office is in connection with an actual
or threatened election contest, including but not
limited to a consent solicitation, relating to the
election of directors of the Company) whose
appointment or election by the Board of Directors or
nomination for election by the Company's stockholders
was approved or recommended by a vote of at least
two-thirds of the directors then still in office who
either were directors on the date hereof or whose
appointment, election or nomination for election was
previously so approved or recommended.
(iii) For purposes of this Agreement, "termination of
employment," "termination of Employee" and "termination of this
Agreement" shall have the same meaning unless otherwise agreed to in
writing by the parties hereto.
(d) Severance Payments.
(i) In the event of termination of the Employee by the Company
without cause or termination by Employee pursuant to Section 4(b)(i)
hereof, the Company shall: (A) pay to Employee an amount equal to two
times the Employee's annual salary in effect at the time of the
termination (not giving effect to any salary reduction giving rise to
such termination) and (B) either continue the Employee's health
(medical and dental) insurance as provided in Section 5(c) for two
years following the date of such termination to the extent permitted
under applicable law and the Company's group health insurance policies
or reimburse the Employee for his cost for comparable coverage to the
extent such coverage cannot be provided under such policies. Such
severance pay shall be payable in equal monthly installments over the
two-year period beginning on the date of termination of this Agreement
and shall be subject to tax withholding to the extent required under
applicable law. Notwithstanding anything herein to the contrary, the
Company shall not be required to continue to provide Employee with
health benefits under this paragraph if Employee becomes entitled to
receive benefits substantially similar to those which Employee
otherwise would have been entitled to receive hereunder. This severance
pay and continuation of health benefits contemplated by this paragraph
are agreed by the parties hereto to be in full satisfaction and
compromise of any claim arising out of any termination of Employee's
employment without cause or pursuant to Section 4(b)(i).
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<PAGE> 6
(ii) Notwithstanding anything herein to the contrary, in the
event of termination of the Employee by the Company without cause
within the two-year period following a Change in Control or termination
by Employee under Section 4(b)(i) or (ii) of this Agreement, then in
lieu of the severance pay and benefit continuation provided in Section
4(d)(i) above, the Company shall: (A) pay to Employee an amount equal
to two and one-half times the Employee's annual salary in effect at the
time of the termination (not giving effect to any salary reduction
giving rise to such termination) plus two and one-half times the
greater of (1) the average bonus received by the Employee for the three
fiscal years preceding such termination (or such shorter time if the
Employee has been employed by the Company for less than three years) or
(2) the bonus earned by Employee for the most recently ended fiscal
year, (B) either continue the Employee's health (medical and dental)
insurance as provided in Section 5(c) for two and one-half years
following the date of such termination to the extent permitted under
applicable law and the Company's group health insurance policies or
reimburse the Employee for his cost for comparable coverage to the
extent such coverage cannot be provided under such policies and (C) pay
to Employee the prorated portion of the greater of (1) the average
bonus received by the Employee for the three fiscal years preceding
such termination (or such shorter time if Employee has been employed by
the Company for less than three years) or (2) the bonus earned by
Employee for the most recently ended fiscal year. Such severance pay
shall be payable in equal monthly installments over the two and
one-half year period beginning on the date of termination of this
Agreement and shall be subject to tax withholding to the extent
required under applicable law. Notwithstanding anything herein to the
contrary, the Company shall not be required to continue to provide
Employee with health benefits under this paragraph if Employee becomes
entitled to receive benefits substantially similar to those which
Employee otherwise would have been entitled to receive hereunder.
Notwithstanding anything herein to the contrary, the Company shall not
be required to pay any amount (the "Excess Amount") that, upon advice
of the Company's independent tax advisor or counsel, would be in excess
of 2.99 times Employee's Base Amount, as defined in Section 280G(b)(3)
of the Internal Revenue Code of 1986, as amended (the "Code"), and,
therefore, would trigger the tax (the "Excise Tax") imposed by Section
4999 of the Code, unless Employee agrees to be bound by the
noncompetition provisions of Section 7 hereof for one additional year
following the termination. Payment of the Excess Amount shall be
consideration for the Employee agreeing to be bound by such
noncompetition provision for such additional year. Election by the
Employee to receive the Excess Amount and to be bound by the
noncompetition provision shall be given in writing to the Company not
later than five days after the date on which the Company notifies
Employee in writing that an Excess Amount may be payable absent such
agreement, and, upon receipt of such notice, the Company shall be
obligated to pay the Excess Amount to Employee.
(e) Gross-Up. If any payment or other benefit (a "Termination
Payment") received or to be received by Employee in connection with a
Change in Control event
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<PAGE> 7
(whether or not this Agreement is terminated) or Employee's termination
of employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, with any person
whose actions result in a Change in Control event or with any person
affiliated with the Company or such person) is or will be subject to
the Excise Tax, the Company shall pay to Employee a Gross-Up Payment
(as herein defined) to the extent provided by the second paragraph of
this Section 4(e), provided Employee agrees to be bound by the
noncompetition provisions imposed by Section 7 as extended by Section
4(d)(ii) and/or Section 4(f).
A Gross-Up Payment shall be payable pursuant to this Section
4(e) on and subject to the following terms and conditions:
(i) At the time the applicable Termination Payment is made, an
additional amount (the "Gross-Up Payment") shall be paid by the Company
such that the net amount retained by Employee, after deduction of any
Excise Tax on such Termination Payment and any federal, state and local
income tax, employment tax and Excise Tax on the Gross-Up Payment,
shall be equal to the amount or value of such Termination Payment. For
purposes of determining whether any such Termination Payment will be
subject to the Excise Tax, all Termination Payments shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as being subject to the Excise
Tax, unless in the opinion of tax counsel reasonably acceptable to
Employee and selected by the accounting firm which, immediately prior
to the Change in Control event, was the Company's independent auditors,
such payments (in whole or in part) do not constitute "parachute
payments" within the meaning of Section 280G of the Code or represent
reasonable compensation for services actually rendered in excess of the
"base amount" allocable to such reasonable compensation. The full
amount of the Gross-Up Payment shall be treated as being subject to the
Excise Tax. The value of any non-cash benefits or any deferred payment
or benefit shall be determined in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
(ii) For purposes of determining the amount of any Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year
in which the applicable Termination Payment or Gross-Up Payment is
made, and shall be deemed to pay state and local income taxes at the
highest marginal rates of taxation in the state and locality of his
residence on the date the applicable Termination Payment or Gross-Up
Payment is made, net of the maximum reduction in federal income taxes
that could be obtained from deduction of such state and local taxes.
(iii) If the Excise Tax or income tax payable with respect to
a Gross-Up Payment as finally determined exceeds the amount taken into
account or paid to Employee at the time the applicable Termination
Payment or Gross-Up Payment is
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<PAGE> 8
made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the applicable Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest payable by Employee with
respect to such excess) at the time that the amount of such excess is
finally determined.
(f) Consulting Agreement. If this Agreement is terminated
after a Change in Control and prior to the third anniversary of such
Change in Control, Employee shall be entitled to receive payments in
the amount of $200,000 annually for the Extended Period (as herein
defined), provided that Employee (i) agrees to make himself reasonably
available to provide up to 600 hours (an aggregate of 1,500 hours for
the Extended Period (as herein defined)) of consulting services (the
"Consulting Services") per year during the Extended Period and (ii)
agrees to be bound by the noncompetition provisions of Section 7 of
this Agreement for the Extended Period. For purposes of this paragraph,
the Extended Period shall mean the two and one-half year period
beginning on the date of termination of this Agreement. Amounts payable
pursuant to this Section 4(f) shall be paid in equal monthly
installments. It is acknowledged and agreed that the above Consulting
Services shall not unreasonably interfere with other employment and/or
service activities in which Employee may engage. Employee shall be
reasonably free to arrange his own time, pursuits, and work schedule
and will not be required to unreasonably observe any routine or
requirement as to working hours. It is acknowledged that the purpose
and intent of these Consulting Services is to assure the Company of
Employee's ability to impart his knowledge and experience in the
business of the Company and industry generally to the Company and its
personnel.
In addition to the fees being paid above, Employee shall be
entitled to reimbursement of all reasonable expenses incurred in
rendering of said Consulting Services.
(g) Security Obligation. The Company shall establish and fund,
not later than 30 days prior to the consummation of a Change in
Control, a grantor trust in an amount sufficient to satisfy the
Company's obligations under Sections 4(d), (e) and (f). If the Company
fails to fund such trust within such thirty day period, the entire
amount of the Company's severance obligations to the Employee will
accelerate and become immediately due and payable.
(h) Outplacement Services. If, pursuant to or within 24 months
following a
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<PAGE> 9
Change in Control, Employee terminates this Agreement pursuant to
Sections 4(b)(i) or 4(b)(ii) or the Company terminates this Agreement
without cause, the Company shall provide Employee with the services of
an outplacement firm for a period of one year from the date of such
termination.
5. Compensation and Benefits.
(a) Annual Salary. For all services rendered by Employee under
this Agreement, the Company will pay Employee a base salary of at least
two hundred thousand dollars ($200,000) per annum in equal monthly
installments, or a greater amount as determined by the Board of
Directors of the Company.
(b) Annual Bonus Payment. Upon completion of each fiscal year
and as determined by the Board of Directors of the Company, Employee
shall be eligible to receive a bonus ("Bonus") in accordance with any
bonus plan then in effect for executives of the Company of equivalent
position and title, provided Employee is employed by the Company at the
end of such fiscal year. Notwithstanding anything herein to the
contrary, Employee's bonus for any fiscal year ending after a Change in
Control shall not be less than 30% of his base salary then in effect.
(c) Other Benefits. Employee will be entitled to such fringe
benefits as may be provided from time-to-time by the Company to its
employees, including, but not limited to, group health insurance,
disability, dental, retirement and any other fringe benefits now or
hereafter provided by the Company to its employees, if and when
Employee meets the eligibility requirements for any such benefit. The
Company reserves the right to change or discontinue any employee
benefit plans or programs now being offered to its employees; provided,
however, that all benefits provided for employees of the same position
and status as Employee will be provided to Employee on an equal basis
and the aggregate of such benefits shall not be less than those
currently in effect or otherwise be materially less favorable to the
Employee.
(d) Business Expenses. Employee will be reimbursed for all
reasonable expenses incurred in the discharge of Employee's duties
under this Agreement pursuant to the Company's standard reimbursement
policies.
(e) Vacation. Employee shall receive paid vacation annually in
accordance with the Company's practices for employees of the Company of
the same position and status as Employee.
(f) Car Allowance. Employee shall receive a car allowance of
$800 per month during the term of this Agreement. Employee otherwise
shall bear all expenses
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<PAGE> 10
and liabilities with respect to such car.
(g) Withholding. The Company will deduct and withhold from the
payments made to Employee under this Agreement, state and federal
income taxes, FICA and other amounts normally withheld from
compensation due employees.
6. Non-Disclosure and Use of Confidential Information. Employee recognizes
and acknowledges that the trade secrets and confidential information of
the Company (the "Proprietary Information"), as they may exist from
time-to-time, are valuable, special and unique assets of the Business.
Employee further acknowledges that access to such Proprietary
Information relating to the Business of the Company is essential to the
performance of Employee's duties under this Agreement. Therefore, in
order to obtain access to such Proprietary Information, Employee agrees
that Employee will not, in whole or in part, disclose such Proprietary
Information to any person, firm, corporation, association or any other
entity for any reason or purpose whatsoever, nor will Employee make use
of any such information for Employee's own purposes or for the benefit
of any person, firm, corporation, association or other entity (except
the Company). For purposes of this Agreement, the term "trade secrets"
means the whole or any portion of any scientific or technical or
non-technical information, design, process, procedure, formula,
computer software product, documentation or improvement relating to the
Business which: (1) derives economic value, actual or potential, from
not being generally known to other persons who can obtain economic
value from its disclosure or use; and (2) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy or
confidentiality. The term "confidential information" means any and all
other data and information relating to the Business which: (1) has
value to the Company; (2) is not generally known by its competitors or
the public; and (3) is treated as confidential by the Company. The
provisions of this Section 6 will apply during Employee's employment by
the Company and, with respect to trade secrets, at any and all times
thereafter and, with respect to confidential information, for three
years thereafter. These restrictions will not apply to any Proprietary
Information which: (i) is in the public domain, provided that Employee
was not responsible, directly or indirectly, for such Proprietary
Information entering the public domain without the Company's consent;
(ii) becomes known to Employee, during the term of this Agreement, from
a third party not known to Employee to be under a confidential
relationship with the Company; or (iii) is required by law or
governmental tribunal to be disclosed; provided, however, that if
Employee is legally compelled to disclose any Proprietary Information,
Employee will provide the Company with prompt written notice of such
legal compulsion so that the Company may seek a protective order or
other available remedy.
7. (a) Non-Competition Covenant. During the term of this Agreement
and for a period of two years following termination of this
Agreement for any reason, Employee
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<PAGE> 11
will not, directly or indirectly, on Employee's own behalf or
in the service of or on behalf of any other individual or
entity, compete with the Company in the Business within the
Geographical Area (as hereinafter defined); provided, however,
that the noncompetition period imposed under this Section 7(a)
shall not apply if the noncompetition period imposed under
Section 4(f) of this Agreement applies. The term "compete"
means to engage, directly or indirectly, on Employee's own
behalf or in the service of or on behalf of any other
individual or entity, either as a proprietor, employee, agent,
independent contractor, consultant, director, officer, partner
or stockholder (other than a stockholder of a corporation
listed on a national securities exchange or whose stock is
regularly traded in the over-the-counter market, provided that
Employee at no time owns, directly or indirectly, in excess of
five percent of the outstanding stock of any class of any such
corporation) in providing management, executive, marketing, or
other services. For purposes of this Agreement, the term
"Geographical Area" means those areas in the United States and
in foreign countries in which Employee is or has engaged in
providing or marketing Business products or services as of the
date of this Agreement. The Geographical Area currently
includes Alabama, Arkansas, Colorado, Florida, Georgia,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland,
Mississippi, Missouri, New Jersey, North Carolina, Ohio,
Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas,
Virginia and West Virginia. The Company may, from time to time
and after giving Employee notice (but only while the Employee
is employed by the Company), amend this Agreement to expand
the Geographical Area to include additional areas in which the
Company may conduct the Business after the date hereof.
(b) Non-Interference. During the term of this Agreement and for a
period of two years following termination of this Agreement
for any reason (and during the Extended Period, if any),
Employee will not, directly or indirectly, on Employee's own
behalf or in the service of or on behalf of any other
individual or entity, interfere with, disrupt, or attempt to
disrupt the past, present or prospective relationships,
contractual or otherwise, between the Company and any
supplier, consultant, or client of the Company with whom
Employee had material business contact during the two-year
period ending on the date of the termination of this
Agreement. The term "prospective relationship" is defined as
any relationship where the Company has actively sought an
individual or entity as a prospective supplier, consultant, or
client.
(c) Construction. The parties hereto agree that any judicial
authority construing all or any portion of this Section 7 or
Section 8 below will be empowered to sever any portion of the
Geographical Area, Business or time period, client base,
prospective relationship or prospect list or any prohibited
business activity from the coverage of such Section and to
apply the provisions of such Section to the
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<PAGE> 12
remaining portion of the Geographical Area, Business or time
period, the client base or the prospective relationship or
prospect list, or the remaining business activities not so
severed by such judicial authority. In addition, it is the
intent of the parties that the judicial authority replace each
such severed provision with a provision as similar in terms to
such severed provision as may be possible and be legal, valid
and enforceable. It is the intent of the parties that Sections
7 and 8 be enforced to the maximum extent permitted by law. In
the event that any provision of either such Section is
determined not to be specifically enforceable, the Company
shall nevertheless be entitled to bring an action to seek to
recover monetary damages as a result of the breach of such
provision by Employee.
8. Non-Solicitation of Employees Covenant. Employee further agrees and
represents that during Employee's employment by the Company and for a
period of two years following any termination of this Agreement for
whatever reason (and during the Extended Period, if any), Employee will
not, directly or indirectly, on Employee's own behalf or in the service
of, or on behalf of any other individual or entity, divert or solicit,
or attempt to divert or solicit, to or for any individual or entity
which is engaged in providing Business services, any person employed by
the Company (a) who was employed by the Company during the two-year
period ending on the date of the termination of this Agreement and (b)
with whom Employee was familiar, whether or not such employee is a
full-time employee or temporary employee of the Company whether or not
such employee is employed pursuant to a written agreement and whether
or not such employee is employed for a determined period or at-will,
except as agreed to by the Company.
9. Existing Restrictive Covenants. Employee represents and warrants that
Employee's employment with the Company does not and will not breach any
agreement which Employee has with any individual or entity to keep in
confidence confidential information or not to compete with any such
individual or entity. Employee will not disclose to the Company or use
on either of their behalf any confidential information of any other
party required to be kept confidential by Employee.
10. Return of Confidential Information. Employee acknowledges that as a
result of Employee's employment with the Company, Employee may come
into the possession and control of Proprietary Information, such as
proprietary documents, drawings, specifications, manuals, notes,
computer programs, or other proprietary material. Employee
acknowledges, warrants and agrees that Employee will return to the
Company all such items and any copies or excerpts thereof, and any
other properties, client lists, client contracts, files or documents
obtained as a result of Employee's employment with the Company,
immediately upon the termination of Employee's employment with the
Company.
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<PAGE> 13
11. Remedies. Employee agrees and acknowledges that the violation of any of
the covenants or agreements contained in Sections 6, 7, 8, 9 and 10 of
this Agreement would cause irreparable injury to the Company, that the
remedy at law for any such violation or threatened violation thereof
would be inadequate, and that the Company will be entitled, in addition
to any other remedy, to temporary and permanent injunctive or other
equitable relief without the necessity of proving actual damages
including, without limitation, the right to terminate all payments
under this Agreement. Sections 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15,
16 and 17 of this Agreement, shall survive termination of the
Employee's employment under this Agreement.
12. Notices. Any notice or communication under this Agreement will be in
writing and sent by registered or certified mail addressed to the
respective parties as follows:
If to the Company: If to the Employee:
CompDent Corporation Bruce A. Mitchell
100 Mansell Court East, Suite 400 77 East Andrews Drive NW
Roswell, Georgia 30076 Apartment 329
Attention: David R. Klock Atlanta, Georgia 30305
13. Severability. Subject to the application of Section 7(c) to the
interpretation of Sections 7 and 8, in case one or more of the
provisions contained in this Agreement is for any reason held to be
invalid, illegal or unenforceable in any respect, the same will not
affect any other provision in this Agreement, and this Agreement will
be construed as if such invalid or illegal or unenforceable provision
had never been contained therein. It is the intent of the parties that
this Agreement be enforced to the maximum extent permitted by law.
14. Entire Agreement. This Agreement embodies the entire agreement of the
parties relating to the subject matter hereof and supersedes all prior
agreements, oral or written, regarding such subject matter. Except as
otherwise provided in Section 7(a) of this Agreement, no amendment or
modification of this Agreement will be valid or binding upon the
parties unless made in writing and signed by the parties.
15. Binding Effect. This Agreement will be binding upon the parties and
their respective heirs, representatives, successors, transferees and
permitted assigns, as applicable.
16. Assignment. This Agreement is one for personal services and is not
assignable by Employee. The Company may assign this Agreement to any of
its affiliates; provided that the Company shall remain liable for the
obligations of its affiliates under this Agreement.
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<PAGE> 14
17. Governing Law. This Agreement is entered into and will be interpreted
and enforced pursuant to the laws of the State of Delaware. The parties
hereto hereby agree that the appropriate forum and venue for any
disputes between any of the parties hereto arising out of this
Agreement shall be any federal court in the State of Delaware and each
of the parties hereto hereby submits to the personal jurisdiction of
any such court. The foregoing shall not limit the rights of any party
to obtain execution of judgment in any other jurisdiction. The parties
further agree, to the extent permitted by law, that a final and
unappealable judgment against either of them in any action or
proceeding contemplated above shall be conclusive and may be enforced
in any other jurisdiction within or outside the United States by suit
on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and amount of such judgment.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPDENT CORPORATION BRUCE A. MITCHELL
By: /s/ David Klock /s/ Bruce A. Mitchell
------------------------------- -------------------------------
Title: Chairman
-----------------------------
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 25th day of June, 1998, by and between COMPDENT CORPORATION, a Delaware
corporation (the "Company") and KEITH J. YODER (the "Employee").
I. STATEMENT OF BACKGROUND INFORMATION
The Employee has been an officer and a key employee of the Company and the
parties desire to ensure that the Employee's expertise, knowledge and experience
will continue to be available to the Company in providing full-service dental
benefits and offering network-based dental care, reduced fee-for-service, third
party administration and dental practice management (the "Business").
II. STATEMENT OF AGREEMENT
In consideration of the mutual covenants, promises and conditions set forth
in this Agreement, and for other good and valuable consideration, the parties
hereto hereby agree as follows:
1. Employment. The Company hereby employs Employee in the position of Chief
Financial Officer of the Company and/or such other position(s) as
determined by the Board of Directors or its designees and consistent with
the Employee's general area of experience, knowledge and skill, and
Employee hereby accepts such employment upon the terms and conditions set
forth in this Agreement. For purposes of Sections 6, 7 and 8 of this
Agreement, "employment" shall mean any period of time during the term
hereof which the Company is paying the Employee salary or wages. By
execution of this Agreement, the parties hereby: (a) terminate, as of the
date hereof, that certain Employment Agreement between the Company and
Employee dated January 12, 1998 (the "Prior Employment Agreement") and (b)
acknowledge and agree that no provisions of the Prior Employment Agreement
shall survive the execution and delivery of this Agreement.
2. Duties of Employee. Employee agrees to perform and discharge the duties
which may be assigned to Employee from time to time by the Company's Board
of Directors or its designees and consistent with the Employee's general
area of experience, knowledge and skill. Employee also agrees to materially
comply with all of the Company's material policies, standards and
regulations and to follow the reasonable instructions and directives of
Employee's superiors within the Company, as promulgated by the Board of
Directors or its designees. Employee will devote his full professional and
business related time, skills and commercially reasonable efforts to the
Business and
<PAGE> 2
Employee will not, during the term of this Agreement, be engaged (whether
or not during normal business hours) in any other business or professional
activity (excluding reasonable and appropriate charitable activities),
whether or not such activity is pursued for gain, profit or other pecuniary
advantage without the prior written consent of the Chief Executive Officer
of the Company, which consent will not be unreasonably withheld.
3. Term. The term of this Agreement will be for a period commencing on the
date hereof and expiring on the later of the fifth anniversary of such date
or, if there is a Change in Control (as defined herein) before such fifth
anniversary date, the date which is 25 months following any Change in
Control, subject to earlier termination as provided for in Section 4 below.
4. Termination.
(a) By the Company. Notwithstanding anything contained in Section 3
to the contrary, the Company may terminate this Agreement and all of its
obligations hereunder immediately if any of the following events (any of
which shall constitute "cause" for purposes of this Agreement) occur:
(i) Employee (A) materially breaches any of the terms or conditions
set forth in Sections 6, 7 or 8 of this Agreement including, without
limitation, the failure to use commercially reasonable efforts in the
performance of duties assigned to the Employee on a full time basis, or (B)
materially breaches any of the other terms and conditions set forth in this
Agreement and fails to cure such breach within twenty days after Employee's
receipt from the Company of written notice of such breach, which notice
shall describe in reasonable detail the basis for the Company's belief that
Employee is in breach hereof;
(ii) Employee commits any act in bad faith materially detrimental to
the business or reputation of the Company;
(iii) Employee is convicted of any crime involving fraud, deceit or
moral turpitude or Employee intentionally engages in dishonest or illegal
activities that have a material adverse effect upon the business or
reputation of the Company; or
(iv) Employee dies or becomes mentally or physically incapacitated or
disabled so as to be unable to perform Employee's duties under this
Agreement. For purposes of this Agreement, Employee shall be deemed to be
mentally or physically incapacitated or disabled so as to be unable to
perform his duties if and to the extent he becomes permanently disabled
under the Company's long-term disability policy then in effect.
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<PAGE> 3
The Company may also terminate the Employee's employment, upon reasonable
written notice to the Employee, at any time subject to the fulfillment of
the Company's obligations under this Agreement and such termination by the
Company for any other reason shall be deemed termination "without cause."
(b) By Employee. The Employee may terminate this Agreement:
(i) if the Company materially breaches any of the terms or conditions
set forth in this Agreement and fails to cure its breach within twenty days
after its receipt from Employee of written notice of such breach, which
notice describes in reasonable detail Employee's belief that the Company is
in breach hereof; or
(ii) for "good reason" (as herein defined) at any time during the
two-year period following a Change in Control upon written notice to the
Company.
The Employee may also resign and terminate his employment on reasonable
written notice at any time and such termination by Employee for any other
reason (other than as provided in Sections 4(b)(i) or (ii)) and in such
event, the Employee shall receive no severance benefits under this
Agreement as a result of such termination.
(c) Certain definitions.
(i) For purposes of this Agreement, "good reason" shall mean the
following:
(A) any material diminution of the Employee's duties or a
reassignment of the Employee to a position not consistent
with the Employee's general area of knowledge, experience
and skills, or the assignment of substantial additional
responsibilities to the Employee;
(B) any material diminution of the Employee's compensation or a
material diminution of the Employee's bonus, long-term
incentives, employee benefits or perquisites as in effect
immediately preceding the Change in Control;
(C) any relocation of Employee's principal place of employment
to more than 35 miles from the principal place of employment
immediately preceding the Change in Control;
(D) any material increase in Employee's travel obligations;
(E) any failure of any successors to the Company to assume this
agreement; or
(F) any breach of this Agreement by the Company not cured within
ten
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days after its receipt of notice from Employee of such
breach (in the event of such a breach and a termination of
this Agreement by Employee following a Change in Control,
such termination shall be deemed to have occurred under this
Section 4(c)(i)(F) and not under Section 4(b)(i) of this
Agreement).
(ii) For purposes of this Agreement, "Change in Control" shall mean
any of the following events:
(A) the direct or indirect beneficial ownership (within the
meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Regulation 13D
thereof) of a majority of the outstanding common stock of
the Company is acquired or becomes held by any person or
group of persons (within the meaning of Section 13(d)(3) of
the Exchange Act);
(B) a change of stock ownership of the Company of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Exchange Act, and any
successor Item of a similar nature;
(C) the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) of securities of the
Company representing 25 percent or more of the voting power
of the then outstanding securities of the Company;
(D) the stockholders of the Company shall approve (provided,
however, if the transaction approved by the stockholders is
subsequently terminated, and the Employee is still employed
by the Company at the termination of the transaction, then
no "Change in Control" shall be deemed to have taken place):
(1) any consolidation, merger, share exchange or other
extraordinary transaction related to the Company where the
stockholders of the Company, immediately prior to the
consolidation, merger, share exchange or other extraordinary
transaction, would not, immediately after the consolidation,
merger, share exchange or other extraordinary transaction,
beneficially own (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, shares
representing in the aggregate 50 percent of the voting
securities of the corporation issuing cash or securities in
the consolidation, merger, share exchange or other
extraordinary transaction (or of its ultimate parent
corporation, if any), (2) any lease, exchange, mortgage or
other transfer (in one transaction or
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<PAGE> 5
series of transactions contemplated or arranged by any party
as a single plan) of all or substantially all of the assets
of the Company and its subsidiaries (taken as a whole), or
(3) any plan or proposal for the liquidation or dissolution
of the Company; or
(E) the following individuals cease for any reason to constitute
a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board of
Directors and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to
a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by
the Board of Directors or nomination for election by the
Company's stockholders was approved or recommended by a vote
of at least two-thirds of the directors then still in office
who either were directors on the date hereof or whose
appointment, election or nomination for election was
previously so approved or recommended.
(iii) For purposes of this Agreement, "termination of
employment," "termination of Employee" and "termination of this
Agreement" shall have the same meaning unless otherwise agreed to in
writing by the parties hereto.
(d) Severance Payments.
(i) In the event of termination of the Employee by the Company
without cause or termination by Employee pursuant to Section 4(b)(i)
hereof, the Company shall: (A) pay to Employee an amount equal to two
times the Employee's annual salary in effect at the time of the
termination (not giving effect to any salary reduction giving rise to
such termination) and (B) either continue the Employee's health
(medical and dental) insurance as provided in Section 5(c) for two
years following the date of such termination to the extent permitted
under applicable law and the Company's group health insurance policies
or reimburse the Employee for his cost for comparable coverage to the
extent such coverage cannot be provided under such policies. Such
severance pay shall be payable in equal monthly installments over the
two-year period beginning on the date of termination of this Agreement
and shall be subject to tax withholding to the extent required under
applicable law. Notwithstanding anything herein to the contrary, the
Company shall not be required to continue to provide Employee with
health benefits under this paragraph if Employee becomes entitled to
receive benefits substantially similar to those which Employee
otherwise would have been entitled to receive hereunder. This severance
pay and continuation of health benefits contemplated by this paragraph
are agreed by the parties hereto to be in full satisfaction and
compromise of any claim arising out of any termination of Employee's
employment without cause or pursuant to Section 4(b)(i).
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(ii) Notwithstanding anything herein to the contrary, in the
event of termination of the Employee by the Company without cause
within the two-year period following a Change in Control or termination
by Employee under Section 4(b)(i) or (ii) of this Agreement, then in
lieu of the severance pay and benefit continuation provided in Section
4(d)(i) above, the Company shall: (A) pay to Employee an amount equal
to two and one-half times the Employee's annual salary in effect at the
time of the termination (not giving effect to any salary reduction
giving rise to such termination) plus two and one-half times the
greater of (1) the average bonus received by the Employee for the three
fiscal years preceding such termination (or such shorter time if the
Employee has been employed by the Company for less than three years) or
(2) the bonus earned by Employee for the most recently ended fiscal
year, (B) either continue the Employee's health (medical and dental)
insurance as provided in Section 5(c) for two and one-half years
following the date of such termination to the extent permitted under
applicable law and the Company's group health insurance policies or
reimburse the Employee for his cost for comparable coverage to the
extent such coverage cannot be provided under such policies and (C) pay
to Employee the prorated portion of the greater of (1) the average
bonus received by the Employee for the three fiscal years preceding
such termination (or such shorter time if Employee has been employed by
the Company for less than three years) or (2) the bonus earned by
Employee for the most recently ended fiscal year. Such severance pay
shall be payable in equal monthly installments over the two and
one-half year period beginning on the date of termination of this
Agreement and shall be subject to tax withholding to the extent
required under applicable law. Notwithstanding anything herein to the
contrary, the Company shall not be required to continue to provide
Employee with health benefits under this paragraph if Employee becomes
entitled to receive benefits substantially similar to those which
Employee otherwise would have been entitled to receive hereunder.
Notwithstanding anything herein to the contrary, the Company shall not
be required to pay any amount (the "Excess Amount") that, upon advice
of the Company's independent tax advisor or counsel, would be in excess
of 2.99 times Employee's Base Amount, as defined in Section 280G(b)(3)
of the Internal Revenue Code of 1986, as amended (the "Code"), and,
therefore, would trigger the tax (the "Excise Tax") imposed by Section
4999 of the Code, unless Employee agrees to be bound by the
noncompetition provisions of Section 7 hereof for one additional year
following the termination. Payment of the Excess Amount shall be
consideration for the Employee agreeing to be bound by such
noncompetition provision for such additional year. Election by the
Employee to receive the Excess Amount and to be bound by the
noncompetition provision shall be given in writing to the Company not
later than five days after the date on which the Company notifies
Employee in writing that an Excess Amount may be payable absent such
agreement, and, upon receipt of such notice, the Company shall be
obligated to pay the Excess Amount to Employee.
(e) Gross-Up. If Employee's employment is terminated after
December 31, 2000 and if any payment or other benefit (a "Termination
Payment") received or to be received by Employee in connection with a
Change in Control event (whether or not this Agreement is terminated)
or Employee's termination of employment (whether pursuant to
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<PAGE> 7
the terms of this Agreement or any other plan, arrangement or agreement
with the Company, with any person whose actions result in a Change in
Control event or with any person affiliated with the Company or such
person) is or will be subject to the Excise Tax, the Company shall pay to
Employee a Gross-Up Payment (as herein defined) to the extent provided by
the second paragraph of this Section 4(e), provided Employee agrees to be
bound by the noncompetition provisions imposed by Section 7 as extended by
Section 4(d)(ii).
A Gross-Up Payment shall be payable pursuant to this Section 4(e) on
and subject to the following terms and conditions:
(i) At the time the applicable Termination Payment is made, an
additional amount (the "Gross-Up Payment") shall be paid by the Company
such that the net amount retained by Employee, after deduction of any
Excise Tax on such Termination Payment and any federal, state and local
income tax, employment tax and Excise Tax on the Gross-Up Payment, shall be
equal to the amount or value of such Termination Payment. For purposes of
determining whether any such Termination Payment will be subject to the
Excise Tax, all Termination Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as being subject to the Excise Tax, unless in the
opinion of tax counsel reasonably acceptable to Employee and selected by
the accounting firm which, immediately prior to the Change in Control
event, was the Company's independent auditors, such payments (in whole or
in part) do not constitute "parachute payments" within the meaning of
Section 280G of the Code or represent reasonable compensation for services
actually rendered in excess of the "base amount" allocable to such
reasonable compensation. The full amount of the Gross-Up Payment shall be
treated as being subject to the Excise Tax. The value of any non-cash
benefits or any deferred payment or benefit shall be determined in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
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<PAGE> 8
(ii) For purposes of determining the amount of any Gross-Up Payment,
Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
applicable Termination Payment or Gross-Up Payment is made, and shall be
deemed to pay state and local income taxes at the highest marginal rates of
taxation in the state and locality of his residence on the date the
applicable Termination Payment or Gross-Up Payment is made, net of the
maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) If the Excise Tax or income tax payable with respect to a
Gross-Up Payment as finally determined exceeds the amount taken into
account or paid to Employee at the time the applicable Termination Payment
or Gross-Up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
applicable Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest payable by Employee
with respect to such excess) at the time that the amount of such excess is
finally determined.
(f) Security Obligation. The Company shall establish and fund, not
later than 30 days prior to the consummation of a Change in Control, a
grantor trust in an amount sufficient to satisfy the Company's obligations
under Sections 4(d) and (e). If the Company fails to fund such trust within
such thirty day period, the entire amount of the Company's severance
obligations to the Employee will accelerate and become immediately due and
payable.
(g) Outplacement Services. If, pursuant to or within 24 months
following a Change in Control, Employee terminates this Agreement pursuant
to Sections 4(b)(i) or 4(b)(ii) or the Company terminates this Agreement
without cause, the Company shall provide Employee with the services of an
outplacement firm for a period of one year from the date of such
termination.
5. Compensation and Benefits.
(a) Annual Salary. For all services rendered by Employee under this
Agreement, the Company will pay Employee a base salary of at least two
hundred thousand dollars ($200,000) per annum in equal monthly
installments, or a greater amount as determined by the Board of Directors
of the Company.
(b) Annual Bonus Payment. Upon completion of each fiscal year and as
determined by the Board of Directors of the Company, Employee shall be
eligible to receive a bonus ("Bonus") in accordance with any bonus plan
then in effect for executives of the Company of equivalent position and
title, provided Employee is employed by the Company at the end of such
fiscal year. Notwithstanding anything herein to the contrary, Employee's
bonus for any fiscal year ending after a Change in Control shall not be
less than 30% of his base salary then in effect.
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<PAGE> 9
(c) Other Benefits. Employee will be entitled to such fringe benefits
as may be provided from time-to-time by the Company to its employees,
including, but not limited to, group health insurance, disability, dental,
retirement and any other fringe benefits now or hereafter provided by the
Company to its employees, if and when Employee meets the eligibility
requirements for any such benefit. The Company reserves the right to change
or discontinue any employee benefit plans or programs now being offered to
its employees; provided, however, that all benefits provided for employees
of the same position and status as Employee will be provided to Employee on
an equal basis and the aggregate of such benefits shall not be less than
those currently in effect or otherwise be materially less favorable to the
Employee.
(d) Business Expenses. Employee will be reimbursed for all reasonable
expenses incurred in the discharge of Employee's duties under this
Agreement pursuant to the Company's standard reimbursement policies.
(e) Vacation. Employee shall receive paid vacation annually in
accordance with the Company's practices for employees of the Company of the
same position and status as Employee.
(f) Car Allowance. Employee shall receive a car allowance of $800 per
month during the term of this Agreement. Employee otherwise shall bear all
expenses and liabilities with respect to such car.
(g) Withholding. The Company will deduct and withhold from the
payments made to Employee under this Agreement, state and federal income
taxes, FICA and other amounts normally withheld from compensation due
employees.
6. Non-Disclosure and Use of Confidential Information. Employee recognizes and
acknowledges that the trade secrets and confidential information of the
Company (the "Proprietary Information"), as they may exist from
time-to-time, are valuable, special and unique assets of the Business.
Employee further acknowledges that access to such Proprietary Information
relating to the Business of the Company is essential to the performance of
Employee's duties under this Agreement. Therefore, in order to obtain
access to such Proprietary Information, Employee agrees that Employee will
not, in whole or in part, disclose such Proprietary Information to any
person, firm, corporation, association or any other entity for any reason
or purpose whatsoever, nor will Employee make use of any such information
for Employee's own purposes or for the benefit of any person, firm,
corporation, association or other entity (except the Company). For purposes
of this Agreement, the term "trade secrets" means the whole or any portion
of any scientific or technical or non-technical information, design,
process, procedure, formula, computer software product, documentation or
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<PAGE> 10
improvement relating to the Business which: (1) derives economic value,
actual or potential, from not being generally known to other persons who
can obtain economic value from its disclosure or use; and (2) is the
subject of efforts that are reasonable under the circumstances to maintain
its secrecy or confidentiality. The term "confidential information" means
any and all other data and information relating to the Business which: (1)
has value to the Company; (2) is not generally known by its competitors or
the public; and (3) is treated as confidential by the Company. The
provisions of this Section 6 will apply during Employee's employment by the
Company and, with respect to trade secrets, at any and all times thereafter
and, with respect to confidential information, for three years thereafter.
These restrictions will not apply to any Proprietary Information which: (i)
is in the public domain, provided that Employee was not responsible,
directly or indirectly, for such Proprietary Information entering the
public domain without the Company's consent; (ii) becomes known to
Employee, during the term of this Agreement, from a third party not known
to Employee to be under a confidential relationship with the Company; or
(iii) is required by law or governmental tribunal to be disclosed;
provided, however, that if Employee is legally compelled to disclose any
Proprietary Information, Employee will provide the Company with prompt
written notice of such legal compulsion so that the Company may seek a
protective order or other available remedy.
7. (a) Non-Competition Covenant. During the term of this Agreement and for a
period of two years following termination of this Agreement for any
reason, Employee will not, directly or indirectly, on Employee's own
behalf or in the service of or on behalf of any other individual or
entity, compete with the Company in the Business within the
Geographical Area (as hereinafter defined). The term "compete" means
to engage, directly or indirectly, on Employee's own behalf or in the
service of or on behalf of any other individual or entity, either as a
proprietor, employee, agent, independent contractor, consultant,
director, officer, partner or stockholder (other than a stockholder of
a corporation listed on a national securities exchange or whose stock
is regularly traded in the over-the-counter market, provided that
Employee at no time owns, directly or indirectly, in excess of five
percent of the outstanding stock of any class of any such corporation)
in providing management, executive, marketing, or other services. For
purposes of this Agreement, the term "Geographical Area" means those
areas in the United States and in foreign countries in which Employee
is or has engaged in providing or marketing Business products or
services as of the date of this Agreement. The Geographical Area
currently includes Alabama, Arkansas, Colorado, Florida, Georgia,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Mississippi,
Missouri, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia and West Virginia. The
Company may, from time to time and after giving Employee notice (but
only while the Employee is employed by the Company), amend this
Agreement to
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<PAGE> 11
expand the Geographical Area to include additional areas in which the
Company may conduct the Business after the date hereof.
(b) Non-Interference. During the term of this Agreement and for a period
of two years following termination of this Agreement for any reason,
Employee will not, directly or indirectly, on Employee's own behalf or
in the service of or on behalf of any other individual or entity,
interfere with, disrupt, or attempt to disrupt the past, present or
prospective relationships, contractual or otherwise, between the
Company and any supplier, consultant, or client of the Company with
whom Employee had material business contact during the two-year period
ending on the date of the termination of this Agreement. The term
"prospective relationship" is defined as any relationship where the
Company has actively sought an individual or entity as a prospective
supplier, consultant, or client.
(c) Construction. The parties hereto agree that any judicial authority
construing all or any portion of this Section 7 or Section 8 below
will be empowered to sever any portion of the Geographical Area,
Business or time period, client base, prospective relationship or
prospect list or any prohibited business activity from the coverage of
such Section and to apply the provisions of such Section to the
remaining portion of the Geographical Area, Business or time period,
the client base or the prospective relationship or prospect list, or
the remaining business activities not so severed by such judicial
authority. In addition, it is the intent of the parties that the
judicial authority replace each such severed provision with a
provision as similar in terms to such severed provision as may be
possible and be legal, valid and enforceable. It is the intent of the
parties that Sections 7 and 8 be enforced to the maximum extent
permitted by law. In the event that any provision of either such
Section is determined not to be specifically enforceable, the Company
shall nevertheless be entitled to bring an action to seek to recover
monetary damages as a result of the breach of such provision by
Employee.
8. Non-Solicitation of Employees Covenant. Employee further agrees and
represents that during Employee's employment by the Company and for a
period of two years following any termination of this Agreement for
whatever reason, Employee will not, directly or indirectly, on Employee's
own behalf or in the service of, or on behalf of any other individual or
entity, divert or solicit, or attempt to divert or solicit, to or for any
individual or entity which is engaged in providing Business services, any
person employed by the Company (a) who was employed by the Company during
the two-year period ending on the date of the termination of this Agreement
and (b) with whom Employee was familiar, whether or not such employee is a
full-time employee or temporary employee of the Company whether or not such
employee is employed pursuant to a written agreement and whether or not
such employee is employed for a determined period or at-will, except as
agreed to by the Company.
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<PAGE> 12
9. Existing Restrictive Covenants. Employee represents and warrants that
Employee's employment with the Company does not and will not breach any
agreement which Employee has with any individual or entity to keep in
confidence confidential information or not to compete with any such
individual or entity. Employee will not disclose to the Company or use on
either of their behalf any confidential information of any other party
required to be kept confidential by Employee.
10. Return of Confidential Information. Employee acknowledges that as a result
of Employee's employment with the Company, Employee may come into the
possession and control of Proprietary Information, such as proprietary
documents, drawings, specifications, manuals, notes, computer programs, or
other proprietary material. Employee acknowledges, warrants and agrees that
Employee will return to the Company all such items and any copies or
excerpts thereof, and any other properties, client lists, client contracts,
files or documents obtained as a result of Employee's employment with the
Company, immediately upon the termination of Employee's employment with the
Company.
11. Remedies. Employee agrees and acknowledges that the violation of any of the
covenants or agreements contained in Sections 6, 7, 8, 9 and 10 of this
Agreement would cause irreparable injury to the Company, that the remedy at
law for any such violation or threatened violation thereof would be
inadequate, and that the Company will be entitled, in addition to any other
remedy, to temporary and permanent injunctive or other equitable relief
without the necessity of proving actual damages including, without
limitation, the right to terminate all payments under this Agreement.
Sections 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, and 17 of this
Agreement, shall survive termination of the Employee's employment under
this Agreement.
12. Notices. Any notice or communication under this Agreement will be in
writing and sent by registered or certified mail addressed to the
respective parties as follows:
<TABLE>
<S> <C>
If to the Company: If to the Employee:
CompDent Corporation Keith J. Yoder
100 Mansell Court East, Suite 400 590 Cambridge Way
Roswell, Georgia 30076 Atlanta, Georgia, 30328
Attention: David R. Klock
</TABLE>
13. Severability. Subject to the application of Section 7(c) to the
interpretation of Sections 7 and 8, in case one or more of the provisions
contained in this Agreement is for any reason held to be invalid, illegal
or unenforceable in any respect, the same will not affect any other
provision in this Agreement, and this Agreement will be construed as if
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<PAGE> 13
such invalid or illegal or unenforceable provision had never been contained
therein. It is the intent of the parties that this Agreement be enforced to
the maximum extent permitted by law.
14. Entire Agreement. This Agreement embodies the entire agreement of the
parties relating to the subject matter hereof and supersedes all prior
agreements, oral or written, regarding such subject matter. Except as
otherwise provided in Section 7(a) of this Agreement, no amendment or
modification of this Agreement will be valid or binding upon the parties
unless made in writing and signed by the parties.
15. Binding Effect. This Agreement will be binding upon the parties and their
respective heirs, representatives, successors, transferees and permitted
assigns, as applicable.
16. Assignment. This Agreement is one for personal services and is not
assignable by Employee. The Company may assign this Agreement to any of its
affiliates; provided that the Company shall remain liable for the
obligations of its affiliates under this Agreement.
17. Governing Law. This Agreement is entered into and will be interpreted and
enforced pursuant to the laws of the State of Delaware. The parties hereto
hereby agree that the appropriate forum and venue for any disputes between
any of the parties hereto arising out of this Agreement shall be any
federal court in the State of Delaware and each of the parties hereto
hereby submits to the personal jurisdiction of any such court. The
foregoing shall not limit the rights of any party to obtain execution of
judgment in any other jurisdiction. The parties further agree, to the
extent permitted by law, that a final and unappealable judgment against
either of them in any action or proceeding contemplated above shall be
conclusive and may be enforced in any other jurisdiction within or outside
the United States by suit on the judgment, a certified or exemplified copy
of which shall be conclusive evidence of the fact and amount of such
judgment.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
COMPDENT CORPORATION KEITH J. YODER
By: /s/ David Klock /s/Keith Yoder
------------------------------ -----------------------------------
Title: CEO
----------------------------
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<PAGE> 1
EXHIBIT 10.6
FORM OF
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the _____ day of __________, 1998, by and between COMPDENT CORPORATION, a
Delaware corporation (the "Company") and ________________________ (the
"Employee").
I. STATEMENT OF BACKGROUND INFORMATION
The Employee has been an officer and a key employee of the Company and
the parties desire to ensure that the Employee's expertise, knowledge and
experience will continue to be available to the Company in providing
full-service dental benefits and offering network-based dental care, reduced
fee-for-service, third party administration and dental practice management (the
"Business").
II. STATEMENT OF AGREEMENT
In consideration of the mutual covenants, promises and conditions set
forth in this Agreement, and for other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Employment. The Company hereby employs Employee in the position of
________________________ of the Company and/or such other position(s)
as determined by the Board of Directors or its designees and consistent
with the Employee's general area of experience, knowledge and skill,
and Employee hereby accepts such employment upon the terms and
conditions set forth in this Agreement. For purposes of Sections 6, 7
and 8 of this Agreement, "employment" shall mean any period of time
during the term hereof which the Company is paying the Employee salary
or wages. By execution of this Agreement, the parties hereby: (a)
terminate, as of the date hereof, that certain employment agreement
between the Company and Employee dated ______________ (the "Prior
Employment Agreement") and (b) acknowledge and agree that no provisions
of the Prior Employment Agreement shall survive the execution and
delivery of this Agreement.
2. Duties of Employee. Employee agrees to perform and discharge the duties
which may be assigned to Employee from time to time by the Company's
Board of Directors or its designees and consistent with the Employee's
general area of experience, knowledge and skill. Employee also agrees
to materially comply with all of the Company's material policies,
standards and regulations and to follow the reasonable instructions and
directives of Employee's superiors within the Company, as promulgated
by the Board of Directors or its designees. Employee will devote his
full professional and business related time, skills and commercially
reasonable efforts to the Business and
<PAGE> 2
Employee will not, during the term of this Agreement, be engaged
(whether or not during normal business hours) in any other business or
professional activity (excluding reasonable and appropriate charitable
activities), whether or not such activity is pursued for gain, profit
or other pecuniary advantage without the prior written consent of the
Chief Executive Officer of the Company, which consent will not be
unreasonably withheld.
3. Term. The term of this Agreement will be for a period commencing on the
date hereof and expiring on the later of the fifth anniversary of such
date or, if there is a Change in Control (as defined herein) before
such fifth anniversary date, the date which is 25 months following any
Change in Control, subject to earlier termination as provided for in
Section 4 below.
4. Termination.
(a) By the Company. Notwithstanding anything contained in
Section 3 to the contrary, the Company may terminate this Agreement and
all of its obligations hereunder immediately if any of the following
events (any of which shall constitute "cause" for purposes of this
Agreement) occur:
(i) Employee (A) materially breaches any of the terms or
conditions set forth in Sections 6, 7 or 8 of this Agreement including,
without limitation, the failure to use commercially reasonable efforts
in the performance of duties assigned to the Employee on a full time
basis, or (B) materially breaches any of the other terms and conditions
set forth in this Agreement and fails to cure such breach within twenty
days after Employee's receipt from the Company of written notice of
such breach, which notice shall describe in reasonable detail the basis
for the Company's belief that Employee is in breach hereof;
(ii) Employee commits any act in bad faith materially
detrimental to the business or reputation of the Company;
(iii) Employee is convicted of any crime involving fraud, deceit
or moral turpitude or Employee intentionally engages in dishonest or
illegal activities that have a material adverse effect upon the
business or reputation of the Company; or
(iv) Employee dies or becomes mentally or physically
incapacitated or disabled so as to be unable to perform Employee's
duties under this Agreement. For purposes of this Agreement, Employee
shall be deemed to be mentally or physically incapacitated or disabled
so as to be unable to perform his duties if and to the extent he
becomes permanently disabled under the Company's long-term disability
policy then in effect.
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<PAGE> 3
The Company may also terminate the Employee's employment, upon
reasonable written notice to the Employee, at any time subject to the
fulfillment of the Company's obligations under this Agreement and such
termination by the Company for any other reason shall be deemed
termination "without cause."
(b) By Employee. The Employee may terminate this Agreement:
(i) if the Company materially breaches any of the terms or
conditions set forth in this Agreement and fails to cure its breach
within twenty days after its receipt from Employee of written notice of
such breach, which notice describes in reasonable detail Employee's
belief that the Company is in breach hereof; or
(ii) for "good reason" (as herein defined) at any time during
the two-year period following a Change in Control upon written notice
to the Company.
The Employee may also resign and terminate his employment on reasonable
written notice at any time and such termination by Employee for any
other reason (other than as provided in Sections 4(b)(i) or (ii)) and
in such event, the Employee shall receive no severance benefits under
this Agreement as a result of such termination.
(c) Certain definitions.
(i) For purposes of this Agreement, "good reason" shall mean the
following:
(A) any material diminution of the Employee's duties or a
reassignment of the Employee to a position not
consistent with the Employee's general area of
knowledge, experience and skills, or the assignment
of substantial additional responsibilities to the
Employee;
(B) any material diminution of the Employee's
compensation or a material diminution of the
Employee's bonus, long-term incentives, employee
benefits or perquisites as in effect immediately
preceding the Change in Control;
(C) any relocation of Employee's principal place of
employment to more than 35 miles from the principal
place of employment immediately preceding the Change
in Control;
(D) any material increase in Employee's travel
obligations;
(E) any failure of any successors to the Company to
assume this agreement; or
(F) any breach of this Agreement by the Company not cured
within ten days after its receipt of notice from
Employee of such breach (in
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<PAGE> 4
the event of such a breach and a termination of this
Agreement by Employee following a Change in Control,
such termination shall be deemed to have occurred
under Section 4(c)(i)(F) and not under Section
4(b)(i) of this Agreement).
(ii) For purposes of this Agreement, "Change in Control" shall mean any
of the following events:
(A) the direct or indirect beneficial ownership (within
the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
and Regulation 13D thereof) of a majority of the
outstanding common stock of the Company is acquired
or becomes held by any person or group of persons
(within the meaning of Section 13(d)(3) of the
Exchange Act);
(B) a change of stock ownership of the Company of a
nature that would be required to be reported in
response to Item 6(e) of Schedule 14A promulgated
under the Exchange Act, and any successor Item of a
similar nature;
(C) the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) of
securities of the Company representing 25 percent or
more of the voting power of the then outstanding
securities of the Company;
(D) the stockholders of the Company shall approve
(provided, however, if the transaction approved by
the stockholders is subsequently terminated, and the
Employee is still employed by the Company at the
termination of the transaction, then no "Change in
Control" shall be deemed to have taken place): (1)
any consolidation, merger, share exchange or other
extraordinary transaction related to the Company
where the stockholders of the Company, immediately
prior to the consolidation, merger, share exchange or
other extraordinary transaction, would not,
immediately after the consolidation, merger, share
exchange or other extraordinary transaction,
beneficially own (as such term is defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, shares representing in the aggregate 50
percent of the voting securities of the corporation
issuing cash or securities in the consolidation,
merger, share exchange or other extraordinary
transaction (or of its ultimate parent corporation,
if any), (2) any lease, exchange, mortgage or other
transfer (in one transaction or series of
transactions contemplated or arranged by any party as
a
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<PAGE> 5
single plan) of all or substantially all of the
assets of the Company and its subsidiaries (taken as
a whole), or (3) any plan or proposal for the
liquidation or dissolution of the Company; or
(E) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on the date hereof,
constitute the Board of Directors and any new
director (other than a director whose initial
assumption of office is in connection with an actual
or threatened election contest, including but not
limited to a consent solicitation, relating to the
election of directors of the Company) whose
appointment or election by the Board of Directors or
nomination for election by the Company's stockholders
was approved or recommended by a vote of at least
two-thirds of the directors then still in office who
either were directors on the date hereof or whose
appointment, election or nomination for election was
previously so approved or recommended.
(iii) For purposes of this Agreement, "termination of
employment," "termination of Employee" and "termination of this
Agreement" shall have the same meaning unless otherwise agreed to in
writing by the parties hereto.
(d) Severance Payments.
(i) In the event of termination of the Employee by the Company
without cause or termination of this Agreement by Employee pursuant to
Section 4(b)(i) hereof, the Company shall: (A) pay to Employee an
amount equal to one times the Employee's annual salary in effect at the
time of termination (not giving effect to any salary reduction giving
rise to such termination) and (B) either continue the Employee's health
(medical and dental) insurance as provided in Section 5(c) for one year
following the date of such termination to the extent permitted under
applicable law and the Company's group health insurance policies or
reimburse the Employee for his cost for comparable coverage to the
extent such coverage cannot be provided under such policies. Such
severance pay shall be payable in equal monthly installments over the
one-year period beginning on the date of termination of this Agreement
and shall be subject to tax withholding to the extent required under
applicable law. Notwithstanding anything herein to the contrary, the
Company shall not be required to continue to provide Employee with
health benefits under this paragraph if Employee becomes entitled to
receive benefits substantially similar to those which Employee
otherwise would have been entitled to receive hereunder. This severance
pay and continuation of health benefits contemplated by this paragraph
are agreed by the parties hereto to be in full satisfaction and
compromise of any claim arising out of any termination of Employee's
employment without cause or pursuant to Section 4(b)(i).
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<PAGE> 6
(ii) Notwithstanding anything herein to the contrary, in the
event of termination of the Employee by the Company without cause
within the two-year period following a Change in Control or termination
by Employee under Section 4(b)(i) or (ii) of this Agreement, then in
lieu of the severance pay and benefit continuation provided in Section
4(d)(i) above, the Company shall: (A) pay to Employee an amount equal
to one and one-half times the Employee's annual salary in effect at the
time of termination (not giving effect to any salary reduction giving
rise to such termination), and (B) either continue the Employee's
health (medical and dental) insurance as provided in Section 5(c) for
one and one-half years following the date of such termination to the
extent permitted under applicable law and the Company's group health
insurance policies or reimburse the Employee for his cost for
comparable coverage to the extent such coverage cannot be provided
under such policies. Such severance pay shall be payable in equal
monthly installments over the one and one-half year period beginning on
the date of termination of this Agreement and shall be subject to tax
withholding to the extent required under applicable law.
Notwithstanding anything herein to the contrary, the Company shall not
be required to continue to provide employee with health benefits under
this paragraph if Employee becomes entitled to receive benefits
substantially similar to those which Employee otherwise would have been
entitled to receive hereunder. Notwithstanding anything herein to the
contrary, the Company shall not be required to pay any amount (the
"Excess Amount") that, upon advice of the Company's independent tax
advisor or counsel, would be in excess of 2.99 times Employee's Base
Amount, as defined in Section 280G(b)(3) of the Internal Revenue Code
of 1986, as amended (the "Code"), and, therefore, would trigger the tax
(the "Excise Tax") imposed by Section 4999 of the Code, unless Employee
agrees to be bound by the noncompetition provisions of Section 7 hereof
for one additional year following the termination. Payment of the
Excess Amount shall be consideration for the Employee agreeing to be
bound by such noncompetition provision for such additional year.
Election by the Employee to receive the Excess Amount and to be bound
by the noncompetition provision shall be given in writing to the
Company not later than five days after the date on which the Company
notifies Employee in writing that an Excess Amount may be payable
absent such agreement, and, upon receipt of such notice, the Company
shall be obligated to pay the Excess Amount to Employee.
(e) Security Obligation. The Company shall establish and fund,
not later than 30 days prior to the consummation of a Change in
Control, a grantor trust in an amount sufficient to satisfy the
Company's obligations under Section 4(d). If the Company fails to fund
such trust within such thirty day period, the entire amount of the
Company's severance obligations to the Employee will accelerate and
become immediately due and payable.
(f) Outplacement Services. If, pursuant to or within 24 months
following a Change in Control, Employee terminates this Agreement
pursuant to Sections 4(b)(i) or 4(b)(ii) or the Company terminates this
Agreement without cause, the Company shall provide Employee with the
services of an outplacement firm for a period of one year
-6-
<PAGE> 7
from the date of such termination.
5. Compensation and Benefits.
(a) Annual Salary. For all services rendered by Employee under
this Agreement, the Company will pay Employee a base salary of at least
________________ dollars ($____________) per annum in equal monthly
installments, or a greater amount as determined by the Board of
Directors of the Company.
(b) Annual Bonus Payment. Upon completion of each fiscal year
and as determined by the Board of Directors of the Company, Employee
shall be eligible to receive a bonus ("Bonus") in accordance with any
bonus plan then in effect for executives of the Company of equivalent
position and title, provided Employee is employed by the Company at the
end of such fiscal year. Notwithstanding anything herein to the
contrary, Employee's bonus for any fiscal year ending after a Change in
Control shall not be less than _____% of his base salary then in
effect.
(c) Other Benefits. Employee will be entitled to such fringe
benefits as may be provided from time-to-time by the Company to its
employees, including, but not limited to, group health insurance,
disability, dental, retirement and any other fringe benefits now or
hereafter provided by the Company to its employees, if and when
Employee meets the eligibility requirements for any such benefit. The
Company reserves the right to change or discontinue any employee
benefit plans or programs now being offered to its employees; provided,
however, that all benefits provided for employees of the same position
and status as Employee will be provided to Employee on an equal basis
and the aggregate of such benefits shall not be less than those
currently in effect or otherwise be materially less favorable to the
Employee.
(d) Business Expenses. Employee will be reimbursed for all
reasonable expenses incurred in the discharge of Employee's duties
under this Agreement pursuant to the Company's standard reimbursement
policies.
-7-
<PAGE> 8
(e) Vacation. Employee shall receive paid vacation annually in
accordance with the Company's practices for employees of the Company of
the same position and status as Employee.
(f) Withholding. The Company will deduct and withhold from the
payments made to Employee under this Agreement, state and federal
income taxes, FICA and other amounts normally withheld from
compensation due employees.
6. Non-Disclosure and Use of Confidential Information. Employee recognizes
and acknowledges that the trade secrets and confidential information of
the Company (the "Proprietary Information"), as they may exist from
time-to-time, are valuable, special and unique assets of the Business.
Employee further acknowledges that access to such Proprietary
Information relating to the Business of the Company is essential to the
performance of Employee's duties under this Agreement. Therefore, in
order to obtain access to such Proprietary Information, Employee agrees
that Employee will not, in whole or in part, disclose such Proprietary
Information to any person, firm, corporation, association or any other
entity for any reason or purpose whatsoever, nor will Employee make use
of any such information for Employee's own purposes or for the benefit
of any person, firm, corporation, association or other entity (except
the Company). For purposes of this Agreement, the term "trade secrets"
means the whole or any portion of any scientific or technical or
non-technical information, design, process, procedure, formula,
computer software product, documentation or improvement relating to the
Business which: (1) derives economic value, actual or potential, from
not being generally known to other persons who can obtain economic
value from its disclosure or use; and (2) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy or
confidentiality. The term "confidential information" means any and all
other data and information relating to the Business which: (1) has
value to the Company; (2) is not generally known by its competitors or
the public; and (3) is treated as confidential by the Company. The
provisions of this Section 6 will apply during Employee's employment by
the Company and, with respect to trade secrets, at any and all times
thereafter and, with respect to confidential information, for three
years thereafter. These restrictions will not apply to any Proprietary
Information which: (i) is in the public domain, provided that Employee
was not responsible, directly or indirectly, for such Proprietary
Information entering the public domain without the Company's consent;
(ii) becomes known to Employee, during the term of this Agreement, from
a third party not known to Employee to be under a confidential
relationship with the Company; or (iii) is required by law or
governmental tribunal to be disclosed; provided, however, that if
Employee is legally compelled to disclose any Proprietary Information,
Employee will provide the Company with prompt written notice of such
legal compulsion so that the Company may seek a protective order or
other available remedy.
-8-
<PAGE> 9
7. (a) Non-Competition Covenant. During the term of this Agreement and for
a period of one year following termination of this Agreement for any
reason, Employee will not, directly or indirectly, on Employee's own
behalf or in the service of or on behalf of any other individual or
entity, compete with the Company in the Business within the
Geographical Area (as hereinafter defined). The term "compete" means to
engage, directly or indirectly, on Employee's own behalf or in the
service of or on behalf of any other individual or entity, either as a
proprietor, employee, agent, independent contractor, consultant,
director, officer, partner or stockholder (other than a stockholder of
a corporation listed on a national securities exchange or whose stock
is regularly traded in the over-the-counter market, provided that
Employee at no time owns, directly or indirectly, in excess of five
percent of the outstanding stock of any class of any such corporation)
in providing management, executive, marketing or other services. For
purposes of this Agreement, the term "Geographical Area" means those
areas in the United States and in foreign countries in which Employee
is or has engaged in providing or marketing Business products or
services as of the date of this Agreement. The Geographical Area
currently includes Alabama, Arkansas, Colorado, Florida, Georgia,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Mississippi,
Missouri, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia and West Virginia. The
Company may, from time to time and after giving Employee notice (but
only while the Employee is employed by the Company), amend this
Agreement to expand the Geographical Area to include additional areas
in which the Company may conduct the Business after the date hereof.
(b) Non-Interference. During the term of this Agreement and for a
period of one year following termination of this Agreement for any
reason, Employee will not, directly or indirectly, on Employee's own
behalf or in the service of or on behalf of any other individual or
entity, interfere with, disrupt, or attempt to disrupt the past,
present or prospective relationships, contractual or otherwise, between
the Company and any supplier, consultant, or client of the Company with
whom Employee had material business contact during the two-year period
ending on the date of the termination of this Agreement. The term
"prospective relationship" is defined as any relationship where the
Company has actively sought an individual or entity as a prospective
supplier, consultant, or client.
(c) Construction. The parties hereto agree that any judicial authority
construing all or any portion of this Section 7 or Section 8 below will
be empowered to sever any portion of the Geographical Area, Business or
time period, client base, prospective relationship or prospect list or
any prohibited business activity from the coverage of such Section and
to apply the provisions of such Section to the remaining portion of the
Geographical Area, Business or time period, the client
-9-
<PAGE> 10
base or the prospective relationship or prospect list, or the remaining
business activities not so severed by such judicial authority. In
addition, it is the intent of the parties that the judicial authority
replace each such severed provision with a provision as similar in
terms to such severed provision as may be possible and be legal, valid
and enforceable. It is the intent of the parties that Sections 7 and 8
be enforced to the maximum extent permitted by law. In the event that
any provision of either such Section is determined not to be
specifically enforceable, the Company shall nevertheless be entitled to
bring an action to seek to recover monetary damages as a result of the
breach of such provision by Employee.
8. Non-Solicitation of Employees Covenant. Employee further agrees and
represents that during Employee's employment by the Company and for a
period of two years following any termination of this Agreement for
whatever reason, Employee will not, directly or indirectly, on Employee's
own behalf or in the service of, or on behalf of any other individual or
entity, divert or solicit, or attempt to divert or solicit, to or for any
individual or entity which is engaged in providing Business services, any
person employed by the Company (a) who was employed by the Company during
the two-year period ending on the date of the termination of this
Agreement and (b) with whom Employee was familiar, whether or not such
employee is a full-time employee or temporary employee of the Company,
whether or not such employee is employed pursuant to a written agreement
and whether or not such employee is employed for a determined period or
at-will, except as agreed to by the Company.
9. Existing Restrictive Covenants. Employee represents and warrants that
Employee's employment with the Company does not and will not breach any
agreement which Employee has with any individual or entity to keep in
confidence confidential information or not to compete with any such
individual or entity. Employee will not disclose to the Company or use on
either of their behalf any confidential information of any other party
required to be kept confidential by Employee.
10. Return of Confidential Information. Employee acknowledges that as a
result of Employee's employment with the Company, Employee may come into
the possession and control of Proprietary Information, such as
proprietary documents, drawings, specifications, manuals, notes, computer
programs, or other proprietary material. Employee acknowledges, warrants
and agrees that Employee will return to the Company all such items and
any copies or excerpts thereof, and any other properties, client lists,
client contracts, files or documents obtained as a result of Employee's
employment with the Company, immediately upon the termination of
Employee's employment with the Company.
11. Remedies. Employee agrees and acknowledges that the violation of any of
the covenants or agreements contained in Sections 6, 7, 8, 9 and 10 of
this Agreement
-10-
<PAGE> 11
would cause irreparable injury to the Company, that the remedy at law for
any such violation or threatened violation thereof would be inadequate,
and that the Company will be entitled, in addition to any other remedy,
to temporary and permanent injunctive or other equitable relief without
the necessity of proving actual damages including, without limitation,
the right to terminate all payments under this Agreement. Sections 4, 6,
7, 8, 9, 10, 11, 12, 13, 14, 15, 16, and 17 of this Agreement shall
survive termination of the Employee's employment under this Agreement.
12. Notices. Any notice or communication under this Agreement will be in
writing and sent by registered or certified mail addressed to the
respective parties as follows:
If to the Company: If to the Employee:
CompDent Corporation
100 Mansell Court East, Suite 400
Roswell, Georgia 30076
Attention: David R. Klock
13. Severability. Subject to the application of Section 7(c) to the
interpretation of Sections 7 and 8, in case one or more of the provisions
contained in this Agreement is for any reason held to be invalid, illegal
or unenforceable in any respect, the same will not affect any other
provision in this Agreement, and this Agreement will be construed as if
such invalid or illegal or unenforceable provision had never been
contained therein. It is the intent of the parties that this Agreement be
enforced to the maximum extent permitted by law.
14. Entire Agreement. This Agreement embodies the entire agreement of the
parties relating to the subject matter hereof and supersedes all prior
agreements, oral or written, regarding such subject matter. Except as
otherwise provided in Section 7(a) of this Agreement, no amendment or
modification of this Agreement will be valid or binding upon the parties
unless made in writing and signed by the parties.
15. Binding Effect. This Agreement will be binding upon the parties and their
respective heirs, representatives, successors, transferees and permitted
assigns, as applicable.
16. Assignment. This Agreement is one for personal services and is not
assignable by Employee. The Company may assign this Agreement to any of
its affiliates; provided that the Company shall remain liable for the
obligations of its affiliates under this Agreement.
17. Governing Law. This Agreement is entered into and will be interpreted and
enforced pursuant to the laws of the State of Delaware. The parties
hereto hereby agree that the
-11-
<PAGE> 12
appropriate forum and venue for any disputes between any of the parties
hereto arising out of this Agreement shall be any federal court in the
State of Delaware and each of the parties hereto hereby submits to the
personal jurisdiction of any such court. The foregoing shall not limit
the rights of any party to obtain execution of judgment in any other
jurisdiction. The parties further agree, to the extent permitted by law,
that a final and unappealable judgment against either of them in any
action or proceeding contemplated above shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States by
suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and amount of such judgment.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPDENT CORPORATION
-----------------------------------
By: /s/ Phyllis Klock
--------------------------------------- -----------------------------------
Title: President & Chief Operating Officer
------------------------------------
-13-
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,726
<SECURITIES> 0
<RECEIVABLES> 6,540
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,858
<PP&E> 12,265
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,362
<CURRENT-LIABILITIES> 22,915
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 65,272
<TOTAL-LIABILITY-AND-EQUITY> 150,362
<SALES> 0
<TOTAL-REVENUES> 86,005
<CGS> 0
<TOTAL-COSTS> 75,388
<OTHER-EXPENSES> (3)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,673
<INCOME-PRETAX> 8,947
<INCOME-TAX> 3,850
<INCOME-CONTINUING> 5,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,097
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
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