Executive Incentive, Change of Control Retention and Severance Agreement
Executive
Incentive, Change of Control Retention and Severance
Agreement
This
Executive Incentive, Change of Control Retention and Severance Agreement
(the
"Agreement")
is
made and entered into as of August 19, 2008 (the "Effective
Date"),
by
and between Solar Enertech Corp. (“Company”)
and
Xxx
X. Xxxxx (the "Executive").
Capitalized terms used in this Agreement shall have the meanings set forth
in
Section 5 below.
1. Purpose.
The
purpose of this Agreement is to encourage Executive to remain in the employ
of
the Company and to continue to devote Executive's full attention to the success
of the Company including in the event of a Change of Control, as such term
is
defined in Section 5 of this Agreement.
2. Compensation
2.1
Base
Salary.
The
Company plans to increase base salary for the Executive in relation to
improvements in the operating and financial performance of the Company
consistent with the forecasts and plans agreed upon between the Board of
Directors and the Executive. For the Fiscal Year 2009, contingent on achievement
of certain operating and financial metrics to be agreed upon between the
Board
of Directors and the Executive, the base salary is planned to increase as
follows:
Current
base salary: $200,000 per annum
January
2009 base salary: $250,000 per annum
For
the
Fiscal Year 2010, assuming fiscal 2009 performance metrics were met and
contingent on achievement of certain operating and financial metrics to be
agreed upon between the Board of Directors and the Executive, the base salary
is
planned to increase as follows:
January
2010 base salary: $300,000 per annum
In
the
event fiscal 2009 performance metrics are not met, the parties agree to revisit
appropriate adjustments to this Section 2.1.
2.2
Stock
Options.
Contingent on achievement of certain operating and financial metrics to be
agreed upon between the Board of Directors and the Executive, the Company
plans
to award (subject to Board approval) options to purchase up to 1.5 million
shares of the Company’s common stock to Executive. Any grants shall become
fully vested twelve (12) months after the date of grant if the Executive
is
currently employed by the Company. The exercise price shall be equal to the
market price of the Company’s common stock on the date of the grant and shall be
exercisable until the earlier of (a) the third (3rd)
anniversary of the date of vesting and (b) sixty (60) days from the date
at
which the Executive ceases to be employed by the Company.
2.3
Personal
Travel to USA.
The
Company will provide 2 weeks of paid vacation for each 6 month period of
employment under this Agreement and the Company will pay for round trip business
class airfare to/from China and the United States for the either the Executive
or his spouse.
3. Severance
for reasons other than Cause.
In the
event of Executive’s involuntary severance from service for reasons other than
Cause, or due to the event of a Diminution of Responsibilities, then, provided
that Executive complies with Section 7 below prior to the forty-fifth
(45th)
day
following such termination, Executive shall receive a lump sum cash payment
in
an amount equal to eighteen (18) months of Executive's then effective base
salary (less applicable withholding), paid on the first payroll date which
is
forty-five (45) days after the date of termination.
4. Termination
Upon Change of Control.
The
provisions set forth in this Section 4 shall apply in lieu of those in
Section 3 in the event of the Executive’s Termination Upon a Change of
Control. In the event of Executive's Termination Upon a Change of Control,
Executive shall receive the following payments and benefits:
4.1
Accrued
Salary and Vacation, and Benefits.
Executive shall receive all salary and accrued vacation (less applicable
withholding) earned through Executive's termination date, and the benefits,
if
any, under Company benefit plans to which Executive may be entitled pursuant
to
the terms of such plans.
4.2
Stock
Award Acceleration.
Provided that Executive complies with Section 7 below, all outstanding stock
options granted and restricted stock issued by the Company to Executive prior
to
the Change of Control shall become fully vested and exercisable immediately
prior to the effective date of the Termination Upon a Change of Control.
4.3
Cash
Severance Payment.
Provided that Executive complies with Section 7 below prior to the forty-fifth
(45th)
day
following such termination, Executive shall receive a lump sum cash payment
in
an amount equal to eighteen (18) months of Executive's then effective base
salary (less applicable withholding), paid on the first payroll date which
is
forty-five (45) days after the date of termination.
5. Definitions. Capitalized
terms used in this Agreement shall have the meanings set forth in this Section
5.
5.1
"Cause"
means
Executive's (a) failure to perform any reasonable and lawful duty of Executive's
position or failure to follow the lawful written directions of the Board
of
Directors; (b) commission of an act that constitutes misconduct and is injurious
to the Company or any subsidiary; (c) conviction of, or pleading "guilty"
or "no
contest" to, a felony under the laws of the United States or any state thereof;
(d) committing an act of fraud against, or the misappropriation of property
belonging to, the Company or any subsidiary; (e) commission of an act of
dishonesty in connection with Executive's responsibilities as an employee
and
affecting the business or affairs of the Company; (f) material breach of
any
confidentiality, proprietary information or other agreement between Executive
and the Company or any subsidiary; or (g) failure or refusal to carry out
the
reasonable directives of the Board of Directors.
5.2
"Change
of Control"
means
(a) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")),
other than a trustee or other fiduciary holding securities of the Company
under
an employee benefit plan of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of (A)
the outstanding shares of common stock of the Company or (B) the combined
voting
power of the Company's then outstanding securities; (b) the Company is
party to a merger or consolidation which results in the voting securities
of the
Company outstanding immediately prior thereto failing to continue to represent
(either by remaining outstanding or by being converted into voting securities
of
the surviving or another entity) at least fifty (50%) percent of the combined
voting power of the voting securities of the Company or such surviving or
other
entity outstanding immediately after such merger or consolidation; (c) the
sale
or disposition of all or substantially all of the Company's assets (or
consummation of any transaction having similar effect); or (d) the dissolution
or liquidation of the Company.
5.3
"Company"
means
Solar Enertech Corp. and any successor or assign to substantially all the
business and/or assets of Solar Enertech Corp.
5.4
"Diminution
of Responsibilities"
means
the occurrence of any of the following conditions, without Executive's written
consent which condition(s) remain(s) in effect twenty (20) days after receipt
by
Company from the Executive of a written notice to: (a) a significant diminution
in the nature or scope of Executive's authority, title, function or duties
from
Executive's authority, title, function or duties; (b) a ten percent (10%)
reduction in Executive's base salary or a twenty-five percent (25%) reduction
in
Executive's target bonus opportunity, if any (in either case, unless such
reduction is part of a Company officer-wide program to reduce expenses);
(c) the
Company's requiring Executive to be based at any office or location more
than 50
miles from the office where Executive was employed; (d) any material breach
of
the terms of this Agreement by the Company; or (e) failure of any successor
or
assignee to the Company to assume this Agreement. Notwithstanding the foregoing,
the Executive’s continued employment for ninety (90) days following the
occurrence of any condition constituting “Diminution of Responsibilities”
without the Executive providing written notice to the Company shall constitute
consent to, or a waiver of right with respect to, such condition.
5.5
"Termination
Upon a Change of Control"
means:
(a)
any
involuntary severance from service of Executive by the Company without Cause
within twelve (12) months following a Change of Control; or
(b)
any
resignation by Executive based on a Diminution of Responsibilities where
(i)
such Diminution of Responsibilities occurs within twelve (12) months following
the Change of Control, and (ii) such resignation occurs within ninety (90)
days
following such Diminution of Responsibilities. The diminution shall be measured
as against existing responsibilities as in effect immediately preceding any
Change of Control; provided, that a reduction of Executive’s duties, position or
responsibilities by an acquirer of the Company immediately upon a Change
of
Control to a relatively comparable position taking into account the relative
size and geographical scope of the Company as compared to the acquirer shall
not
be deemed a significant reduction in and of itself.
6. Federal
Excise Tax.
If the
payments and benefits provided for in this Agreement constitute "parachute
payments" within the meaning of the Internal Revenue Code of 1986, as amended
(the "Code"),
but
for this Section 6, would be subject to the excise tax imposed by Section
4999
of the Code, then the payments and benefits under this Agreement will be
payable, at Executive's election, either in full or in such lesser amount
as
would result, after taking into account the applicable federal, state and
local
income taxes and excise tax imposed by Section 4999 of the Code, in Executive's
receipt on an after-tax basis of the greatest amount of benefits.
7. Release
of Claims.
The
Company shall condition the payments and benefits set forth in Sections 3;
4.2
and 4.3 of this Agreement upon the delivery by Executive of a signed release
of
claims in a form satisfactory to the Company. With respect to the payments
provided pursuant to Sections 3 and 4.3, such Release must become effective
in accordance with its terms prior to the forty-fifth (45th)
day
following the termination date.
8. Agreement
Not to Solicit.
If
Company performs its obligations to deliver the severance compensation set
forth
in Sections 3 and 4 of this Agreement, then for a period of one (1) year
after
Executive's termination of employment, Executive will not solicit any employee
of the Company to discontinue that person's employment relationship with
the Company.
9. Arbitration.
Any
claim, dispute or controversy arising out of this Agreement, the interpretation,
validity or enforceability of this Agreement or the alleged breach thereof
shall
be submitted by the parties to binding arbitration by the American Arbitration
Association. The site of the arbitration proceeding shall be in Santa Xxxxx
County, California, or another location mutually agreed to by the parties.
10. Conflict
in Benefits; Effect of Agreement.
This
Agreement shall supersede all prior arrangements, whether written or oral,
and
understandings regarding incentive compensation and severance compensation
following a Change of Control and shall be the exclusive agreement for the
determination of any severance compensation due upon Executive's termination
of
employment upon a Change of Control.
11. Miscellaneous.
11.1
Successors
of the Company.
The
Company will require any successor or assign (whether direct or indirect,
by
purchase, merger, consolidation or otherwise) to all or substantially all
of the
business and/or assets of the Company, expressly, absolutely and unconditionally
to assume and agree to perform this Agreement in the same manner and to the
same
extent that the Company would be required to perform it if no such succession
or
assignment had taken place.
11.2
No
Employment Agreement.
This
Agreement does not alter Executive's at-will employment status or obligate
the
Company to continue to employ Executive for any specific period of time,
or in
any specific role or geographic location.
11.3
Modification
of Agreement.
This
Agreement may be modified, amended or superseded only by a written agreement
signed by Executive and the Chairman of the Board of Directors.
11.4
Governing
Law.
This
Agreement shall be interpreted in accordance with and governed by the laws
of
the State of California.
11.5
Application
of Section 40A.
(a) Notwithstanding
anything set forth in this Agreement to the contrary, no amount payable pursuant
to this Agreement which constitutes a “deferral of compensation” within the
meaning of the Treasury Regulations issued pursuant to Section 409A of the
Code
(the “Section 409A Regulations”) shall be paid unless and until Executive has
incurred a “separation from service” within the meaning of the Section 409A
Regulations. Furthermore, to the extent that Executive is a “specified employee”
within the meaning of the Section 409A Regulations as of the date of Executive’s
separation from service, no amount that constitutes a deferral of compensation
which is payable on account of Executive’s separation from service shall paid to
Executive before the date (the “Delayed Payment Date”) which is first day of the
seventh month after the date of Executive’s separation from service or, if
earlier, the date of Executive’s death following such separation from service.
All such amounts that would, but for this Section, become payable prior to
the
Delayed Payment Date will be accumulated and paid on the Delayed Payment
Date.
(b) The
Company intends that income provided to Executive pursuant to this Agreement
will not be subject to taxation under Section 409A of the Code. The provisions
of this Agreement shall be interpreted and construed in favor of satisfying
any
applicable requirements of Section 409A of the Code. However,
the Company does not guarantee any particular tax effect for income provided
to
Executive pursuant to this Agreement.
In any
event, except for the Company’s responsibility to withhold applicable income and
employment taxes from compensation paid or provided to Executive, the Company
shall not be responsible for the payment of any applicable taxes on compensation
paid or provided to Executive pursuant to this Agreement.
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EXECUTIVE
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/s/
XXX X. XXXXX
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/s/
XXXXXX XXXXX
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By:
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Xxx
X. Xxxxx
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Name:
Xxxxxx Xxxxx
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Title:
Chief Financial Officer
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