Confidential Treatment is requested for portions of this document
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into by and
between W. Xxxxxx Xxxx ("Xxxx") and Xxxx Microproducts, Inc., a California
corporation ("Company"), effective as of 7/1/99, and supersedes and replaces in
its entirety the Employment Agreement between the parties dated December 10,
1996.
WITNESETH:
WHEREAS, Xxxx has been serving and continues to serve as the Chairman,
President and Chief Executive Officer of Company; and
WHEREAS, the parties wish to continue Xxxx'x employment with Company for
a period of at least three years from the date of this Agreement and wish to set
forth the terms and conditions of that employment relationship in writing;
NOW, THEREFORE, in consideration of Xxxx'x continued employment with
Company, and other good and valuable consideration, and in consideration of the
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree and contract as follows:
1. Term of Employment. Company hereby agrees to employ Xxxx as
Chairman, President and Chief Executive Officer for the period commencing with
the date set forth above and ending on 12/31, 2002, unless Xxxx'x employment is
terminated earlier pursuant to Paragraph 4 of this Agreement. After 12/31, 2002,
Xxxx'x employment with Company may be continued by mutual written agreement of
the parties.
2. Duties. Xxxx accepts employment with Company as its Chairman,
President and Chief Executive Officer. Xxxx agrees to devote his full time,
attention and best efforts to the business and affairs of the Company. Xxxx
shall perform all duties and responsibilities commensurate with his position as
Chairman, President and Chief Executive Officer and shall follow the reasonable
direction of the Board of Directors of the Company. Company agrees to nominate
Xxxx for election to Company's Board of Directors, and Xxxx agrees to serve, for
any period for which he is so elected, without additional compensation therefor.
Xxxx may serve on corporate, civic or charitable boards or committees, fulfill
speaking engagements and manage personal investments, so long as Company, in its
sole discretion, reasonably determines that such activities do not interfere,
compete with or otherwise pose a conflict of interest with respect to the
performance of Xxxx'x duties and responsibilities under this Agreement. Xxxx
shall comply with Company's policies and procedures as adopted from time to
time; provided, however, that to the extent any such policies and procedures are
inconsistent with this Agreement, the provisions of this Agreement shall
control.
Confidential Treatment is requested for portions of this document.
3. Compensation and Benefits. During the term of this Agreement,
Xxxx shall receive the following compensation and benefits:
a. Base Salary. Xxxx shall receive a minimum base salary of
$375,000 per year, less applicable withholding, payable monthly or more
frequently in accordance with Company's customary payroll practices. The
Compensation Committee of the Company's Board of Directors shall review
Xxxx'x base salary at least annually and may, in its sole discretion,
increase the base salary under its normal compensation policies for
executive officers.
b. Annual Incentive Compensation. Xxxx shall participate in any
and all annual incentive compensation plans, including but not limited
to the Management Incentive Program, which may be established by the
Compensation Committee of Company's Board of Directors for the Chief
Executive Officer from time to time. In no event shall any annual
incentive compensation plans established by the Compensation Committee
for the Chief Executive Officer after the date set forth above be less
favorable than the annual incentive compensation plans currently
maintained for the Chief Executive Officer as of such date.
c. EPS Enhancement Incentive
(i) Within thirty (30) days following the issuance of the
audited financial statements for the 1999 fiscal year and each fiscal
year thereafter until the termination of this Agreement, Company shall
pay Xxxx a lump-sum cash incentive payment (the "EPS Enhancement
Incentive") equal to (i) $5,000 for each $0.01 of Company's annual net
earnings per share (as hereinafter defined) over and above [ * ] per
share, plus (ii) $3,000 for each $.01 if Company's annual net earning
per share (as hereinafter defined) over and above [ * ] per share.
(ii) For purposes of this Paragraph 3(c), the term "annual net
earning per shares for any fiscal year shall mean the net profits of the
Company, after the provision for income taxes, any extraordinary items
of profit or loss and the computation of any payments due under this
Paragraph 3(c), expressed on a fully diluted earning per share basis
(based on the weighted average number of shares of Company's Common
Stock outstanding or equivalent thereto or otherwise treated as
outstanding during such annual fiscal period), computed in accordance
with generally accepted accounting principles by Company's
interdependent public accountants and as reported in Company's audited
financial statements for such fiscal year. The [ * ] and [ * ] per share
thresholds stated herein shall be adjusted to reflect the effect of any
stock dividends on, or stock splits or reverse splits of, or
recapitalizations, reclassifications or other similar transactions
affecting Company's Common Stock which are declared or effected after
the date of this Agreement in the same manner as such dividends, stock
splits or transactions have been reflected in the annual net earnings
per share in accordance with generally accepted
2
Confidential Treatment is requested for portions of this document.
accounting principles and as reported in Company's audited financial
statements, and the $5,000 and $3,000 amounts shall be adjusted
consistent with the goals of the EPS Enhancement Incentive and the
amount that would otherwise be payable without such adjustment pursuant
to Section 3(c).
(iii) If, in any fiscal year, the total compensation paid to
Xxxx would result in a violation of the compensation deduction limits
contained in Section 162(m) of the Internal Revenue Code of 1986 (the
"Code"), or any successor provision, and the regulations issued
thereunder, a portion of the EPS Enhancement Incentive shall be credited
to a deferred compensation account and shall become due and payable upon
the effective date of Xxxx'x termination of employment for any reason.
The portion credited to the deferred compensation account shall be the
amount necessary to avoid such violation of Code 162(m). All amounts
credited to the deferred compensation account shall be adjusted for
interest, compounded quarterly, at the prime interest rate quoted by
Citicorp, NA. from time to time, beginning with the date the deferred
compensation account is established and continuing until all amounts
have been paid in full. Upon Xxxx'x termination of employment, the
balance of the deferred compensation account shall be paid in equal
annual installments not to exceed $500,000 per year. The deferred
compensation account shall at all times be entirely unfunded. Neither
Xxxx nor his successors shall have any interest in the assets of Company
by reason of the right to receive the amounts credited to the deferred
compensation account, and Xxxx shall have only the rights of a general
unsecured creditor with respect thereto.
d. Long-Term Disability Insurance. Company agrees to pay all
premiums required for long-term disability insurance which shall provide
Xxxx with a disability benefit equal to (60%) of Xxxx'x total
compensation if, as the result of Xxxx'x incapacity due to physical or
mental illness, Xxxx is unable to perform his duties as President and
Chief Executive Officer. Company may, in its discretion, provide such
long-term disability insurance under its group policy.
e. Business Expenses. Company will reimburse Xxxx for ordinary
and necessary travel and other out-of-pocket expenses incurred by Xxxx
in connection with the performance of his duties, provided that Xxxx
promptly submits to Company receipts verifying such expenses.
f. Other Employee Benefits. Xxxx shall be eligible to
participate in any and all other employee benefit plans and programs
offered by Company from time to time, including but not limited to, any
medical, dental, short-term disability and life insurance coverage,
stock option plans or retirement plans, in accordance with the terms and
conditions of those benefit plans and programs and on a basis consistent
with that customarily provided to Company's executive officers. In
addition, Company shall continue to maintain all life insurance policies
currently in effect as one of the effective date set forth above.
3
Confidential Treatment is requested for portions of this document.
g. Vacation and Other Absences. Xxxx shall be entitled to paid
vacations each year in accordance with Company's then-current vacation
policy for executive officers. The rules relating to other absences from
regular duties for holidays, sick or disability leave, leave of absence
without pay, or for other reasons, shall be the same as those
customarily provided to Company's executive officers.
4. Termination. Unless extended by mutual written agreement of the
parties, and except for the provisions hereof which are intended to survive for
other periods of time as specified herein, this Agreement shall terminate (a)
upon the expiration date stated in Paragraph 1 December 31, 2002; (b) at any
time upon mutual written agreement of the parties; (c) immediately upon Xxxx'x
death; (d) by the Company, immediately and without prior written notice, for
"cause" (as defined in Section 5(c) below); or (e) by Xxxx or by Company for any
reason not otherwise covered by clauses (a), (b), (c) or (d) herein, with at
least thirty (30) days' written notice to the other. Except as otherwise
provided in Paragraph 5, upon the termination of Xxxx'x employment for any
reason, Xxxx shall be entitled to receive his base salary through his last date
of employment, any annual incentive employment, the amounts credited to the
deferred compensation account described in Paragraph 3(c), any unreimbursed
business expenses incurred prior to such termination of employment and such
other employee benefits to the extent permitted by the applicable policies or
plan documents or as required by law.
5. Severance Benefits.
a. Termination Without Cause or Involuntary Termination. If
Company terminates Xxxx'x employment without cause or in the
event of an "involuntary termination" (as defined in Section
5(c) below) at any time during the term of this Agreement, Xxxx
shall be entitled to the following additional severance
benefits:
(i) Base Salary. Company shall continue to pay
Xxxx his then-current base salary through the expiration
date stated in Paragraph 1, or such later date as may
have been mutually agreed to in writing by the parties.
(ii) Benefits. Company shall continue to
provide, at no cost to Xxxx, medical, dental, short-term
disability and life insurance benefits for Xxxx and his
dependents through the expiration date stated in
Paragraph 1, or such later date as may have been mutually
agreed to by the parties, at the same level of coverage
as was provided to Xxxx immediately prior to the
termination of his employment, and shall continue to pay
all premiums required for the long-term disability
insurance coverage described in Paragraph 3(d) through
the expiration date stated in Paragraph 1, or such later
date as may have been mutually agreed to by the parties.
Confidential Treatment is requested for portions of this
document.
4
Company may, in its discretion, provide the benefits described herein
under the Company's group plans or under no less favorable insurance contracts
or arrangements secured by the Company. For purposes of Title X of the
Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the
"qualifying event" for Xxxx and his dependents shall be the expiration date
stated in Paragraph 1. Company's obligations to provide the benefits described
herein shall cease if Xxxx and his dependents become covered under another
employer's group medical, dental, short-term disability, long-term disability or
life insurance plans that provide Xxxx and his dependents with comparable
benefits and levels of coverage.
(iii) Portion of EPS Enhancement Incentive for
Current Fiscal Year. Within thirty (30) days after the
effective date of Xxxx'x termination of employment, Xxxx
shall receive a lump-sum cash payment for a portion of
the EPS Enhancement Incentive which he could have earned
for the fiscal year in which his employment terminates.
Such portion shall be based on the cumulative monthly
earning per share for such fiscal year through the end of
the month coinciding with or immediately preceding the
effective date of Xxxx'x termination of employment as
reported in Company's interim financial statements. For
purposes of determining such portion of the EPS
Enhancement Incentive, the [ * ] and [ * ] thresholds
described in Paragraph 3(c) shall be pro rated for the
number of months counted in such cumulative monthly
earning per share, rounded down to the nearest cent.
Exhibit A sets forth an example of how the payments
required under this Paragraph 5(a)(iii) shall be
calculated, but such Exhibit A shall not, in any manner,
limit the application of this Paragraph 5(a)(iii).
(iv) Average Annual and EPS Enhancement
Incentives. Within (30) days after the effective date of
Xxxx'x termination of employment, Xxxx shall receive a
lump-sum cash payment equal to three times the sum of (A)
the monthly average of the EPS Enhancement Incentive
described in Paragraph 3(c) which Xxxx may have earned
for each fiscal year or portion thereof during the term
of this Agreement, including the fiscal year in which
Xxxx'x termination of employment occurs, multiplied by
twelve, and (B) the monthly average of all other annual
incentive compensation described in paragraph 3(b) which
Xxxx may have earned for each fiscal year or portion
thereof during the term of this Agreement, including the
fiscal year in which Xxxx'x termination of employment
occurs, multiplied by twelve. Exhibit A sets forth an
example of how the payments required under this Paragraph
4(a)(iv) shall be calculated, but such Exhibit A shall
not, in any manner, limit the application of this
Paragraph 5(a)(iv).
(v) Acceleration of Stock Options.
Notwithstanding anything in the applicable stock option
plan and successor plan, or stock option agreement to the
contrary, upon the effective date of Xxxx'x termination
of employment, one hundred (100%) of the unvested portion
of any stock option or restricted stock award held by
Xxxx shall automatically be accelerated in full so as to
become fully vested, subject to the restrictions relating
to "pooling-of-interests" accounting treatment
5
Confidential Treatment is requested for portions of this document.
contained in Section 3(a)(i)(3) of the Management Retention
Agreement entered into by Xxxx and the Company on
7/1, 1999, if applicable.
b. Termination Upon Disability. If Xxxx'x employment with the
Company is terminated on account of disability at any time during
the term of this Agreement, Xxxx shall be entitled to the
following additional benefits:
(i) Benefits. Company shall continue to provide, at no cost to
Xxxx, medical, dental and life insurance benefits for Xxxx and his
dependent as stated in Paragraph 1, or such later date as may have
been mutually agreed to by the parties, at the same level of
coverage as was provided to Xxxx immediately in writing prior to
the termination of his employment.
Company may, in its discretion, provide the benefits described herein
under the Company's group plans or under no less favorable insurance contracts
or arrangements secured by the Company. For purposes of Title X of the
Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the
"qualifying event" for Xxxx and his dependents shall be the end of the
twenty-four month period following the effective date of Xxxx'x termination of
employment. Company's obligations to provide the benefits described herein shall
cease if Xxxx and his dependents become covered under another employer's group
medical, dental or life insurance plans that provide Xxxx and his dependents
with comparable benefits and levels of coverage.
(ii) Portion of EPS Enhancement Incentive for Current Fiscal
Year. Within thirty (30) days after the effective date of Xxxx'x
termination of employment on accoupt of disability, Xxxx shall
receive a lump-sum cash payment for a portion of the EPS
Enhancement Incentive which he could have earned for the fiscal
year in which his employment terminates. Such portion shall be
based on the cumulative monthly earning per share for such fiscal
year through the end of the month coinciding with or immediately
preceding the effective date of Xxxx'x termination of employment,
as reported in Company's interim financial statements. For
purposes of determining such portion of the EPS Enhancement
Incentive, the [ * ] and [ * ] thresholds described in Paragraph
3(c) shall be pro rated for the number of months counted in such
cumulative monthly earnings per share, rounded down to the nearest
cent.
c. Definitions.
(i) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by Xxxx in connection with his duties and
responsibilities as President and Chief Executive Officer and
intended to result in substantial personal enrichment of Xxxx,
(ii) Xxxx'x conviction of a felony or (iii) a willful act by Xxxx
which constitutes gross misconduct and which is injurious to the
Company.
6
Confidential Treatment is requested for portions of this document.
(ii) Disability. "Disability" shall have the same meaning as
set forth in the long-term disability insurance contract referred
to in Paragraph 3(d).
(iii) Involuntary Termination. "Involuntary termination" shall
mean:
(A) without Xxxx'x express written consent, the
significant reduction of Xxxx'x duties, authority or
responsibilities, relative to his duties, authority or
responsibilities as in effect immediately prior to such reduction,
or the assignment to Xxxx of such reduced duties, authority or
responsibilities;
(B) without Xxxx'x express written consent, a substantial
reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to
Xxxx immediately prior to such reduction;
(C) a reduction by Company in Xxxx'x base salary as in
effect immediately prior to such reduction;
(D) reduction by Company in the kind of level of employee
benefits, including bonuses, to which Xxxx was entitled
immediately prior to such reduction with the result that Xxxx'x
overall benefits package is significantly reduced; a material
(E) Xxxx'x relocation to a facility or a location more
than thirty five (35) miles from Xxxx'x then present location,
without Xxxx'x express written consent;
(F) any purported termination of Xxxx by Company which is
not effected for disability or for cause, or any purported
termination for which the grounds relied upon are not valid;
(G) the failure of Company to obtain the assumption of
this Agreement by any successors contemplated in Paragraph 8
below; or
(H) any act or set of facts or circumstances which would,
under California case law or stature constitute a constructive
termination of Xxxx.
6. Covenant Not to Compete. In consideration of Xxxx'x employment
hereunder and other good and valuable consideration, and in consideration of the
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, all of which are express payments for the obligations set forth in
this Paragraph 6, Xxxx agrees that, during his employment and for a period of
two (2) years after the termination of the Agreement, he will not, directly or
indirectly, engage in (whether as an employee, consultant, proprietor, partner,
director or otherwise), have any ownership interest in, or participate in the
financing, operation,
7
Confidential Treatment is requested for portions of this document.
management or control of any firm, corporation or business that engages in or
intends to engage in business that is in direct competition with the Company's
principal business (as defined and discussed in Company's documents filed with
the Securities Exchange Commission); provided, however, that nothing contained
herein shall prevent Xxxx from owning or purchasing securities of any business
entity whose securities are regularly traded n any national securities exchange
or in the over-the-counter market if such ownership does not result in his or
his affiliates' owning directly or beneficially at any time five percent (5%)
of the voting securities of any corporation engaged in any business competitive
to the business then carried on by Company.
7. Remedies. The restriction contained in paragraph 6 is necessary for
Company's protection, and any breach thereof will cause Company irreparable
damage for which there is not adequate remedy at law. Xxxx agrees that, in the
event of such breach, Company shall, in addition to any other remedy which
Company may have at law or in equity, be entitled to seek such equitable and
injunctive relief as may be available without the necessity of proving damages.
Company agrees that, in the event of a breach of this Agreement by Company, Xxxx
shall have all such remedies as may be available at law or in equity.
8. Successors.
a. Company's Successors. Any successor to Company (whether direct
or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of Company's business and/or
assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same
manner obligations in the absence of a succession. For all purposes
under this Agreement, the term "Company" shall include any successor to
the Company's business and/or assets which executes and delivers the
assumption agreement contemplated by this Paragraph 8(a) or which
becomes bound by the terms of this Agreement by operation of law.
b. Employee's Successors. The terms of this agreement and all of
Xxxx'x hereunder shall inure to the benefit of, and be enforceable by,
Xxxx'x personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of Xxxx, mailed notices shall
be addressed to him at the home address which he most recently communicated to
Company in writing. In the case of Company, mailed notices shall be addressed to
its corporate headquarters, and all notices shall be directed to the attention
of its Secretary.
8
Confidential Treatment is requested for portions of this document.
10. Coordination of Agreements. In the event of any conflict between
this Agreement and the Management Retention Agreement entered into by Xxxx and
Company on 7/1/99, the terms of this Agreement shall control.
11. Miscellaneous Provisions.
a. No Duty to Mitigate. Xxxx shall not be required to mitigate the
amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earning that Xxxx may receive from any other
source.
b. Amendment; Waiver. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or
discharge is agreed to in writing and signed by Xxxx and by an
authorized officer of Company (other than Xxxx). No waiver by either
party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a
waiver of any other condition or provision or of the same condition or
provision at any other time.
c. Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
This Agreement supersedes in their entirety any prior or contemporaneous
agreements, whether written, oral, express, or implied, relation to the
subject matter hereof.
d. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State
of California.
e. Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall remain in
full force and effect.
f. Withholding. All payments made pursuant to this Agreement will
be subject to the withholding of all applicable federal, state or local
income and employment taxes.
g. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together
will constitute one and the same instrument.
9
Confidential Treatment is requested for portions of this document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
COMPANY: XXXX MICROPRODUCTS INC.
Its: Director X.X. Gelbock
----------------------------
Dated: 7/12/99
--------------------------
/s/ W. Xxxxxx Xxxx
XXXX: --------------------------------
W. Xxxxxx Xxxx
Dated: 6/30/99
--------------------------
10
Confidential Treatment is requested for portions of this document.
EXHIBIT A
This Exhibit A sets forth an example of how the payments required under
Paragraphs 5(a)(iii) and 5(a)(iv) should be calculated, but shall not, in any
manner, limit the application of such provisions.
Example: Assume that Xxxx is terminated on June 30, 1999. Company's
earnings per share ("EPS") for FY 1999 are as follows:
First Quarter [*]
Second Quarter [*]
Third Quarter [*]
Fourth Quarter [*]
During FY 1999, Xxxx earned the following incentive bonuses:
First Quarter [*]
Second Quarter [*]
1. Paragraph 5(a)(iii)/EPS Enhancement Incentive for 1999.
Cumulative Monthly EPS: [*]
Pro Rata Threshold: [*]
EPS Enhancement
Incentive for 1999: [*]
2. Paragraph 5(a)(Civ)/Average Annual and EPS Enhancement Incentives.
(A) EPS Enhancement Incentive
Monthly Average EPS: [*] [*]
Average Annual EPS: [*] [*]
Three-Year Payout: [*] [*]
A-1
Confidential Treatment is requested for portions of this document.
(B) Other Incentive Bonuses:
Monthly Average
Incentive Bonus: [*]
Average Annual Bonus [*]
Three-Year Payout: [*]
Total Payout equals the sum of (A) and (B): [*]
