SEPARATION AGREEMENT AND GENERAL RELEASE
The parties to this Separation Agreement and General Release
("AGREEMENT") are Robert McNeill ("MCNEILL") and DAOU Systems, Inc. ("DAOU" or
the "COMPANY").
RECITALS
This Agreement is made with reference to the following facts:
A. McNeill intends to resign his position as Vice President, Strategic
Initiatives and as an employee with the Company effective immediately (the
"SEPARATION DATE"). As of the Separation Date, McNeill's rights and obligations
as an employee will cease, except as set forth in this Agreement.
B. McNeill and the Company agree that from the Separation Date through
December 15, 1999 ("CONSULTING PERIOD"), McNeill will provide services to the
Company as a consultant according to the terms and conditions set forth in
Exhibit A to this Agreement (the "CONSULTING AGREEMENT").
C. The Company and McNeill desire to settle and dispose of, fully and
completely, all claims, demands, and causes of action, known or unknown, which
McNeill may have against the Company or its subsidiaries or affiliates,
including, those rights, claims, demands and causes of action arising out of the
employment relationship, McNeill's Employment Agreement dated January 17, 1997
("EMPLOYMENT AGREEMENT") and the termination of the employment relationship.
D. In connection with the Employment Agreement McNeill received options
to purchase 140,300 shares of DAOU Common Stock ("COMMON STOCK") (the "1996
OPTIONS") of which, as of the date of this Agreement (i) options to purchase
28,060 shares of Common Stock have been exercised, (ii) options to purchase
28,060 shares of common stock are vested and unexercised (the "VESTED 1996
OPTIONS") and (iii) options to purchase 84,180 shares of Common Stock are
unvested (the "UNVESTED 1996 OPTIONS") of which 28,060 options will vest on
November 11, 1999 (the "NOVEMBER 11, 1999 OPTIONS") assuming the vesting
conditions are otherwise satisfied. The Vested 1996 Options and the Unvested
1996 Options, are collectively referred to below as the "REMAINING 1996
OPTIONS." In addition, McNeill received options to purchase 60,000 shares of the
Company's Common Stock on October 16, 1997 (the "1997 STOCK OPTIONS").
AGREEMENT
1. CONSIDERATION TO MCNEILL.
1.1 SIGNING BONUS. DAOU releases McNeill from his obligation
to repay a pro-rata portion of the Signing Bonus described in Section 4(b) of
the Employment Agreement.
1.2 BONUS PAYMENT. DAOU agrees to pay McNeill the bonus for
the third quarter, if any, to which he otherwise would have been entitled under
his existing bonus plan. McNeill will not be entitled to any additional bonus
payment.
1.3 SHORTFALL PAYMENT. DAOU agrees that if, as of November 11,
1999, the Remaining 1996 Options do not have a Net Value (as defined below) of
at least $719,197 (representing the difference between $1,550,000 and the profit
that McNeill has realized as of the date of this Agreement on prior sale of
option shares), DAOU will pay to McNeill an amount equal to the difference
between the Net Value of the Remaining 1996 Options and $719,197 (the "SHORTFALL
PAYMENT "). "NET VALUE" is defined as (i) the aggregate value of the shares of
Common Stock underlying the Remaining 1996 Options (based on the average closing
price of DAOU Common Stock for the seven (7) trading days preceding the date on
which Net Value is determined) less (ii) the aggregate exercise price of the
Remaining 1996 Options. DAOU will have no other payment obligations with respect
to Section 4(d)(4) of the Employment Agreement or otherwise with respect to the
Remaining 1996 Options. McNeill agrees not to exercise any of his Vested 1996
Options or November 11, 1999 Options before November 12, 1999.
1.4 PAYMENT DATE. The Shortfall Payment will be made by wire
transfer on or before November 15, 1999.
1.5 VESTING OF NOVEMBER 11, 1999 OPTIONS; NO EXTENSION OF
PERIOD TO EXERCISE. The November 11, 1999 Options will vest on November 11, 1999
pursuant to the terms of the Consulting Agreement. The 1996 Vested Options and
the November 11, 1999 Options will terminate if not exercised by December 15,
1999. The 1996 Unvested Options (except for the November 11, 1999 Options) will
terminate as of the Separation Date and the 1997 Stock Options will terminate as
of November 4, 1999.
1.6 NO OTHER OBLIGATIONS. Except as specified above, the
Company shall have no other payment obligations of whatever kind to McNeill
pursuant to the Employment Agreement or otherwise.
1.7 TAX CONSEQUENCES. The Company has made no representations
to McNeill as to his tax liability on any payment. McNeill acknowledges that he
has consulted with his own professional advisors with respect to all tax
matters, and is not relying on any representation by the Company on any tax
matter. McNeill will be solely responsible for any and all tax responsibility
for the payment by the Company, and for any additional tax responsibility which
may be assessed either against his or against the Company, including any
penalties assessed by any agency against any party, which may arise as a result
of his characterization of any payment. The Company may withhold any payroll and
related taxes required by applicable law.
2. GENERAL RELEASE. In exchange for the consideration set forth in
Section 1 above, McNeill releases and forever discharges the Company, its
present and former agents, employees, officers, directors, shareholders,
principals, predecessors, alter egos, partners, parents, subsidiaries,
affiliates, attorneys, insurers, successors and assigns, from any and all
claims, demands, grievances, causes of action or suit of any kind arising out
of, or in any way connected with, the dealings between the parties to date,
including the employment relationship and its termination. McNeill also releases
and waives any and all legal or administrative claims arising under any express
or implied contract, law, rule, regulation, or ordinance, including, but not
limited to, Title VII of the Civil Rights Act of 1964, the Fair Labor Standards
Act, the Americans with Disabilities Act, the California Fair Employment and
Housing Act, the Family Rights' Act, the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") or the Age Discrimination in Employment Act of
1967, as amended ("ADEA"). McNeill agrees that, except
as described in this Agreement, as of the Separation Date and the execution of
this Agreement McNeill is not entitled to any benefits, consideration or sums
from DAOU.
3. INDEMNIFICATION. Nothing in this Agreement or this General Release
Section may be construed as a waiver by McNeill of any rights he may have for
indemnification under any DAOU insurance policy or written indemnification
agreement for acts by McNeill in his capacity as an officer or director of DAOU.
4. ACKNOWLEDGMENTS. McNeill acknowledges that with this document he has
been advised in writing of his right to consult with an attorney prior to
executing this Agreement and release. McNeill expressly waives any rights and
benefits he otherwise might have under California Civil Code Section 1542, which
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
5. SETTLEMENT. Nothing in this Agreement shall be construed as an
admission by the Company of any liability of any kind to McNeill.
6. CONFIDENTIALITY AND OTHER AGREEMENTS.
6.1 McNeill acknowledges and agrees that he has a continuing
obligation to protect the Company's Confidential Information according to the
terms and conditions of the Company's Confidentiality and Invention Agreement
("CONFIDENTIALITY AGREEMENT") which he signed on November 11, 1996. A copy of
the Confidentiality Agreement is attached as Exhibit B.
6.2 McNeill agrees to keep confidential the terms of this
Agreement and agrees to refrain from disclosing any information regarding this
Agreement to any third party unless required to do so (a) by a regulatory body
(e.g. filings with the Securities Exchange Commission ("SEC"); (b) in financial
disclosures to auditors or in audited financial statements; (c) under oath, if
properly ordered, in a court of competent jurisdiction; (d) to his wife; or (e)
previously disclosed publicly by the Company to the extent so disclosed.
Employee agrees to notify the Company in writing upon first notification that he
may be required by law to disclose any information deemed confidential by this
Agreement. Notice must be provided in sufficient time for the party receiving
notice to oppose or otherwise respond to the request.
6.3 McNeill agrees that he will not interfere with or
otherwise act adverse to the business affairs of the Company, including, without
limitation, making disparaging remarks, either orally or in writing, to any
person concerning the Company or the Company's business.
7. REPRESENTATIONS AND WARRANTIES. The parties represent and warrant as
follows:
7.1 McNeill has read this Agreement, understands its contents,
and understands its legal effect and binding nature. McNeill further
acknowledges that he is acting voluntarily and of his own free will in executing
this Agreement.
7.2 McNeill is not relying upon any statement, representation
or promise of the Company, or any of its officers, directors, agents, partners,
employees, consultants,
representatives or attorneys in executing this Agreement or in making this
settlement except as expressly stated in this Agreement.
7.3 McNeill acknowledges that with this document he has been
given a twenty-one (21) day period in which to consider entering into the
release of the ADEA claims, if any. In addition, McNeill acknowledges that he
has been informed that he may revoke a signed waiver of the ADEA claims for up
to seven days after executing this Agreement.
8. CLAIMS ARISING OUT OF THIS AGREEMENT.
8.1 McNeill agrees that should he allege a violation of the
terms of this Agreement, any such dispute and the arbitrability of such dispute
shall be settled exclusively by arbitration in San Diego, California by one or
more experienced labor and employment law arbitrators licensed to practice law
in California and selected in accordance with the Employment Arbitration Rules
of the American Arbitration Association. The arbitrator(s) shall not have the
power to modify any of the provisions of this Agreement. The arbitrator(s)'
decision shall be final and binding upon the parties and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction.
The arbitrator will decide how the costs of arbitration should be split.
8.2 In the event of any arbitration arising out of or relating
to this Agreement, its breach or enforcement, including an action for
declaratory relief, the prevailing party in such action or proceedings shall be
entitled to receive his or its damages, court costs, and reasonable
out-of-pocket expenses including reasonable attorneys' fees. Such recovery shall
include court costs, reasonable out-of-pocket expenses, and attorneys' fees on
appeal, if any. The arbitrator(s) or court shall determine who is the prevailing
party, whether or not the dispute or controversy proceeds to final judgment.
Both McNeill and the Company expressly acknowledge this paragraph is not
intended to in any way alter the parties' agreement that arbitration shall be
the exclusive method of resolving any dispute related to this Agreement or
McNeill's employment with the Company.
9. MISCELLANEOUS.
9.1 This Agreement shall be deemed to have been executed and
delivered within the State of California, and its rights and obligations shall
be construed and enforced in accordance with and governed by, the laws of
California.
9.2 McNeill and the Company understand and agree that this
Agreement shall bind and benefit their heirs, employees, parent corporation,
subsidiaries, affiliates, controlled corporations, sister corporations, agents,
representatives, predecessors, successors and assigns. The Company's successors
shall include (without limitation) any person, corporation or other entity who
or which enters into a Corporate Transaction with the Company (hereinafter
"Company Successor"). For purposes of this Agreement, a "Corporate Transaction"
is defined to mean a transaction in which any person, corporation or other
entity acquires, directly or indirectly, all or substantially all of the stock,
business or assets of the Company, whether by way of merger, consolidation,
sale, transfer or otherwise.
9.3 This Agreement may be amended only by an agreement in
writing designated as an amendment to this Agreement and signed by the parties
hereto.
9.4 This Agreement may be executed in counterparts, and when
each party has signed and delivered at least one such counterpart, each
counterpart shall be deemed an original, and, when taken together with the other
executed counterparts, shall constitute one Agreement, which shall be binding
upon and effective as to all parties.
DATED: October 4, 1999 /s/ ROBERT MCNEILL
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ROBERT MCNEILL
DAOU SYSTEMS, INC.
DATED: October 4, 1999 By: /s/ LARRY GRANDIA
-------------------------------
LARRY GRANDIA
CHIEF EXECUTIVE OFFICER
EXHIBIT A
CONSULTING AGREEMENT
This Consulting Agreement ("CONSULTING AGREEMENT") is made as of
October 4, 1999 ("EFFECTIVE DATE") by and between DAOU Systems, Inc., a Delaware
corporation (the "COMPANY"), and Robert McNeill ("MCNEILL").
RECITALS
Mr. Daou and the Company agree that from October 4, 1999 through
December 15, 1999 ("CONSULTING PERIOD"), McNeill will provide services to the
Company as a consultant according to the terms and conditions set forth below.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. CONSULTING PERIOD AND DUTIES.
1.1 ENGAGEMENT. During the Consulting Period, the Company will
retain McNeill to provide the Company such consulting services by telephone as
shall be reasonably requested by the Chief Executive Officer of the Company (the
"CONSULTING SERVICES"), and Consultant hereby agrees to provide the Consulting
Services to the Company in an amount not to exceed twenty (20) hours for that
time period.
1.2 TERM. Consultant hereby agrees to provide the Consulting
Services to the Company for a period commencing October 4, 1999 and ending
December 15, 1999 (the "CONSULTING PERIOD"). The Consulting Period may be
terminated prior to December 15, 1999 (a) by McNeill for any reason or (b) by
the Company for failure by McNeill to provide Consulting Services or for
violation of this Section or Section 3 below, upon ten (10) days written notice
by either party. If the Agreement is so terminated prior to completion of the
Consulting Period, McNeill no longer is eligible for the Consideration described
in Section 1.5 of the Severance and Release Agreement between McNeill and the
Company (the "AGREEMENT").
1.3 CONSIDERATION. As compensation in full for the Consulting
Services to be rendered by McNeill (a) McNeill's vesting schedule with respect
to the November 11, 1999 Options (as described in the Agreement) will be
extended through November 11, 1999 and the November 11, 1999 Options will vest
on that date, and (b) the exercise period for the Vested Options (as defined in
the Agreement) and the November 11, 1999 Options will be terminated on December
15, 1999.
1.4 RELATIONSHIP. During the Consulting Period, it is
understood and agreed that McNeill's services will be performed as an
independent contractor, and he is not authorized to act, and will not act as
an employee or agent of the Company. McNeill is in no way authorized by this
Agreement to make any contract, agreement, warranty or representation, or to
create any obligation, express or implied, on behalf of the Company, and
agrees not to do so. During the Consulting Period, McNeill is solely
responsible for all taxes, withholdings, and other statutory obligations
arising from his receipt of the Consideration described in Section 1.3 above.
McNeill agrees to defend, indemnify and hold the Company harmless from any
and all claims
made by any entity due to an alleged failure by McNeill to satisfy any such
tax or withholding obligations.
2. OTHER EMPLOYMENT DURING THE CONSULTING PERIOD. McNeill otherwise may
obtain employment with another employer or may provide consulting services to
another company so long as he abides by the terms and conditions of this
Agreement and the Company's Confidentiality and Proprietary Information
Agreement (Exhibit B to the Agreement).
3. GENERAL PROVISIONS.
3.1 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
3.2 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Company may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of Consultant under this Agreement, being
personal, may not be delegated.
3.3 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
facsimile numbers set forth in the Agreement.
3.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Agreement may
not be amended orally, but only by an agreement in writing signed by the parties
hereto.
3.5 GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of California.
3.6 BINDING ARBITRATION. Any dispute or claim arising out of
this agreement shall be subject to final and binding arbitration. The
arbitration will be conducted by one
arbitrator who is a member of the American Arbitration Association ("AAA") or of
the Judicial Arbitration and Mediation Services ("JAMS") and will be governed by
the Model Employment Arbitration rules of AAA. The arbitration shall be held in
San Diego, California. The arbitrator shall have all authority to determine the
arbitrability of any claim and enter a final and binding judgment at the
conclusion of any proceedings in respect of the arbitration. Any final judgment
only may be appealed on the grounds of improper bias or improper conduct of the
arbitrator. Notwithstanding any rule of AAA to the contrary, the parties will be
entitled to conduct discovery (i.e. investigation of facts through depositions
and other means) which shall be governed by the Code of Civil Procedure section
1283.05. The arbitrator shall have all power and authority to enter orders
relating to such discovery as are allowed under the Code. The arbitrator will
apply California substantive law in all respects. The party prevailing in the
resolution of any such claim will be entitled, in addition to such other relief
as may be granted, to an award of all actual attorneys fees and costs incurred
in pursuit of the claim, without regard to any statute, schedule, or rule of
court purported to restrict such award.
3.7 ATTORNEYS' FEES. Unless otherwise specifically provided in
this Agreement, in the event of any controversy, claim or dispute between any of
the parties arising out of or relating to this Agreement, or the breach thereof,
the prevailing party shall be entitled to recover, from the losing party,
reasonable attorneys' fees, expenses and costs actually incurred in the case of
arbitration of any such controversy, claim or dispute, or by the court in which
any such controversy, claim or dispute is resolved.
3.8 SECTION HEADINGS, CONSTRUCTION. The section headings in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "section" or "sections" refer
to the corresponding section or sections of this Agreement unless otherwise
specified. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
3.9 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
3.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
DAOU SYSTEMS, INC.:
By /s/ Larry D. Grandia /s/ Robert McNeill
--------------------------- -------------------------
Larry D. Grandia, President Robert McNeill