1
EXHIBIT 10.18
ONCOR, INC.
MANAGEMENT CONTINUITY AGREEMENT
This Management Continuity Agreement (the "Agreement") is made
and entered into effective as of September 29, 1997, by and between Xxxxx Xxxx
(the "Executive") and Oncor, Inc., a Maryland corporation (the "Company" or
"Oncor").
RECITALS
A. The Board of Directors of the Company (the "Board")
believes that it is in the best interests of the
Company and its stockholders to provide the Executive
with the incentive to continue his employment with
the Company and to motivate the Executive to maximize
the value of the Company.
B. The Company has retained Xxxxxx Brothers pursuant to
a letter dated June 3, 1997 (the "Xxxxxx Letter"),
which contemplates the possibility of an acquisition
of the Company by another company or other change of
control. The Board recognizes that such
consideration can be a distraction to the Executive
and can cause the Executive to consider alternative
employment opportunities. The Board has determined
that it is in the best interests of the Company and
its stockholders to assure that the Company will have
the continued dedication and objectivity of the
Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below)
of the Company. The Board has further determined
that it is in the best interests of the Company to
provide incentives to the Executive to maximize the
value of the Company in anticipation of any Change of
Control.
C. The Board believes that it is imperative to provide
the Executive with certain benefits upon a Change of
Control, which benefits are intended to provide the
Executive with financial security and provide
sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding
the possibility of a Change of Control.
D. The Company and the Executive are currently parties
to an employment letter agreement dated March 15,
1996 (the "Letter Agreement") and an Agreement
relating to confidentiality and non-competition dated
March 25, 1996 (the "IP Agreement"). The provisions
of the Letter Agreement relating to severance shall
apply to all cases except cases relating to a Change
of Control and covered by this Agreement, in which
case this Agreement shall control. Except as
specifically set forth in this Agreement, the IP
Agreement is not being amended or
2
superseded. No other changes are contemplated or
intended to the Letter Agreement or the IP Agreement,
each of which shall otherwise remain in full force
and effect.
E. To accomplish the foregoing objectives, the Board has
directed the Company, upon execution of this
Agreement by the Executive, to agree to the terms
provided herein.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and in consideration of the continuing
employment of the Executive by the Company, the parties agree
as follows:
1. DEFINITION OF TERMS. The following terms
referred to in this Agreement shall have the
following meanings:
(a) Affiliate. "Affiliate" means any
corporation, firm or partnership
directly or indirectly controlled
by, controlling or under common
control with the Company.
(b) Base Compensation. "Base
Compensation" shall mean base
salary of the Executive, as
adjusted from time to time by the
Board, in its discretion.
(c) Cause. "Cause" shall mean (i)
any act of personal dishonesty
taken by the Executive in
connection with his
responsibilities as an employee
that is intended to result in
substantial personal enrichment
of the Executive or his
associates at the expense of the
Company or its stockholders, (ii)
committing a felony or an act of
fraud against the Company or its
affiliates, (iii) continued
violations by the Executive of
the Executive's obligations under
this Agreement which are willful
and deliberate on the Executive's
part after there has been
delivered to the Executive a
written demand from the Company
to cease such activities; (iv)
willful refusal by the Executive
to carry out legally permissible
instructions from the Company
after the Executive has been
given written notice by the
Company of a failure to carry out
such instructions and a
reasonable opportunity to correct
the situation; (v) failure of the
Executive to follow written
instructions of the Board after
written notice
3
of such failure and an
opportunity for Executive for
thirty days to cure any such
failure; (vi) gross negligence in
the performance of the
Executive's duties to the
Company; (vii) repeated errors in
judgment or poor performance that
has subjected or subjects the
Company to, a direct and
significant negative impact on
the Company, its financial status
or business prospects, or (viii)
Executive purposely makes
negative and inaccurate comments
about the Company in
circumstances where such
information becomes available to
the public.
(d) Change of Control. "Change of
Control" shall mean a "Sale" of
the Company as defined in the
Xxxxxx Letter, to wit: A "Sale"
of the Company shall mean any
transaction or series or
combination of transactions,
other than in the ordinary course
of business, whereby, directly or
indirectly, control of or a
majority interest in the Company
or a majority of its assets, is
transferred for consideration,
including, without limitation, by
means of a sale or exchange of
capital stock or assets, a merger
or consolidation, a tender or
exchange offer, a leveraged
buy-out or any similar
transaction.
(e) Consideration. "Consideration"
shall mean the gross value of all
cash, securities and other
property paid directly or
indirectly by an acquirer to a
seller or sellers in connection
with a Sale of the Company
(including without limitation all
amounts paid or distributed by
the Company to the holders of
capital stock of the Company and
all amounts paid, distributed or
issued to the holders of options,
warrants, stock appreciation
rights or similar rights or
securities in the Company in
connection with such Sale). The
value of any such securities
(whether debt or equity) or other
property shall be determined as
follows: (i) the value of
securities that are freely
tradable in an established public
market will be determined on the
basis of the average closing
market price on the last ten (10)
trading days prior to the closing
of such sale or other
transaction; and (ii) the value
of securities that are not freely
tradable or have
3
4
no established public market, and
the value of consideration that
consists of other property, shall
be the fair market value thereof.
If the consideration to be paid
is computed in any foreign
currency, the value of such
foreign currency for purposes
hereof shall be converted into
U.S. dollars at the prevailing
exchange rate on the date or
dates on which such consideration
is paid.
(f) Disability. "Disability" shall
mean that the Executive has been
unable to perform his duties
under this Agreement as the
result of his incapacity due to
physical or mental illness, and
such inability, at least 180 days
after its commencement, is
determined to be permanent by a
physician selected by the Company
or its insurers and is acceptable
to the Executive or the
Executive's legal representative
(agreement regarding
acceptability not to be
unreasonably withheld).
Termination resulting from
Disability may only be effected
after at least 30 days' written
notice to the Executive by the
Company of its intention to
terminate the Executive's
employment. In the event that
the Executive resumes the
performance of substantially all
of his duties hereunder before
the termination of his employment
becomes effective, and continues
to perform such duties for a
period of at least 60 days, the
notice of intent to terminate
shall automatically be deemed to
have been revoked.
(g) Involuntary Termination.
"Involuntary Termination" shall
mean the Executive's voluntary
resignation after a Change in
Control within 3 months of the
occurrence of any of the
following events: (i) without
the Executive's consent, the
significant reduction of the
Executive's duties or the removal
of the Executive from his
position and responsibilities as
set forth in this Agreement; (ii)
without the Executive's consent,
a substantial reduction of the
facilities and perquisites
(including office space, support
staff and location) available to
the Executive unless
substantially all of the
Company's other employees of rank
and responsibilities
substantially similar to those of
the Executive undergo
substantially similar reductions;
4
5
(iii) a reduction by the Company
in the Base Compensation of the
Executive as in effect
immediately prior to such
reduction unless substantially
all of the Company's other
employees of rank and
responsibilities substantially
similar to those of the Executive
undergo substantially similar
reductions; (iv) a material
reduction by the Company in the
kind or level of employee
benefits to which the Executive
is entitled with the result that
the Executive's overall benefits
package is significantly reduced
unless substantially all of the
Company's other employees of rank
and responsibilities
substantially similar to those of
the Executive undergo
substantially similar reductions;
or (v) the refusal by the
Executive to relocate his
principal place of employment to
a facility or location more than
75 miles from the Executive's
then present location following a
written demand from the Company
to undertake such relocation. An
Involuntary Termination will also
include (i) any purported
termination of the Executive by
the Company which is not effected
by Disability or for Cause, as
those terms are defined herein,
or any purported termination for
which the grounds relied upon are
not valid under this Agreement,
or (ii) the failure of the
Company to obtain the assumption
of this Agreement by any
successors as contemplated in
Section 8 below.
2. TERM OF AGREEMENT. This Agreement is effective on
the 29th day of September, 1997, and shall continue
in effect to and including June 3, 1998, unless
extended by mutual agreement in writing (the "Term").
3. EFFECTIVENESS UPON A SALE OF THE COMPANY. The
provisions of Sections 3 through 9 of this Agreement
shall become effective if, and only if, a Change in
Control occurs and shall be effective from and after
the date the Sale triggering a Change in Control
occurs (the "Sale Date").
(a) The Executive agrees to remain an Oncor
employee (or an employee of Oncor's successor after a
sale) until six (6) months after the Sale Date or
earlier termination by Oncor (other than in cases of
death or Disability).
5
6
4. SEVERANCE BENEFITS. The Company shall continue to
pay the Executive as compensation for his services
his Base Compensation for a period of twenty (20)
months after the later of (a) the Sale Date or (b)
the date of termination of employment pursuant to
Section 3(a) at the request of Oncor or by
Involuntary Termination, payable at normal payroll
intervals. These payments will continue after
employment ceases if the Executive is terminated
without Cause or if the Executive terminates
employment as an Involuntary Termination, but not if
the Executive terminates employment as other than an
Involuntary Termination.
5. EXECUTIVE BENEFITS. After the Sale Date, the
Executive shall be eligible to participate in the
employee benefit plans and executive compensation
programs maintained by the Company and applicable to
other key executives of the Company, including,
without limitation, retirement plans, savings or
profit-sharing plans, stock options plans, incentive
or other bonus plans, life, disability, health,
accident and other insurance programs, paid vacations
and similar programs or plans, subject in each case
to the generally applicable terms and conditions of
the applicable plan or program in question, to the
determination of any committee administering such
program or plan and to the terms of this Agreement.
6. ADDITIONAL SEVERANCE BENEFITS PROVISIONS.
(a) Termination for Cause. Notwithstanding
anything else contained in this Agreement, if
the Company terminates the Executive's
employment for Cause, then the Executive
shall not be entitled to receive severance or
other benefits pursuant to this Agreement
except for those benefits, if any, as then
established under the Company's then existing
severance and benefit plans and policies at
the time of such termination.
(b) Medical, Life and Disability Benefits. In
the event and during the term the Executive
is entitled to severance benefits pursuant to
this Agreement, then in addition to such
severance benefits, the Executive shall
receive Company-paid health, life and
disability insurance coverage to the same
extent provided to such Executive immediately
prior to the Executive's termination (the
"Company-Paid Coverage") for Eighteen (18)
months after (i) the later of (A) the Sale
Date or (B) the date of termination of
employment pursuant to Section 3(a) at the
request of Oncor or by Involuntary
Termination; or (ii) until the Executive
becomes covered under another employer's
group health, life or disability
6
7
insurance plan, whichever occurs first. If
the Executive's health, life and disability
insurance coverage included the Executive's
dependent(s) immediately prior to the
Executive's termination, such dependent(s)
shall also be covered at Company expense for
the same period during which Executive is
covered. For purposes of the continuation
health coverage covered under the federal
statute known as COBRA, the date of the
"qualifying event" triggering the Executive's
Election Period (and that of his qualifying
beneficiaries) shall be the last date on
which the Executive receives Company-Paid
Coverage under this Agreement.
(c) Death. If the Executive's employment is
terminated due to the death of the Executive,
then the Executive shall not be entitled to
receive severance or other benefits pursuant
to this Agreement except for those benefits
(if any) as then established under the
Company's then existing severance and
benefits plans and policies at the time of
death.
(d) Incentive Compensation. Upon consummation of
a Sale, the Executive shall receive a cash
payment of at least One Hundred and Twenty
Five Thousand Dollars ($125,000) (the
"Payment"). If the Consideration paid in a
Sale of the Company is above One Hundred
Million Dollars ($100,000,000), the Payment
will be increased by .125% of the
Consideration up to One Hundred and Thirty
Million Dollars ($130,000,000), by .175% of
the total Consideration from One Hundred and
Thirty Million Dollars ($130,000,000) to One
Hundred and Sixty-Five Million Dollars
($165,000,000), and by .25% of the
Consideration in excess of One Hundred and
Sixty Five Million Dollars ($165,000,000).
There will be no payment upon a strategic
transaction as defined in the Xxxxxx Letter.
Such payment shall be made as soon as
reasonably practicable after the Sale Date,
but in any event within 30 days thereafter.
(e) For the avoidance of doubt, nothing in this
Agreement shall amend or affect the full
acceleration of vesting of Executive's stock
options under Oncor's 1992 Stock Option Plan,
as amended (the "Plan"), which occurs upon a
Corporate Transaction, as defined in the
Plan.
7. NO OTHER BENEFIT. In connection with the provisions
in this Agreement, the Executive acknowledges and
agrees that he has no
7
8
other claims or agreements relating to remuneration
or compensation from the Company other than the
Letter Agreement.
8. UNAUTHORIZED DISCLOSURE; PROHIBITED AND COMPETITIVE
ACTIVITIES. The provisions of Sections 1, 2, 3, 5
and 6 of the IP Agreement are incorporated by
reference and shall apply to this Agreement as
specified in Section 3 above.
9. LIMITATION ON PAYMENTS. To the extent that any of
the payments and benefits provided for this Agreement
or otherwise payable to the Executive constitute
"parachute payments" within the meaning of Section
280G of the Internal Revenue Code, as amended, and,
but for this Section 9, would be subject to the
excise tax provided for by Section 4999 of that Code,
then the Executive's benefits under Sections 3
through 7 above, as applicable, shall be payable
either
(a) in full, or
(b) as to such lesser amount as would result in
no portion of such severance benefits being
subject to the excise tax under Section 4999
of the Code,
whichever of the foregoing amounts, taking into
account the applicable federal, state and local
income taxes and the excise tax imposed under Section
4999, results in the receipt by the Executive on an
after-tax basis of the greatest amount of severance
benefits under Sections 3 through 7 above,
notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999.
Unless the Company and the Executive otherwise agree
in writing, any determination required under this
Section 9 shall be made in writing by an independent
public accounting firm reasonably acceptable to the
Company other than that used by the Company (the
"Accountants"), whose determination shall be
conclusive and binding upon the Executive and the
company for all purposes. For purposes of making the
calculations required by this Section 9, the
Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999.
The Company and the Executive shall furnish to the
Accountants such information and documents as the
Accountants may reasonably request in order to make a
determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur
in connection with any calculations provided for by
this Section 9. Executive may elect at his
8
9
option which such benefits to reduce to meet the
requirements of this Section 9.
10. SUCCESSORS.
(a) Company's Successors. Any successor to the
Company (whether direct or indirect and
whether by purchase of stock, purchase of
assets, lease, merger, consolidation,
liquidation or otherwise) to all or
substantially all of the Company's business
and 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 assets which
executes and delivers the assumption
agreement described in this paragraph or
which becomes bound by the terms of this
Agreement by operation of law.
(b) Executive's Successors. Except as otherwise
specifically provided in this Agreement, the
terms of this Agreement and all rights of the
Executive hereunder shall inure to the
benefit of, and be enforceable by, the
Executive's personal or legal
representatives, executors, administrators,
successors, heirs, devicees and legatees.
11. 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 three (3) days after being
mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid.
In the case of the Executive, 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 shall be communicated
by a written notice of termination to the
Executive hereto given in accordance with the
notice
9
10
provisions 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 that provide a basis
for termination under the provision so
indicated, and shall specify the termination
date.
12. 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 Executive and
by an authorized officer of the Company
(other than the Executive). No waiver by
either party of any breach of, or 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 Maryland.
(d) Severability. The invalidity or
unenforceability of any provision or
provisions of this Agreement shall not effect
the validity or enforceability of any other
provision herein, 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 operation of law,
including, without limitation, bankruptcy,
garnishment, attachment or other creditor's
process, and any action in violation of this
paragraph shall be void.
10
11
(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.
(h) Counterparts. This Agreement may be executed
in counterparts, each of which shall be
deemed an original, but all of which other
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.
ONCOR, INC.
By: /s/ Xxxxxxx Xxxxxx
-----------------------------------------
Title: Chief Executive Officer
--------------------------------------
EXECUTIVE
By: /s/ Xxxxx Xxxx
-----------------------------------------
Title: President and Chief Operating Officer
--------------------------------------
11
