WATERS INSTRUMENTS, INC. EMPLOYMENT AGREEMENT
Exhibit 10.1
WATERS INSTRUMENTS, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective July 1, 1995, by and between WATERS
INSTRUMENTS, INC. (the “Company”), a Minnesota corporation, and XXXXXX X. XXXXXXXXX
(the “Executive”), an individual;
WITNESSETH:
WHEREAS, the Company believes that Executive is valuable to the future growth of the
Company and its business and, accordingly, the Company and Executive mutually wish the Company
to employ Executive upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the Company and Executive agree as follows:
1. Employment. The Company employs Executive and Executive accepts
employment as the President and chief executive officer of the Company (the “Position”)
upon the terms and conditions set out in this Agreement. Executive will perform service
in the Position with all of the rights, duties, powers and fiduciary obligations implied by
the titles associated with the Position. Executive will also have and perform such other
powers, responsibilities and duties as are commensurate with the Position and as may be assigned
to Executive by the Board of Directors of the Company (the “Board”) from time to time.
Executive will diligently and conscientiously devote Executive’s substantially full time
to the performance of Executive’s services in the Position.
The Company will include Executive on the slate of directors that will be submitted by
the Company to the shareholders at each annual meeting of the shareholders during the Term
(defined below). If elected as a member of the Company’s Board, Executive agrees to serve as
a director without additional compensation.
2. Annual Compensation. For Executive’s services in the Position, Executive
will receive an annual base salary (the “Base Salary”) at the rate of One Hundred Forty
Thousand Dollars ($140,000) per year during the period commencing on July 1, 1995, and
ending upon the termination of the Term. On each July 1 after June 30, 1996, during the
Term, Executive’s Base Salary for the succeeding twelve (12) month period will be
increased by the average percentage change in the Consumer Price Index-Seasonally Adjusted U.S.
City Average For All Items For All Urban Consumers published monthly in the “Monthly
Labor Review” of the Bureau of Labor Statistics of the United States Department of Labor
(“CPI-U”), or similar report, for the twelve (12) month period ending in the month of May
most recently ended, but in no event will the Base Salary be less than the Base Salary
payable during the preceding twelve (12) month period. The Base Salary will be payable
in bi-weekly or more frequent installments.
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3. Incentive Compensation. Executive will accrue incentive compensation
(“Incentive Compensation”) in amounts as determined in accordance with this Section. For
each fiscal year of the Company during the Term, Executive will prepare and submit to the
Board, in good faith consultation with the Board, a proposed operating plan or budget which
will include a projected amount of income before income taxes and extraordinary item(s) that
Executive anticipates the Company will generate during such fiscal year (the “Performance
Period”).
In good faith consultation with Executive, the Board will approve an operating plan or budget
(the “Approved Budget”) which will include a projected amount of income before income taxes and
extraordinary item(s) that the Board anticipates the Company will generate during such Performance
Period (the “Planned Operating Income”). In the absence of an express determination referring to
this Section of this Agreement, the Planned Operating income will be the amount of income before
income taxes and extraordinary item(s) set out in the first budget for a Performance Period that is
approved by the Board.
Contemporaneous with the Board’s adoption of an Approved Budget for a Performance Period, the
Board will in good faith consultation with Executive develop and adopt an incentive compensation
plan applicable to such Performance Period pursuant to which Executive may earn up to fifty percent
(50%) of the Base Salary then in effect for such Performance Period. The Company and Executive
anticipate that the incentive compensation plans are intended to reward Executive for the Company
achieving or exceeding, to the extent possible, the Planned Operating Income for the applicable
Performance Period. The incentive compensation plan for the Company’s fiscal year ending June 30,
1996, is attached to this Agreement.
Incentive Compensation that accrues, if any, pursuant to this Section will be paid, subject to
other provisions of this Agreement, in a lump sum each August 31 during the Term and the first
August 31 following the last Performance Period if the Term ends. Interest will not accrue on any
accrued but unpaid Incentive Compensation.
4. Benefits, Incentive Compensation and Vacation. During the Term, Executive
will be eligible to participate in and to be covered by, each life insurance plan, 401(k)
plan, disability plan, health/medical insurance plan, incentive compensation plan or other plan
effective with respect to executives and officers of the Company in accordance with then
current policies of the Company and the terms of any such plan. To the extent there are any
waiting or qualification periods during which Executive may not receive benefits under any
disability plan or health/medical insurance plan, the costs of substantially equivalent
health/medical insurance benefits will be borne by the Company.
The Company and Executive understand that the Company will bear all of the costs of
health/medical insurance for Executive and Executive’s immediate family. An appropriate upward
adjustment to Executive’s payroll compensation will be made if the Company’s
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health/medical plans require Executive to pay a portion of the costs of health/medical
insurance benefits.
Executive will be entitled to such other benefits and/or perquisites as the Board may
determine from time to time. During the Term, Executive will be entitled to such vacations as the
Board and Executive may determine from time to time. Executive will accrue credited absence hours
(“CASH”) at the rate of one hundred ninety-two (192) hours per year, commencing August 1, 1993 and
thereafter as allowed under the Company’s Associate Absence Policy.
If no part of the incentive stock option has been exercised, the Executive and Company may
separately agree to cancel the Incentive Stock Option Agreement dated August 18, 1993, between
Executive and Company under which Executive may purchase fifty thousand (50,000) shares of Common
Stock of the Company. Upon such cancellation, the Company agrees to grant to Executive an
incentive stock option to purchase fifty thousand (50,000) shares of Common Stock of the Company
pursuant to the planned Waters Instruments, Inc. 1995 Stock Option Plan at an option price to be
determined under the Plan.
5. Business Expenses. During the Term, the Company will reimburse Executive
for all ordinary and necessary business expenses incurred by Executive in connection with
the business of the Company, including business expenses incurred in connection with
Executive’s automobile. Payment or reimbursement to Executive will be made upon
submission by Executive of vouchers, receipts or other evidence of such expenses in a form
reasonably satisfactory to the Company and in compliance with applicable requirements of
the taxing authorities. The Company and Executive agree Executive’s home is located in
metropolitan Minneapolis and Executive is away from home when he leaves such
metropolitan area.
6. Term; Termination; Compensation Upon Termination.
(a) The term (the “Term”) of Executive’s employment under this
Agreement will begin on July 1, 1995, and will continue until the Term is terminated
by the termination of Executive’s employment only as permitted by this Agreement
(the “Termination Date”).
(b) Executive’s employment under this Agreement will terminate:
| (1) | Upon Executive’s death; | ||
| (2) | Upon Executive’s resignation; or | ||
| (3) | Upon notice by the Company to Executive of termination. |
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(c) If Executive’s employment under this Agreement terminates pursuant to
Section 6(b)(1) upon Executive’s death, then the Company will have no further
obligation under this Agreement or under any applicable incentive compensation plan,
provided, however, that Executive will be entitled to receive on August 31, in the
year immediately following the Performance Period in which Executive’s death
occurred, Incentive Compensation under Section 3 determined as follows: the
Incentive Compensation that Executive would have earned had Executive’s death not
occurred will be determined under Section 3 using the Company’s actual income
before income taxes and extraordinary item(s) (the “Actual Operating Income”) for
the Performance Period in which such death occurred, the result will be divided by
the number of months in the Performance Period and then multiplied by the portion of
the Performance Period, expressed in months, prior to Executive’s death.
(d) If Executive’s employment under this Agreement terminates pursuant to
Section 6(b)(2) upon Executive’s resignation, then the Company will have no further
obligation under this Agreement or any applicable incentive compensation plan,
including no obligation to pay any accrued but unpaid Incentive Compensation under
Section 3 at any time.
(e) If Executive’s employment under this Agreement terminates pursuant to
Section 6(b)(3) upon notice by the Company, the Company’s only obligation under
this Agreement and any applicable incentive compensation plan will be to pay
Executive an amount equal to the Base Salary then in effect for one (1) year in
twenty-six (26) equal bi-weekly installments beginning on the next day on which the
Company makes its regular payroll payments, and continue to pay for the twelve (12)
month period during which such installments are payable, the cost of all existing
health/medical and other benefit plans enjoyed by Executive on the effective date of
termination (subject to the terms of the plans) or provide substantially the same
benefits if the terms of a plan exclude non-employees. Executive will also be entitled
to receive on August 31, in the year immediately following the Performance Period in
which a termination occurred under this Subsection, Incentive Compensation under
Section 3 determined as follows: the Incentive Compensation that Executive would
have earned had Executive’s employment not been terminated under this Subsection
will be determined under Section 3 using the Actual Operating Income for the
Performance Period in which such termination occurred, the result will be divided by
the number of months in the Performance Period and then multiplied by the portion of
the Performance Period, expressed in months, that Executive was employed by the
Company prior to such termination.
If Executive desires to resign his employment, Executive will give the Company thirty 30) days
prior written notice of the date of termination of the Term.
7. Change in Control. A “Change in Control” will be deemed to have occurred
When one person or several persons acting in concert, who on July 1, 1995, did not
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beneficially own more than five percent (5%) of the Company’s common stock, become the beneficial
owners, directly or indirectly through affiliates, of fifty-one percent (51 %) or more of the
Company’s voting common stock in a transaction or series of transactions.
A Change in Control will not include a reorganization, recapitalization or similar
restructuring of the Company initiated by the Company and approved by the Board of Directors of the
Company which involves a change in the Company’s organizational form and not a substantive change
in the ownership of the Company as it existed prior to such reorganization, restructuring or
recapitalization.
If Executive’s employment under this Agreement terminates pursuant to Section 6(b)(3), within
one (1) year of a Change in Control, then upon such termination in addition to the Company’s
obligation under Section 6(e), the Company will pay Executive an additional amount equal to the
Base Salary then in effect for one (1) year in twenty-six (26) equal bi-weekly installments
beginning on the next day on which the Company makes its regular payroll payments.
8. Confidentiality. Executive acknowledges that during the term of this
Agreement, Executive may acquire knowledge of certain of the Company’s confidential
information, including without limitation, information not generally or publicly known and
proprietary to the Company about the Company’s operations, processes and products, and
other information from whatever source that the Company is obligated to retain in confidence
or that is identified by the Company as “confidential” or “trade secrets” (“Confidential
Information”). Executive agrees that the Confidential Information is of substantial value in
the Companys business and agrees (i) to keep the same confidential, (ii) to not disclose the
Confidential Information to any person or entity during or after the term of this Agreement
(iii) to not use any Confidential Information in any manner after the end of the Term for
whatever reason, and (iv) to return all records of the Confidential Information to the
Company upon the end of the Term. Executive’s obligation of non-disclosure pursuant to
this Section does not apply to information that is in the public domain through no fault of
Executive.
9. Inventions and Copyrightable Works. Executive acknowledges that during the
term of this Agreement, Executive may make discoveries, improvements or conceive of
ideas, whether patentable or not, relating directly or indirectly to any of the Company’s
present or future operations, processes and products, or relating to work performed pursuant
to Executive’s employment with the Company, or involving the use of any time, material or
facility of the Company (“Inventions”). Executive further acknowledges that during the
Term, Executive may create subject matter that is copyrightable relating to the Company’s
business (“ Copyrightable Works”).
(a) Inventions and Copyrightable Works are the property of the Company if made or
conceived by Executive either solely or jointly with others (i) during the Term whether or
not during normal working hours and whether on or off the
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Company s premises; or (ii) within one year after the end of the Term if the Inventions or
Copyrightable Works relate to products or processes worked upon by Executive during the Term.
(b) Executive agrees to and hereby does assign to the Company all of Executive’s rights to
those Inventions and Copyrightable Works (including renewal rights to Copyrightable Works)
described in Section 9(a) which the Company may feel are valuable in its present or future
operations, including copyrights (original or renewal) patent applications and patents together
with all foreign counterparts, divisions, continuations or continuations-in-part applications and
any reissues or extensions thereof (pursuant to any international conventions, treaties or
otherwise).
(c) Executive agrees to promptly and fully disclose and describe to the Company those
Inventions described in Section 9(a).
(d) Executive agrees to acknowledge and deliver promptly to the Company all information and
documents that may be required to obtain and maintain domestic or foreign Letters Patent and/or
copyrights for those Inventions and Copyrightable Works described in Section 9(a).
(e) Executive agrees not to assert any rights in Inventions or Copyrightable Works through
claims of having made or acquired them prior to the date of this Agreement, if the Company
supported such Inventions or Copyrightable Works with its funds, either directly or indirectly.
(f) Executive agrees to return all records of those Inventions and Copyrightable Works
described in Section 9(a) to the Company upon the end of the Term.
10. Agreement Not to Compete.
(a) During the Noncompetition Period (defined below), unless the Company waives its
rights under this Section in a writing authorized by the Board, Executive will not, directly or
indirectly, either for himself or as an owner, partner, shareholder, director, officer, employee,
agent or consultant of another, render services or advice to any person or entity who is “in
competition with the Company” anywhere in the United States. During the Noncompetition Period
neither Executive or any business with whom Executive may become associated will recruit or solicit
for employment any person who is an employee of the Company.
If the Term ends because of Executive’s resignation, then “Noncompetition Period” will mean
the Term plus a period of twelve (12) months after the end of the Term. If the Term ends because
of notice by the Company to Executive of
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termination, then “Noncompetition Period” will mean the Term plus a period of six (6) months after
the end of the Term.
A person or entity will be “in competition with the Company” only if such person or entity
sells products or services that actually compete with the products or services of the Company
currently being sold to the Company’s then existing customers at the time the Term ends or, as to
new products or services known of by Executive during the Term, will be first offered for sale to
existing or new customers within six (6) months of the end of the Term.
Notwithstanding the foregoing, Executive will not be prohibited from being employed by a
person or entity “in competition with the Company” if Executive’s duties with such person or entity
during the Noncompetition Period are restricted so that they do not involve in any respect products
or services that actually compete with the products or services of the Company currently being sold
to the Company’s then existing customers at the time the Term ends or, as to new products or
services known of by Executive during the Term, will be first offered for sale to existing or new
customers within six (6) months of the end of the Term.
A person or entity will not be “in competition with the Company” if Executive’s only
involvement with such person or entity is the purchasing, acquiring or holding of not more than a
total of five percent (5%) of the outstanding securities of any publicly held corporation.
(b) The Company will advise Executive of its decision not to waive the rights created
under Section 10(a) within ten (10) days after receipt by the Company of written notice from
Executive of his intent to voluntarily terminate his employment or at the time his employment is
terminated by the Company or the Term ends for any other reason. To compensate Executive in the
event of economic hardship resulting from the restriction on competition contained in Section 10(a)
the Company will, subject to the satisfaction of the conditions stated below, make bi-monthly
payments to Executive equal to one twenty-sixth (l/26th) of Executive’s Base Salary, beginning with
the first month following the end of the Term and continuing until the end of the Noncompetition
Period or the restriction on competition is expressly waived in writing by the Company or one of
the conditions described below is no longer met. The bi-weekly payments will be reduced by any
bi-weekly amounts of compensation (exclusive of Incentive Compensation) paid to Executive as part
of compensation on termination under Section 6.
If the Company waives the rights created under Section 10(a) after written notice from
Executive, as contemplated in the preceding paragraph, such waiver will not affect the Company’s
obligations to pay Executive compensation on termination under Section 6.
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(c) The foregoing compensation obligation of the Company is expressly conditioned on the
occurrence of each of the following:
| (1) | Executive must have offered a position of employment that would involve a violation of the restriction against competition stated in the first sentence of Section 10(a) and pay more than any employment available to him that would not involve a violation of such restriction, and Executive must have given the Company written notice and reasonable evidence of those facts, and the Company must have continued to refuse to waive the restriction; | ||
| (2) | Executive must have aggressively sought employment consistent with his education, abilities, and experience that would not involve violation of the restriction against competition stated in the first sentence of Section 10(a) and those efforts must have been unsuccessful or must have resulted in his obtaining employment paying him less than his Base Salary; | ||
| (3) | Executive must have provided the Company with a written report of his aggressive efforts to find employment and the result of those efforts; and | ||
| (4) | Executive must have informed any prospective employer, prior to accepting employment, of the existence of this Agreement and provided such prospective employer with a copy. |
11. Accounting, Remedies, etc.
(a) If Executive is found, in a final judgment or determination of any court of law having
jurisdiction, to have violated any of his covenants or agreements under Section 10, the Company
will be entitled to an accounting and repayment of all compensation, remuneration or other benefits
Executive received pursuant to Section 10(b) in addition to any injunctive relief or other rights,
remedies or damages which the Company is or may be entitled to at law, in equity or under this
Agreement.
(b) Executive and the Company agree that if any provision of Section 10 is held in a final
judgment or determination of any court of law or administrative agency of competent jurisdiction to
be overbroad or otherwise unenforceable in any respect, such provision will be deemed to be
amended, and will be binding upon Executive to the maximum extent deemed reasonable and enforceable
by such court or administrative agency.
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(c) The Company will be entitled to injunctive relief (temporary restraining order,
preliminary injunction and permanent injunction) in the event of any actual or threatened
breach of Section 10(a) by Executive and the Company will not be required to show actual
damages prior to obtaining such relief.
(d) If the Company sues Executive to enforce claimed rights under Section 10 and it is
finally determined by a non-appealable order that Executive has not breached Section 10(a),
the Company agrees to pay the reasonable attorneys fees and other costs and expenses
incurred by Executive in defending himself against the Company’s claims with respect to such
breach.
12. Limitation on Actions. Neither the Company or Executive may commence any action
to enforce any rights arising under this Agreement more than one (1) year after the transaction or
occurrence which gave rise to the cause of action.
13. Indemnity. If they desire to do so, Executive and the Company will enter into an
Officers and Directors Indemnification Agreement acceptable in form and substance to both parties.
14. Notices. All notices required or permitted under this Agreement must be in
writing and will be deemed to have been duly given upon receipt and will be delivered by hand or
sent by registered or certified mail, return receipt requested, postage and fees prepaid and
addressed to the Company at its principal office in Rochester, Minnesota and with respect to
Executive to such address as appears on the books and records of the Company. The Company and
Executive may change their addresses by a notice in writing which will be effective when actually
received by the addressee.
15. Entire Understanding. This Agreement constitutes the entire understanding and
agreement between the Company and Executive with regard to the terms of Executive’s employment and
there are no other agreements, conditions or representations, oral or written, express or implied,
with regard to such employment. This Agreement may be amended only in writing executed by both the
Company and Executive. A parties rights under this Agreement may be waived only in a writing
executed by the waiving party and such waiver will be effective only with respect to the matters
identified in such writing.
16. Binding Effect. Executive may not assign Executive’s rights or obligations under
this Agreement. The provisions of this Agreement are binding upon and inure to the benefit of
Executive’s heirs, legal representatives or administrators. The obligations of Executive with
respect to confidential information (Section 8) and Inventions and Copyrightable Works (Section 9)
will survive and continue after termination of the Term.
17. Governing Law. This Agreement will be construed and enforced in
accordance with the laws of the State of Minnesota.
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IN WITNESS WHEREOF, the Company and Executive have executed this Agreement in the manner
appropriate for each as of the date on the first page of this Agreement.
| WATERS INSTRUMENTS, INC. | ||||||
| By | /s/ Xxxxxxx Siebean | |||||
| Its Chairman of the Board of Directors | ||||||
| /s/ Xxxxxx X. Xxxxxxxxx | ||||||
| XXXXXX X. XXXXXXXXX | ||||||
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