Exhibit 10
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is made and entered into
effective as of October 17, 1997 (the "Effective Date"), by and between
XXXXXXX X. XXXX, an individual, whose address is 0000 Xxxx Xxxxxx Xxxxxxxxx,
Xxxxxx, Xxxxxxxxxx 00000 (the "Employee"), and STATE OF THE ART, INC., a
California corporation, of 00 Xxxx Xxxxxxxxxx Xxxxx, Xxxxxx, Xxxxxxxxxx 00000-
2301 (the "Company").
RECITALS
A. It is expected that the company may from time to time consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee
to consider alternative employment opportunities. The Board has determined
that it is in the best interests of the Company and the Company's shareholders
to assure that the Company will have the continued dedication and objectivity
of the Employee, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its shareholders.
C. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon the Employee's termination of employment
following a Change of Control or otherwise which provides the Employee with
enhanced financial security and provides efficient incentive and encouragement
to the Employee to remain with the Company notwithstanding the possibility of
a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 6
below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Employee in the position of
Vice President of Marketing, with such duties, responsibilities and
compensation as in effect as of the Effective Date; provided, however, that
the Board or the Chief Executive Officer of the Company (the "CEO") shall
have the right to revise such responsibilities and compensation from time
to time as the Board or the CEO may deem necessary or appropriate. If any
such revision constitutes "Involuntary Termination" as defined in this
Agreement, the Employee shall be entitled to benefits upon such Involuntary
Termination as provided under this Agreement.
(b) Obligations. The Employee shall devote his full business efforts and
time to the Company and its subsidiaries. The foregoing, however, shall not
preclude the Employee from engaging in such activities and services as do
not interfere or conflict with his responsibilities to the Company.
2. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement. The terms of this
Agreement shall terminate upon the earlier of (i) the date that all
obligations of the parties hereunder have been satisfied or (ii) two years
after the Effective Date; provided, however, that until such time as notice of
non-renewal or termination of this Agreement is given by either the Company or
the Employee to the other, beginning one year after the Effective Date, this
Agreement shall automatically be extended by one month effective as of the end
of each month so that the remaining outstanding
term of the Agreement is approximately one year; provided further that in no
event shall the term of this Agreement be so extended to a date more than five
years after the Effective Date. Notwithstanding the foregoing, this Agreement
may be extended for an additional period or periods by mutual written
agreement of the Company and the Employee. A termination of the terms of this
Agreement pursuant to the preceding sentence shall be effective for all
purposes, except that such termination shall not affect the payment or
provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement.
3. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the Employee as compensation
for services a base salary at the annualized rate of One Hundred Fifty
Thousand Dollars ($150,000.00). Such salary shall be reviewed at least
annually and shall be adjusted from time to time. Such salary shall be paid
periodically in accordance with normal Company payroll. The annual
compensation specified in this Section 3(a), as adjusted from time to time,
is referred to in this Agreement as "Base Compensation."
(b) Bonus. Beginning with the Company's current fiscal year and for each
fiscal year thereafter during the term of this Agreement, the Employee
shall be eligible to receive an annual bonus (the "Bonus") based upon an
earnings target approved by the Board (the "Target Bonus"). The Bonus
payable hereunder shall be payable in accordance with the Company's normal
practices and policies.
(c) Employee Benefits. The Employee shall be eligible to participate in
the employee benefit plans and executive compensation programs maintained
by the Company of general applicability to other key executives of the
Company, including (without limitation) retirement plans, savings or
profit-sharing plans, deferred compensation plans, supplemental retirement
or excess-benefit plans, stock option, incentive or other bonus plans,
life, disability, health, accident and other insurance programs, paid
vacations, and similar plans or programs, subject in each case to the
generally applicable terms and conditions of the plan or program in
question and to the determination of the Board or any committee or Company
employee administering such plan or program.
4. Severance Benefits.
(a) Termination Following A Change of Control. If the Employee's
employment with the Company terminates at any time within twelve (12)
months after a Change of Control, then, subject to Section 5, the Employee
shall be entitled to receive severance benefits as follows:
(i) Involuntary Termination. If the Employee's employment terminates
as a result of Involuntary Termination other than for Cause, then the
Company shall pay the Employee within ten (10) business days after the
Termination Date a lump sum amount equal to twelve (12) months Base
Compensation of the Employee at the time of such termination (without
giving effect to any reduction in Base Compensation that resulted in
such Involuntary Termination). In addition, the Employee shall be
entitled to a payment of a pro-rata portion of the Target Bonus
determined by multiplying the Target Bonus by a fraction, the numerator
of which shall be the number of days in which the Employee was employed
by the Company in the fiscal year in which such termination occurs, and
the denominator of which shall be the number of days in such fiscal
year, such payment to be made in a lump sum within ten (10) business
days after the Termination Date.
(ii) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation
(and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to
receive severance or other benefits except for those (if any) as may
then be established (and applicable) under the Company's then existing
severance and benefits plans and policies at the time of such
termination.
(iii) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or such Employee's
employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established (and applicable)
under the Company's then existing severance and benefits plans and
policies at the time of such Disability or death.
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(b) Benefits; Misc. In the event the Employee is entitled to severance
benefits pursuant to subsection 4(a)(i), then in addition to such severance
benefits, the Employee shall receive 100% Company-paid health, dental and
life insurance coverage as provided to such employee immediately prior to
the Employee's termination (the "Company-Paid Coverage"). If such coverage
included the Employee's dependents immediately prior to the Employee's
termination, such dependents shall also be covered at Company expense.
Company-Paid Coverage shall continue for twelve (12) months following
termination until (and to the extent) the Employee becomes covered under
another employer's group health, dental or life insurance plan. In
addition, (i) the Company shall pay the Employee any unpaid base salary due
for periods prior to the Termination Date; (ii) the Company shall pay the
Employee all of the Employee's accrued and unused vacation through the
Termination Date; and (iii) following submission of proper expense reports
by the Employee, the Company shall reimburse the Employee for all expenses
reasonably and necessarily incurred by the Employee in connection with the
business of the Company prior to termination. These payments shall be made
promptly upon termination and within the period of time mandated by law.
(c) Options. In the event the Employee is entitled to severance benefits
pursuant to subsection 4(a)(i), upon such termination, in addition to any
portion of the Employee's stock options that were exercisable immediately
prior to such termination, such options shall immediately become
exercisable as to an additional amount as though the Employee had remained
continuously employed for a period of thirty-six (36) months following such
termination, for the period prescribed in such option plans.
5. Limitation on Payments and Benefits.
(a) Limitation. To the extent that any of the payments and benefits
provided for in this Agreement constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code (the "Code") and, but
for this Section 5, would be subject to the excise tax imposed by Section
4999 of the Code, the aggregate amount of such payments and benefits shall
be reduced such that the present value thereof (as determined under the
Code and applicable regulations) is equal to 2.99 times Employee's "base
amount" (as defined in the Code).
(b) Company Notice. Within thirty (30) days after the later of
Termination or the related Change of Control, the Company shall notify
Employee in writing if it believes that any reduction in the payments and
benefits that would otherwise be paid or provided to the Employee under the
terms of this Agreement is required to comply with the provisions of
Section 5(a) hereof. If the Company determines that any such reduction is
required, it will provide Employee with copies of the information used and
calculations made by the Company to determine the amount of such reduction.
(c) Employee Response; Dispute Resolution. Within thirty (30) days after
the Employee's receipt of the Company's notice pursuant to Section 5(b)
hereof, Employee shall notify the Company in writing if Employee disagrees
with the amount of reduction determined by the Company. As part of such
notice, Employee shall also advise the Company of the amount of reduction,
if any, that Employee has, in good faith, determined to be necessary to
comply with the provisions of Section 5(a) hereof. Failure by Employee to
provide this notice within the time allowed will be treated as acceptance
by Employee of the amount of reduction determined by the Company. If any
differences regarding the amount of the reduction have not been resolved by
mutual agreement within sixty (60) days after Employee's receipt of the
Company's notice pursuant to Section 5(b) hereof, the amount of reduction
determined by Employee will be conclusive and binding on both parties
unless, prior to the expiration of such sixty (60) day period, the Company
notifies Employee in writing of the Company's intention to have the matter
submitted to arbitration for resolution and proceeds to do so promptly. If
the Company gives not notice to Employee of a required reduction as
provided in Section 5(b) hereof, Employee may unilaterally determine the
amount of reduction required, if any, and, upon written notice to the
Company, that amount will be conclusive and binding on both parties.
(d) Determination of Payments Reduced. If a reduction in the payments and
benefits that xxxx otherwise be paid or provided to Employee under the
terms of this Agreement is necessary to comply with the provisions of
Section 5(a) hereof, Employee shall be entitled to select which payments or
benefits will be reduced (so long as the requirements of Section 5(a)
hereof are met). Within thirty (30) days after the
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amount of any required reduction in payments and benefits is finally
determined in accordance with the provisions of Section 5(c) hereof,
Employee will notify the Company in writing regarding which payments or
benefits are to be reduced. If no notification is given by Employee, the
Company will determine which amounts to reduce. If, as a result of the
reductions required by Section 5(a) hereof, the amounts previously paid to
Employee exceed the amount to which Employee is entitled, Employee will
promptly return the excess amount to the Company. In the event such excess
amount (or any portion thereof) is determined (by a final determination by
the IRS or a court decision or a binding agreement with the IRS) to be
subject to the excise tax imposed by Section 4999 of the Code
notwithstanding the return of such excess amount (or portion thereof) to
Employee. The Company shall have no obligation (as between Employee and the
Company) to pay any excise tax imposed on Employee by Section 4999 of the
Code with respect to any payments and benefits provided in this Agreement
which constitute "parachute payments" within the meaning of Section 280G of
the Code (other than to the extent the Company has withheld any such
amounts).
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Cause. "Cause" shall mean:
(i) Employee's continued failure to substantially perform his duties
or responsibilities hereunder for a period of 30 days after notice
thereof from the Board of Directors or Chief Executive Officer of the
Company to Employee setting forth in reasonable detail the respects in
which the Company believes Employee has not substantially performed his
duties or responsibilities hereunder;
(ii) Employee personally engaging in wrongful or illegal conduct
which is injurious to the Company or its affiliates;
(iii) Employee being convicted of a felony, or committing an act of
dishonesty or fraud against, or the misappropriation of property
belonging to, the Company or its affiliates;
(iv) The performance by Employee of those acts identified in Section
2924 of the California Labor Code;
(v) Employee breaching in any material respect the terms of this
Agreement (or any other agreement with the Company);
(vi) Employee's commencement of employment with another employer
while he is an employee of the Company.
(b) Change of Control. "Change of Control" shall mean the occurrence of
any of the following events:
(i) Any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing
30% or more of the total voting power represented by the Company's then
outstanding voting securities; or
(ii) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the
Company as of the date hereof, or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the affirmative
votes of at least a majority of the Incumbent Directors at the time of
such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent
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(50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all the
Company's assets (other than to a subsidiary or subsidiaries).
(c) Disability. "Disability" shall mean that the Employee has been or
will be unable to perform his duties under this Agreement for a period of
three or more months due to illness, accident or other physical or mental
incapacity.
(d) Involuntary Termination. "Involuntary Termination" shall mean:
(i) the continued assignment to Employee of any duties or the
continued significant reduction of Employee's duties, either of which
is substantially inconsistent with the level of Employee's position
with the Company, for a period of 30 days after notice thereof from
Employee to the Chief Executive Officer of the Company setting forth in
reasonable detail the respects in which Employee believes such
assignments or duties are substantially inconsistent with the level of
Employee's position;
(ii) a material reduction in Employee's salary, other than any such
reduction which is part of, and generally consistent with, a general
reduction of officer salaries;
(iii) a material reduction by the Company in the kind or level of
employee benefits (other than salary and bonus) to which Employee is
entitled immediately prior to such reduction with the result that
Employee's overall benefits package (other than salary and bonus) is
substantially reduced (other than any such reduction applicable to
officers of the Company generally);
(iv) the relocation of Employee's principal place for the rendering
of the services to be provided by him hereunder to a location more than
fifty (50) miles from the present location of the principal executive
office of the Company; or
(v) any material breach by the Company of any material provision of
this Agreement which continues uncured for 30 days following notice
thereof;
provided that none of the foregoing shall constitute Involuntary Termination
to the extent Employee has agreed thereto.
(e) Termination Date. "Termination Date" shall mean (i) if the Employee's
employment is terminated by the Company for Disability, thirty (30) days
after notice of termination is given to the Employee (provided that the
Employee shall not have returned to the performance of the Employee's
duties on a full-time basis during such thirty (30) day period), (ii) if
the Employee's employment is terminated by the Company for any other
reason, the date on which a notice of termination is given, or (iii) if the
Agreement is terminated by the Employee, the earlier of: (A) the date on
which the Employee delivers the notice of termination to the Company, or
(B) the date of the Company's confirmation of the Employee's resignation
given orally or by conduct.
7. Successors.
(a) Company's Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the 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 and to the same extent as the Company would be required to perform
such 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 described in this subsection (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 rights of
the Employee shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
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8. Notice.
(a) General. 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 the
Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) Notice of Termination. Any termination by the Company for Cause or by
the Employee as a result of an Involuntary Termination shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 8 of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify
the termination date (which shall be not more than 30 days after the giving
of such notice). In the event of a voluntary resignation by Employee not
communicated by Employee in writing, the Company shall confirm the
Company's acceptance of the Employee's resignation by written notice given
to Employee within two business days from the date of the Employee's tender
of his or her resignation. Absent exceptional circumstances rendering
Employee unable to respond, the Employee's failure to give written notice
to the Company disputing the Company's confirmation of the resignation,
within five business days from the date of the Company's notice to
Employee, shall be deemed conclusive evidence that Employee has resigned.
Any dispute regarding whether Employee's resignation was a voluntary
resignation shall be subject to resolution exclusively by binding
arbitration as provided in this Agreement. This section shall only apply
during the 12 months following a Change of Control.
9. Arbitration. At the option of either party, any and all disputes or
controversies whether of law or fact and of any nature whatsoever arising from
or respecting this Agreement shall be decided by arbitration by the American
Arbitration Association in accordance with the rules and regulations of that
Association. By entering into this Agreement, the Company and the Employee
expressly waive any right to (1) a jury trial of any dispute or controversy
subject to arbitration under this Agreement; (2) any award of punitive
damages; and (3) judicial review of any arbitration award hereunder, except to
the extent expressly provided by this Agreement.
The arbitrator shall be selected as follows: In the event the Company and
the Employee agree on one arbitrator, the arbitration shall be conducted by
such arbitrator. In the event the Company and the Employee do not so agree,
the Company and the Employee shall each select one independent, qualified
arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing
organization.
Arbitration shall take place in Orange County, California, or any other
location mutually agreeable to the parties. At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy; in such case
all documents, testimony and records shall be received, heard and maintained
by the arbitrators in secrecy under seal, available for the inspection only of
the Company or the Employee and their respective attorneys and their
respective experts who shall agree in advance and in writing to receive all
such information confidentially and to maintain such information in secrecy
until such information shall become generally known. The arbitrator, who shall
act by majority vote, shall be able to decree any and all relief of an
equitable nature, including but not limited to such relief as a temporary
restraining order, a temporary and/or a permanent injunction, and shall also
be able to award damages, with or without an accounting and costs, provided
that punitive damages shall not be awarded. The decree or judgment of an award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
The arbitrator's authority shall be limited to considering and deciding
disputes or controversies arising from or respecting this Agreement, and to
awarding relief specifically provided for by Sections 3 and 4 of this
Agreement. The arbitrator shall not have authority to alter or waive
provisions of this Agreement, to award relief not expressly permitted by this
Agreement, or to modify existing policies or procedures of the Employer. The
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arbitrator's decision shall be in writing and shall set forth the facts and
reasons supporting it. The arbitrator shall not have the power to commit
errors of law or legal reasoning, and the award may be vacated or corrected
pursuant to California Code of Civil Procedure section 1286.2 or 1286.6 for
any such error. The arbitrator's decision/award shall be final and binding on
all parties.
Reasonable notice of the time and place of arbitration shall be given to all
persons, other than the parties, as shall be required by law, in which case
such persons or those authorized representatives shall have the right to
attend and/or participate in all the arbitration hearings in such manner as
the law shall require.
10. Miscellaneous Provisions.
(a) 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 the Employee or by an authorized officer of the
Company (other than the Employee). 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 another time.
(b) 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.
(c) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, notwithstanding choice of law rules.
(d) Severability. The invalidity or unenforceablity 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.
(e) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment
or other creditor's process, and any action in violation of this subsection
shall be void.
(f) Employment Taxes. All payments made pursuant to this Agreement will
be subject to withholding of applicable income and employment taxes.
(g) Assignment by Company. The Company may assign its rights under this
Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of
assignment. In the case of any such assignment, the term "Company" when
used in a section of this Agreement shall mean the corporation that
actually employs the Employee.
(h) 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.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY: Statue of the Art, Inc.
By: /s/ Xxxxx X. Xxxxx
-----------------------------------
Xxxxx X. Xxxxx
President & Chief Executive Officer
EMPLOYEE: Xxxxxxx X. Xxxx
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Xxxxxxx X. Xxxx
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