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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
OnTrak Systems, Inc.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
683374 10 2
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(CUSIP Number)
James W. Bagley, OnTrak Systems, Inc.,
1010 Rincon Circle, San Jose, CA 95131; (408) 577-1010
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(Name, Address and Telephone Number of
Person Authorized to Receive Notices and Communications)
May 17, 1996
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this Schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
Check the following box if a fee is being paid with this statement /X/.
(A fee is not required only if the filing person: (1) has a previous statement
on file reporting beneficial ownership of more than five percent of the class
of securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7).
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter the disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act, but shall be subject to all other provisions of the Act
(however, see the Notes).
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CUSIP No. 683374 10 2
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(1) Names of Reporting Persons/S.S. or I.R.S. Identification Nos. of
Above Persons
James W. Bagley
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(2) Check the Appropriate Row if a Member of a Group (See Instructions)
(a)
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(b)
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(3) SEC Use Only
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(4) Source of Funds
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Item 2(d) or 2(e)
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(6) Citizenship or Place of Organization United States
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Number of (7) Sole Voting Power 400,000
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Shares
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Beneficially (8) Shared Voting Power -0-
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Owned by
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Each Reporting (9) Sole Dispositive Power 400,000
Person With ------------------------------
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(10) Shared Dispositive Power -0-
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(11) Aggregate Amount Beneficially Owned by Each Reporting
Person 400,000
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(12) Check if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions)
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(13) Percent of Class Represented by Amount in Row 11 5.1%
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(14) Type of Reporting Person (See Instructions) IN
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2.
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ITEM 1. SECURITY AND ISSUER.
Common Stock of
OnTrak Systems, Inc.
1010 Rincon Circle
San Jose, CA 95131
ITEM 2. IDENTITY AND BACKGROUND.
(A) NAME: James W. Bagley
(B) RESIDENCE OR BUSINESS ADDRESS:
c/o OnTrak Systems, Inc.
1010 Rincon Circle
San Jose, CA 95131
(C) PRINCIPAL OCCUPATION OR EMPLOYMENT: Chairman of the Board of
Directors and Chief Executive Officer of OnTrak Systems, Inc.
("OnTrak").
(D) Not applicable.
(E) Not applicable.
(F) United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
In connection with his employment as Chairman of the Board and
Chief Executive Officer of OnTrak, the undersigned was granted an
option to purchase 800,000 shares of Common Stock of OnTrak. Options
to purchase 400,000 shares are vested and immediately exercisable
and options to purchase an additional 400,000 shares vest in annual
increments of 100,000 shares over a four-year period beginning on
May 17, 1997, subject to accelerated vesting upon the occurrence of
certain events. None of the options have been exercised. The
undersigned anticipates that the funds for the purchase of the
shares of Common Stock will be from personal funds although, in
certain circumstances, OnTrak may loan funds to the undersigned to
purchase the shares.
ITEM 4. PURPOSE OF TRANSACTION.
The options to purchase shares of OnTrak Common Stock were issued
to the undersigned in connection with his employment as an executive
officer of OnTrak, to provide an incentive for his services in such
capacity. The undersigned has no plans or proposals which relate to
or would result in any of the following:
3.
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(a) The acquisition by any person of additional securities of
OnTrak, or the disposition of securities of OnTrak;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving OnTrak or any of
its subsidiaries;
(c) A sale or transfer of a material amount of assets of OnTrak
or any of its subsidiaries;
(d) Any change in the present board of directors or management
of OnTrak, including any plans or proposals to change the
number or term of directors or to fill any existing vacancies
on the board;
(e) Any material change in the present capitalization or dividend
policy of OnTrak;
(f) Any other material change in OnTrak's business or corporate
structure;
(g) Any changes in OnTrak's charter, bylaws or instruments
corresponding thereto or other actions which may impede the
acquisition or control of OnTrak by any person;
(h) Causing a class of securities of OnTrak to be delisted from
a national securities exchange or to cease to be authorized
to be quoted in an inter-dealer quotation system of a
registered national securities association;
(i) A class of equity securities of OnTrak becoming eligible for
termination of registration pursuant to Section 12(g)(4) of
the Exchange Act; or
(j) Any action similar to any of those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(A) The undersigned has been granted an option to purchase 800,000
shares of Common Stock of OnTrak, of which options to purchase
400,000 shares of Common Stock are presently exercisable. The
undersigned does not own any shares of OnTrak Common Stock. As
of May 31, 1996, 7,427,051 shares of OnTrak Common Stock were
outstanding; if options to purchase all 400,000 shares were
exercised, the undersigned would own 5.1% of OnTrak's then
outstanding Common Stock.
(B) Number of shares as to which such person has:
(I) Sole power to vote or to direct the vote: 400,000
4.
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(II) Shared power to vote or to direct the vote: -0-
(III) Sole power to dispose or to direct the disposition
of: 400,000
(IV) Shared power to dispose or to direct the disposition
of: -0-
(C) Except for the grant of options to purchase shares of OnTrak
Common Stock, the undersigned has not engaged in any transactions
in OnTrak's Common Stock during the past 60 days.
(D) No other persons have the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the
sale of, the shares of OnTrak Common Stock which are beneficially
owned by the undersigned.
(E) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
The undersigned entered into an Employment Agreement with OnTrak
which provides for, among other things, the grant of the options to
purchase OnTrak Common Stock which are reported in this filing.
A copy of the Employment Agreement is filed as an exhibit hereto.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following agreement is attached hereto as an exhibit:
Exhibit A -- Employment Agreement dated May 17, 1996 between
OnTrak and James W. Bagley.
5.
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SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
June 7, 1996
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(Date)
JAMES W. BAGLEY
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(Signature)
James W. Bagley
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(Name)
6.
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EXHIBIT A
EMPLOYMENT AGREEMENT
between
OnTrak Systems, Inc.
and
James W. Bagley
May 17, 1996
1. Employment 1
2. Position and Responsibilities 1
3. Terms and Duties 1
4. Compensation and reimbursement of Expenses;
Other Benefits 2
5. Benefits Payable Upon Disability or Death 4
6. Obligations of Executive During and After Employment 4
7. Termination By Company 5
8. Termination by Executive 5
9. Change in Control 7
10. Compensation Following Change in Control 7
11. Bonus Payment 7
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12. Acceleration of Options; Loans 7
13. Gross-Up Payments 8
14. Additional Gross-Up Payments 9
15. Company's Insurance on Executive 9
16. No Obligation to Mitigate Damages 9
17. Arbitration 10
18. Notice 10
19. Non-Waiver; Complete Agreement; Governing Law 11
20. Legal Fees and Expenses 11
21. Severability 11
22. Counterparts 11
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EMPLOYMENT AGREEMENT
This AGREEMENT, made effective as of May 17, 1996, between OnTrak Systems,
Inc., a California corporation (the "Company"), a corporation having its
principal office at 1010 Rincon Circle, San Jose, California 95131, and James
W. Bagley ("Executive").
RECITALS
The Company desires to engage the services and employment of Executive on its
own behalf and on behalf of its affiliated companies for the period provided
in this Agreement, and Executive is willing to accept employment by the
Company for such period, upon the terms and conditions hereinafter set forth.
The execution for this Agreement has been duly authorized by the Board of
Directors of the Company ("Board"), and the terms of compensation contained
herein have been approved by the Compensation Committee of the Board
(the "Committee").
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive and Executive agrees
to accept employment by the Company, for the period stated in Section 3
hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. Effective June 1, 1996, Executive agrees
to serve the Company and the Company shall employ Executive as Chairman of
the Board and Chief Executive Officer of the Company.
3. Terms and Duties.
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(a) Term of Employment. The period of Executive's employment under this
Agreement shall commence on the date of this Agreement and shall continue
through May 31, 2003 (the "Term").
(b) Duties. During the Term and except for illness, reasonable vacation
periods, and reasonable leaves of absence, Executive shall devote his best
efforts and all his business time, attention, skill and efforts to the
business and affairs of the Company and its affiliated companies, as such
business affairs now exist and as they may be hereafter changed or added to,
under and pursuant to the general direction of the Board; provided, however,
that Executive may serve, or continue to serve, on the boards of the directors
of and hold any other offices or positions in, companies or organizations
which will not present any conflict of interest with, or impair Executive's
fiduciary obligations to, the Company or any of its subsidiaries or
affiliates or divisions, or materially affect the performance of Executive's
duties pursuant to this Agreement, or conflict with Executive's obligations
under Section 6 of this Agreement, it being understood that Executive may
continue to perform advisory services to the Chairman of the Board of Applied
Materials, Inc., provided such services do not concern or relate to chemical
and mechanical wafer polishing technology and markets, wafer cleaning
technology and markets, or the Company's business. The services which are to
be rendered by Executive hereunder are to be rendered in the State of
California, or in such other place or places in the United States or
elsewhere as may be determined from time to time by the Board, but are to be
rendered primarily at the headquarters of the Company in the State of
California.
4. Compensation and Reimbursement of Expenses; Other Benefits.
(a) Compensation. The Company shall compensate Executive during the term
of this Agreement as follows:
(1) Base Salary. Executive shall be paid a base salary, adjusted as
provided in Section 4(a)(iv), ("Base Salary") of not less than One Hundred
Thousand Dollars ($100,000) per year in installments consistent with the
Company's usual practices;
(ii) Stock Options. Executive shall be granted non-qualified options to
purchase shares of the Company's Common Stock on the effective date of this
Agreement (the "Grant Date"). The exercise price of the options shall be the
fair market value of the Company's Common Stock, which shall be deemed to be
the closing price of the Company's Common Stock on the Grant Date as reported
by the NASD National Market System. Such options will entitle Executive to
purchase up to 800,000 shares of the Company's Common Stock, as follows:
(aa) Options to purchase 400,000 shares of the Company's Common Stock (the
"Initial Shares") will vest on May 17, 1996. The options to purchase the
Initial Shares will have a term of seven (7) years from the Grant Date, but
if Executive voluntarily terminates his employment with the Company on or
before November 17, 1997, the options for the Initial Shares will expire
thirty (30) days after the termination date of Executive's employment by the
Company.
(bb) Options to purchase an additional 400,000 shares of the Company's
Common Stock (the "Subsequent Shares" will become exercisable in four equal
installments commencing on the first anniversary of the Grant Date, and
annually thereafter, and will have a term of seven (7) years from the Grant
Date. Vesting of the options to purchase the Subsequent Shares will occur
sooner upon satisfaction of the following conditions:
(1) The options to purchase the first 100,000 Subsequent Shares will
become exercisable on the fifth (5th) consecutive trading day on which the
Company's common stock price per share as reported on the NASD National
Market System equals or exceeds by a factor of 2.0 the exercise price per
share of this option as defined in Section 4(a)(ii).
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(2) The options to purchase the second 100,000 Subsequent Shares will
become exercisable on the fifth (5th) consecutive trading day on which the
Company's common stock price per share as reported on the NASD National
Market System equals or exceeds by a factor of 3.25 the exercise price per
share of this options as defined in Section 4(a)(ii).
(3) The options to purchase the third 100,000 Subsequent Shares will
become exercisable on the fifth (5th) consecutive trading day on which the
Company's common stock price per share as reported on the NASD National
Market System equals or exceeds by a factor of 5.0 the exercise price per
share of this option as defined in Section 4(a)(ii).
(4) The options to purchase the fourth 100,000 Subsequent Shares will
become exercisable on the fifth (5th) consecutive trading day on which the
Company's common stock price per share as reported on the NASD National
Market System equals or exceeds by a factor of 7.75 the exercise price per
share of this option as defined in Section 4(a)(ii);
provided, however, in each of subsections (1) through (4) above, the exercise
price per share of these options shall be adjusted appropriately to reflect
stock dividends, stock subdivisions, stock combinations, and stock
consolidations.
(iii) Other Benefits. During the period of employment under this
Agreement, Executive shall be entitled to receive all other benefits of
employment generally available to other members of the Company's management
and those benefits for which key executives are or shall become eligible,
including without limitation medical, dental, disability and prescription
coverage, life insurance and tax-qualified retirement benefits. Executive
shall be entitled to four (4) weeks of paid vacation each year of his
employment.
(iv) Base Salary Review. The Company agrees to review Executive's Base
Salary within twelve (12) months after his date of employment and annually
thereafter or, if sooner, at the time period prescribed in salary
administration practices applied generally to executive officers of the
Company.
(b) Reimbursement of Expenses. The Company shall pay or reimburse
Executive for all reasonable travel and other expenses incurred by Executive
in performing his obligations under this Agreement. The Company further
agrees to furnish Executive with such assistance and office accommodations as
shall be suitable to the character of Executive's position with the Company
and adequate for the performance of his duties hereunder.
5. Benefits Payable Upon Disability or Death.
(a) Disability. If during the Term Executive should fail to perform his
duties hereunder on account of physical or mental illness or other incapacity
which the Board shall in good faint determine renders Executive incapable or
performing his duties hereunder, and such illness or other incapacity shall
continue for a period of more than six (6) months ("Disability"), the Company
shall have the right, upon written Notice of Termination (as hereinafter
defined) given to Executive to terminate Executive's employment under this
Agreement. During this period that Executive shall have been incapacitated
due to physical or mental illness, Executive shall continue to receive full
Base Salary at the rate then in effect until his Agreement is terminated
pursuant to this Section 5(a). Thereafter, Executive shall be entitled to
disability payments and coverage upon the basis available to Company
executives under, and subject to the terms and provisions of, disability
benefit plans of Company which are then in effect. All options exercisable by
Executive on the date of termination of employment by reason of Disability
shall remain exercisable for a period ending seven (7) years from the Grant
Date.
(b) Death. If Executive shall die during the Term, the employment of
Executive shall thereupon terminate and all options exercisable by Executive
at the time of his death shall remain exercisable for a period ending seven
(7) years from the Grant date; provided that if Executive shall die within
eighteen (18) months from the date of this Agreement, options to purchase the
Initial Shares shall expire one year
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from the date of death. All options which are exercisable on the date of
Executive's death shall be exercisable by the Executive's designated
beneficiary, or if no such beneficiary survives Executive, by the executor or
administrator of his estate.
(c) Other Benefits. The provisions of this Section 5 shall not affect the
entitlements of Executive's heirs, executors, administrators, legatees,
beneficiaries or assigns under any employee benefit plan, fund or program of
the Company.
6. Obligations of Executive During and After Employment.
(a) Executive agrees that during the term of his employment under this
Agreement, he will engage in no other business activities, directly or
indirectly, which are or may be competitive with or which might place him in
a competing position to that of the Company, or any affiliated company,
without the written consent of the Board.
(b) Executive realizes that during the course of his employment he will
have produced and/or have access to confidential information, records,
notebooks, data, formulae, specifications, trade secrets, customer
lists, inventions and processes of Company and its affiliated companies.
Therefore, during or subsequent to his employment by Company, or by an
affiliated company, Executive agrees to hold in confidence and not directly or
indirectly to disclose or use or copy or make lists or any such information,
except to the extent authorized by the Company in writing. All records,
files, drawings, documents, equipment, and the like, or copies thereof,
relating to the Company's business, or the business of an affiliated company,
which Executive shall prepare, or use, or come into contact with, shall be
and remain the sole property of Company, or of an affiliated company, and
shall not be removed from the Company's or the affiliated Company's premises
without its written consent, and shall be promptly returned to the Company
upon termination of the Executive's employment with the Company and its
affiliated companies.
(c) Executive shall executed the "Proprietary Rights and Confidentiality
Agreement" attached hereto as Exhibit A and made a part hereof by reference.
7. Termination By Company.
(a) Termination For Cause. The Company may terminate the employment of
Executive "for Cause" at any time upon written Notice of Termination to
Executive specifying the cause of termination. If terminated pursuant to this
Section 7(a), Executive's then current Base Salary shall be paid on a
prorated basis to the Date of Termination. Stock options exercisable by
Executive on the Date of Termination shall expire thirty (30) days following
the Date of Termination, and no additional options shall become exercisable
following the Date of Termination. For purposes of this Agreement, "for
Cause" shall mean the discharge resulting from a determination by the Board
that Executive (I) has been convicted of a crime involving moral turpitude,
including fraud, theft or embezzlement, (ii) has failed or refused (in a
material respect) to follow reasonable policies or directives established by
the Board which failure or refusal continues for twenty (20) days following
written notice thereof to Executive, or (iii) has continued to engage, after
twenty (20) days written notice, in any act that constitutes a breach of his
fiduciary duties to, or involves a conflict of interest with, the Company
or involves a usurpation of ma material opportunity of the Company. A
termination by the Company under this Section 7(a) shall not prejudice any
remedy to which the Company may be entitled either at law, in equity, or
under this Agreement.
(b) Termination Without Cause. The Company may terminate the employment
of Executive without Cause at any time upon written Notice of Termination
given to Executive; provided, however, that the Company shall be obligated to
pay Executive, as severance, a lump sum of Seven Hundred Fifty Thousand
Dollars ($750,000), and all stock options held by the Executive on the Date
of Termination shall immediately become fully exercisable. Such options shall
remain exercisable for seven (7) years following the Grant Date.
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8. Termination by Executive.
(a) Termination For Good Reason. If Executive terminates his employment
hereunder for Good Reason (as hereinafter defined), he shall be entitled to
the benefits set forth herein applicable to termination without Cause as set
forth in Section 7(b) hereof. For the purposes of this Agreement, "Good
Reason" shall mean:
(I) assignment to the Executive of duties inconsistent with his
responsibilities as they existed on the date of this Agreement, a substantial
alternation in the title of Executive (so long as the existing corporate
structure of the Company is maintained) or substantial alteration in the
status of Executive in the Company organization;
(ii) reduction by the Company in the Executive's Base Salary;
(iii) failure by the Company to continue in effect, without substantial
change, and benefit plan or arrangement in which Executive was participating
or the taking of any action by the Company which would adversely affect
Executive's participation in or materially reduce his benefits under any
benefit plan (unless such changes apply equally to all other Company
executives); or
(iv) any material breach by the Company of any provision of this
Agreement without the Executive having committed any material breach of his
obligations hereunder, which breach is not cured within twenty (20) days
following written notice hereof to the Company of such breach.
(b) Termination Without Good Reason. If Executive terminates his
employment hereunder without Good Reason his then current Base Salary shall be
paid on a prorated basis to the Date of Termination. If such termination
occurs within eighteen (18) months from the date of this Agreement,
Executive's option to purchase the Initial Shares shall expire thirty (30)
days following the Date of Termination and no additional unexercisable
options held by Executive on the Date of Termination shall vest. Except as
set forth above, vested options to purchase Initial and Subsequent Shares
will expire seven (7) years from the Date of Grant.
(c) Any purported termination of Executive's employment shall be
communicated by notice of termination to the Executive in accordance with
Section 18, and shall state the specific termination provisions in this
Agreement relied upon and set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment ("Notice of Termination"). If the Executive terminates for Good
Reason, he shall give the Company a Notice of Termination.
(d) For all purposes, "Date of Termination" shall mean, for Disability, 30
days after Notice of Termination is given to the Executive (provided the
Executive has not returned to duty on a full-time basis during such 30-day
period), or, if the Executive's employment is terminated by the Company for
any other reason, or if by the Executive for Good Reason, the date on which a
Notice of Termination is given.
9. Change in Control.
(a) No compensation shall be payable under Section 10, 11, 12, 13 or 14
unless and until there shall have been a Change IN Control of the Company
while the Executive is still an employee of the Company.
(b) For the purposes of this Agreement, a Change of Control shall be
deemed to have occurred if (I) there shall be consummated (aa) any
reorganization, consolidated or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of
the Company's Common Stock would be converted into cash, securities or other
property, in either case other than a merger of the Company in which the
holders of the Company's Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (bb) any sale, lease, exchange or other
transfer (in one transaction or a series of related
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transactions) of all, or substantially all, of the assets of the Company, or
(ii) any "person" (as defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% or more of the Company's outstanding Common
Stock, or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the entire Board of Directors of
the Company shall cease for any reason to constitute not less than one-half
of the membership thereof unless the election, or the nomination for election
by the Company's shareholders, of each new director was approved by a vote of
at least one-half of the directors then still in office who were directors at
the beginning of the period.
10. Compensation Following Change in Control. If a Change in Control occurs
while the Executive is still an employee of the Company, the Executive shall
be entitled to the bonus payment provided in Section 11 hereof and shall, in
addition, be entitled to the compensation provided in Sections 5, 7 and 8
hereof upon the subsequent termination of the Executive's employment with the
Company.
11. Bonus Payment. If a Change in Control of the Company occurs before
November 17, 1996 (whether or not the Executive continues in the employ of
the Company thereafter), the Company shall pay to the Executive, as a bonus,
a lump sum of Four Million Dollars ($4,000,000). If a Change in Control of
the Company occurs on or after November 17, 1996 (whether or not the
Executive continues in the employ of the Company thereafter), the Company
shall pay to the Executive, as a bonus, a lump sum of Two Hundred Fifty
Thousand Dollars ($250,000); provided, however, that in the sole discretion
of the Committee, such amount may be increased to an amount not to exceed
Five Hundred Thousand Dollars ($500,000). Any payment required under this
Section 11 shall be paid in cash no later than 30 days following the Change
in Control of the Company.
12. Acceleration of Options; Loan. All options granted pursuant to Section
4(a)(ii) shall be accelerated and become immediately exercisable sufficiently
prior to a Change in Control of the Company as to permit the Executive to
exercise all such options upon any such Change in Control of the Company. The
Company shall lend to the Executive, as requested by the Executive, an amount
up to Four Million Dollars ($4,000,000) to permit the Executive to exercise
such options. Such loan shall be secured by shares of stock acquired pursuant
to the exercise of options, shall bear interest at the lowest rate of interest
as shall not result in the imputation of interest under the Internal Revenue
Code (the "Code") or applicable Regulations thereunder, and shall carry a term
of not to exceed seven months from the date the loan is made.
13. Gross-Up Payments. In the event that Executive becomes entitled to any
payment or benefit in connection with a Change in Control of the Company (a
"Payment"), whether payable pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any successor to the
Company, any person whose actions result in a Change in Control of the Company,
or any corporation ("Affiliate") that is or becomes affiliated with the Company
or such person, if any of the Payments will be subject to the tax (the "Excise
Tax") imposed by section 4999 of the Code, the Company shall pay to Executive,
not later than the fifth day following each date ("Payment Date") on which
Executive becomes entitled to receive any Payment (whether payable immediately
or at a future date) that will be subject to the Excise Tax (but in no event
later than the fifth day following Executive's termination of employment), an
additional amount (collectively, the "Gross-Up Payments") such that the net
amount retained by Executive, after deduction of any Excise Tax on the
aggregate Payments received (or that Executive has become entitled to receive)
as of such Payment Date and any federal, state or local income tax and Excise
Tax upon the payment provided for by this Section 13, and after taking into
account any Gross-Up Payments previously made pursuant to this Section 13,
shall be equal to the aggregate Payments received (or that Executive has become
entitled to receive) as of such Payment Date. For purposes of determining
whether any Payment will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all amounts received in connection with Executive's employment
by the Company or one of its subsidiaries or to be received by Executive in
connection with a Change in Control of the Company,
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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 subject to the Excise
Tax, except to the extent that in the written opinion of independent tax
counsel selected by the Company's independent auditors and approved by
Executive (which approval shall not be unreasonably withheld) ("Tax Counsel")
which opinion shall be obtained at the Company's expense, any such payments or
benefits (in whole or in part) do not constitute parachute payments or excess
parachute payments (in whole or in part), or represent reasonable compensation
for personal services to be rendered or actually rendered before the Change in
Control in excess of the base amount, within the meaning of section
280G(b)(4)(B) of the Code, and (ii) the value of any non-cash benefit or any
deferred cash payment included in the Payments shall be determined by the
Company's independent auditors in accordance with the principles of section
280G(d)(3) and (4) of the Code. For purposes of determining the amount of each
Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in effect during the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in effect in the state and
locality of his residence on the date of payment, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state
and local taxes, but assuming that Executive has no other deductions or credits
available to reduce such taxes.
14. Additional Gross-Up Payments. If Executive is required to pay Excise Tax
in addition to the amount reimbursed pursuant to Section 13 (any such event
hereafter being referred to as a "Loss"), Executive shall notify the Company
and the Company shall pay to Executive an amount (the "Additional Gross-Up
Payment") which, after deduction of all income taxes and additional federal,
state and local taxes (including, without limitation, any additional Excise
Tax) required to be paid by Executive in respect of receipt of such amount
(assuming, for this purpose, that Executive is subject to the highest marginal
rate of federal income taxation in effect during the calendar year in which the
Additional Gross-Up Payment is to be made and state and local income taxes at
the highest marginal rates of taxation in effect in the state and locality of
Executive's residence on the date of payment, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes, but assuming that Executive has no other deductions or credits
available to reduce such taxes), shall be equal to the sum of (i) the Excise
Tax resulting in the Loss, and (ii) the net amount of any interest, penalties
or additions to tax payable to any taxing authority (after allowing for the
deduction of such amounts, to the extent properly deductible, for federal,
state or local income tax purposes) as a result of the Loss. Each Additional
Gross-Up Payment by the Company shall be made within 30 days after receipt of a
written demand therefor from Executive accompanied by a written statement
describing in reasonable detail the Loss in question, the amount of additional
tax, interest, penalties or additions to tax and the calculation of the payment
due in respect thereof.
15. Company's Insurance on Executive. The Company may secure in its own name,
or otherwise, and at its own expense, life, health, accident and other
insurance covering Executive, or Executive and others. Executive agrees to
assist the Company in procuring such insurance by submitting to the usual and
customary medical and other examinations and by signing, as the insured, such
applications and other instruments in writing as may be reasonably required by
the insurance companies to which application is made for such insurance.
Executive agrees that he shall have no rights, title or interest in or to any
insurance policies or the proceeds thereof which the Company may so elect to
take out or to continue on his life.
16. No Obligation to Mitigate Damages.
(a) Executive shall not be required to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by Executive as a result of
employment by another employer or by payment to him of retirement benefits
after the date of termination of his employment.
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(b) The provisions of this Agreement, and any payment provided for hereunder,
shall not reduce any amounts otherwise payable, or in any way diminish
Executive's existing rights, or rights which would accrue solely as a result of
the passage of time, under any benefit plan, employment agreement or other
contact, plan or arrangement.
17. Arbitration. With the exception of matters arising under Section 6 of
this Agreement, any controversy, dispute or claim between Company and Executive
or between any employee of Company and Executive, including, but not limited to
claims of race, age, gender, religious or national origin discrimination under
the Title VII of the Civil Rights Act of 1964, as amended; the Age
Discrimination in Employment Act of 1967, as amended; the Americans with
Disabilities Act, as amended; the California Fair Employment and Housing Act
and any other federal, state or local laws; and those involving the
construction or application of any of the terms, provisions or conditions of
this Agreement or otherwise arising out of or relating to this Agreement, shall
be settled by arbitration in accordance with the then current employment
dispute resolution rules of the American Arbitration Association, and judgment
on the award rendered by the arbitrator(s) may be rendered by any court having
jurisdiction thereof. The location of the arbitration shall be in Santa Clara
County, California.
In the event of a breach by Employee of any of the covenants contained in
Section 6 of this Agreement, it is recognized that Company shall be entitled to
institute or prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to obtain damages for any breach of this Agreement
or to sue for specific performance, or injunction against performance of any
acts or to seek any other available remedy.
18. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
OnTrak Systems, Inc.
1010 Rincon Circle
San Jose, California 95131
Attention: Kenneth J. Smith
If to the Executive:
James W. Bagley
27925 Roble Alto
Los Altos Hills, California 94022
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
19. Non-Waiver; Complete Agreement; Governing Law. No provisions of this
Agreement may be modified, waived or discharged except in writing signed by
both parties. No waiver by either party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior to subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
20. Legal Fees and Expenses. The Company shall pay all reasonable legal fees
and expenses which Executive may incur as a result of the Company's contesting
the validity,
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enforceability or Executive's good faith interpretation of, or good faith
determination under, this Agreement; provided, however, that the Company
shall not pay any legal fees and expenses incurred by Executive in contesting
the termination of Executive's employment for Cause or asserting that his
termination was for Good Reason if, as a result of such contest, it is
determined that the Executive was in fact terminated for Cause, or that he
did not terminate his employment for Good Reason.
21. Severability. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
22. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution of
its Board adopted at a duly constituted meeting) have executed this Agreement,
effective as of the date first above written.
OnTrak Systems, Inc.
a California corporation
By Kenneth J. Smith
Chairman, President and
Chief Executive Officer
James W. Bagley, Executive
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