Exhibit 10 Executive Severance Agreement dated as of May 22, 2001, by
and between the Company and Xxxx X. Xxxx.
EXECUTIVE SEVERANCE AGREEMENT
This EXECUTIVE SEVERANCE AGREEMENT (the "Agreement") is made as of May 22, 2001,
by and between SCAN-OPTICS, INC. (the "Company") and Xxxx X. Xxxx (the
"Executive").
RECITALS:
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A. The Executive is an executive of the Company and has made and is expected to
continue to make major contributions to the short- and long-term profitability,
growth, and financial strength of the Company;
B. The Company recognizes that the possibility of a Change of Control (as
hereafter defined) exists;
C. The Company desires to assure itself of both present and future continuity of
its management and desires to establish certain severance benefits for key
executive officers of the Company, including the Executive, applicable in the
event of a Change of Control; and
D. The Company wishes to aid in assuring that such executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change of Control. NOW,
THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere herein, the
following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual aggregate fixed base salary from the
Company at the time in question.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" means a change of control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a Change of Control shall
be deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 22% or more of the combined voting power
of the Company's then outstanding securities; or (ii) during any period of two
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board
and any new directors, whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof.
(d) "Cause" means that, prior to any Termination by the Executive for Good
Reason, the Executive shall have:
(i) committed an intentional act of fraud, embezzlement, or theft in connection
with the Executive's duties or in the course of his employment with the Company;
(ii) committed intentional wrongful damage to property of the Company; or
(iii) intentionally and wrongfully disclosed confidential information of the
Company; and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act on the part of the Executive shall be deemed
"intentional" if it was due primarily to an error in judgment or negligence, but
shall be deemed "intentional" only if done by the Executive not in good faith
and without reasonable belief that the Executive's action or omission was in the
best interests of the Company. The determination of whether a Termination of the
Executive's employment is for "Cause" shall be made by the Board.
(e) "Commission Pay" means the average annual commissions paid to the Executive
by the Company during the three year period ending at the time in question.
(f) "Date of Termination" means the date of receipt of a Notice of Termination
or any later date specified therein, as the case may be; provided, however, that
if the Executive is Terminated by the Company other than for Cause or for
disability pursuant to Section 2(a)(ii), the Date of Termination will be the
date on which the Executive receives a Notice of Termination from the Company;
and provided further, if the Executive is Terminated by reason of death or
disability pursuant to Section 2(a)(i) or 2(a)(ii), the Date of Termination will
be the last day of the month in which occurs the date of death or the disability
effective date, as the case may be.
(g) "Employee Benefits" means the perquisites, benefits and service credit for
benefits as provided under the plans and programs maintained by the Company,
including, but not limited to, plans and programs which are "employee benefit
plans" under Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended, and any amendment or successor to such plans or programs
(whether insured, funded or unfunded).
(h) "Good Reason" means the occurrence of any of the events listed in Sections
2(b)(i) through 2(b)(vii), inclusive.
(i) "Incentive Pay" means an annual amount equal to the aggregate annual bonus,
incentive compensation or performance pay, in addition to Base Pay, made or to
be made in regard to services rendered in any calendar year or performance
period pursuant to any bonus, incentive compensation or performance pay plan of
the Company.
(j) "Notice of Termination" means a written notice which (i) indicates the
specific provision in this Agreement relied upon, (ii) sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for the
Termination under the provision so indicated, and (iii) if the effective date of
the Termination is other than the date of receipt of such notice, specifies the
effective date of Termination (which date will be not more than sixty (60) days
after the giving of such notice). The failure by the Executive to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing that the Executive is entitled to the benefits intended to be provided
by this Agreement will not constitute a waiver of any right of the Executive
hereunder or otherwise preclude the Executive from later asserting such fact or
circumstance in enforcing the Executive's rights hereunder.
(k) "Severance Period" means the period of time commencing on the date of an
occurrence of a Change of Control and continuing until the earlier of (i) the
date which is two years following the occurrence of the Change of Control and
(ii) the Executive's death.
(1) "Term" means (i) the period commencing on the date hereof and ending on the
second anniversary of the date hereof; provided, however, that commencing on the
date one year after the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), unless previously terminated, the Term shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least sixty (60) days prior to the Renewal Date the Company shall give
notice to the Executive that the Term shall not be so extended, (ii) if, prior
to a Change of Control, for any reason the Executive is Terminated or
Terminates, thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no further
effect, and (iii) in the event of a Change of Control, the Term will, without
further action, be considered to terminate at the expiration of the Severance
Period.
(m) "Terminate", "Termination" and correlative terms mean the termination of the
Executive's employment with the Company and any Affiliate or Subsidiary.
2. Termination Following a Change of Control: (a) If, during the Severance
Period, the Executive is Terminated, the Executive will be entitled to the
benefits provided by Section 3 unless such Termination is by reason of one or
more of the following events:
(i) The Executive's death;
(ii) The permanent and total disability of the Executive, as defined in any long
term disability plan of the Company, applicable to the Executive, as in effect
immediately prior to the Change of Control;
(iii) Cause; or
(iv) The Executive's voluntary Termination in circumstances in which Good Reason
does not exist.
(b) In the event of the occurrence of a Change of Control, the Executive may
Terminate during the Severance Period with the right to severance compensation
as provided in Section 3 upon the occurrence of one or more of the following
events (regardless of whether any other reason, other than Cause as hereinabove
provided, for Termination exists or has occurred, including, without limitation,
other employment):
(i) An adverse change in the nature or scope of the authorities, powers,
functions, responsibilities, or duties attached to the position with the
Company, which the Executive held immediately prior to the Change of Control;
(ii) A reduction in the Executive's Base Pay as in effect immediately prior to
any Change of Control, or as it may have been increased from time to time
thereafter;
(iii) Any failure by the Company to continue in effect any plan or arrangement
providing Incentive Pay in which the Executive is participating at the time of a
Change of Control (or any other plans or arrangements providing substantially
similar benefits) or the taking of any action by the Company which would
adversely affect the Executive's participation in any such plan or arrangement
or reduce the Executive's benefits under any such plan or arrangement in a
manner inconsistent with the practices of the Company prior to the Change of
Control;
(iv) Any failure by the Company to continue in effect any Employee Benefits in
which the Executive is participating at the time of a Change of Control (or any
other plans or arrangements providing the Executive with substantially similar
benefits) or the taking of any action by the Company which would adversely
affect the Executive's participation in or materially reduce the Executive's
benefits under any Employee Benefits or deprive the Executive of any material
fringe benefit enjoyed by the Executive at the time of a Change of Control;
(v) The liquidation, dissolution, merger, consolidation, or reorganization of
the Company or transfer of all or substantially all of its business and/or
assets, unless the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer, or otherwise) to which all or a
significant portion of its business and/or assets have been transferred
(directly or by operation of law) assumed all duties and obligations of the
Company under this Agreement pursuant to Section 9;
(vi) Without limiting the generality or effect of the foregoing, any material
breach of this Agreement by the Company or any successor thereto; or
(vii) Any action by the Company which causes the Executive's services to be
performed regularly at any office or location greater than thirty-five (35)
miles from the office or location where the Executive was employed immediately
preceding the date of the Change of Control.
(c) Any Termination will be communicated by Notice of Termination hereto given
in accordance with Section 10 of this Agreement.
3. Severance Compensation: (a) If, following the occurrence of a Change of
Control, the Executive is Terminated by the Company during the Severance Period
other than in the circumstances set forth in Section 2(a)(i), 2(a)(ii), or
2(a)(iii), or if the Executive Terminates for Good Reason:
(i) The Company will pay to the Executive in a lump sum in cash within five
business days after the later of the date on which the Company receives the
determination of the Accounting Firm required in Section 4 hereof or the Date of
Termination an amount (the "Severance Payment") equal to the sum of (A) 2.5
times the sum of Base Pay and Commission Pay at the highest rates in effect at
any time within the 90-day period preceding the date the Notice of Termination
was given or, if higher, at the highest rates in effect at any time within the
90-day period preceding the date of the first occurrence of a Change of Control,
plus (B) an amount equal to 2.5 times the greatest amount of Incentive Pay
received by the Executive during any year from and including the third year
prior to the first occurrence of a Change of Control, plus (C) an amount equal
to 2.5 times the matching contribution that would be made by the Company to the
Scan-Optics, Inc. Retirement Savings Plan on the Executive's behalf if the
Executive deferred under such Plan four percent (adjusted for any applicable
limitation under the Internal Revenue Code of 1986, as amended) of the sum of
Base Pay, Commission Pay and Incentive Pay (at the rates used in (A) and (B)
above) or such higher percentage as may then be eligible for Company matching
contributions, plus (D) an amount equal to the value (determined as of the Date
of Termination and assuming exercisability as of such date) of all options
granted to the Executive to acquire Company common stock that will not become
exercisable as a result of Executive's Termination; and
(ii) For two years following the Date of Termination, the Executive shall be
eligible for participation in and shall receive all benefits under such benefit
plans, practices, policies and programs of the Company that provide medical,
prescription, dental, disability, accident or life insurance coverage, with the
costs of such participation to be paid by the Company to the same extent as
prior to the Executive's Termination. In the event that such continued
participation is not allowed under the terms and provisions of such plans or
programs, then in lieu thereof, the Company shall acquire individual insurance
policies providing comparable coverage for the Executive; provided that if any
such individual coverage is unavailable, the Company shall pay to the Executive
an amount equal to the contributions that would have been made by the Company
for such coverage on the Executive's behalf if the Executive had remained in the
employ of the Company for two years following the Date of Termination.
(b) There will be no right of set-off or counterclaim in respect of any claim,
debt, or obligation against any payment to or benefit for the Executive provided
for in this Agreement.
(c) Without limiting the rights of the Executive at law or in equity, if the
Company fails to make any payment or provide any benefit required to be made or
provided under this Agreement (including under this Section 3 or Section 6) on a
timely basis, the Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime rate" as
quoted from time to time during the relevant period in the Northeast Edition of
The Wall Street Journal. Such interest will be payable as it accrues on demand.
Any change in such prime rate will be effective on and as of the date of such
change.
(d) Notwithstanding any other provision hereof, the parties' respective rights
and obligations under this Section 3 and under Sections 4 and 6 will survive any
termination or expiration of this Agreement following a Change of Control or any
Termination following a Change of Control for any reason whatsoever.
4. Excise and Other Taxes. The Executive shall bear all expense of, and be
solely responsible for, all federal, state, local or foreign taxes due with
respect to any payment received hereunder, including, without limitation, any
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"); provided, however, that the Severance Payment shall be
reduced to the extent necessary so that no portion thereof shall be subject to
the excise tax imposed by Section 4999 of the Code. The foregoing determination
will be made by a nationally recognized accounting firm (the "Accounting Firm")
selected by the Executive and reasonably acceptable to the Company (which may,
but will not be required to be, the Company's independent auditors). The
Executive will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within
fifteen (15) days after the Date of Termination. If the Accounting Firm
determines that such reduction is required by this Section 4, the Company shall
pay such reduced amount to the Executive in accordance with Section 3(a)(i). If
the Accounting Firm determines that no reduction is necessary under this Section
4, it will, at the same time as it makes such determination, furnish the Company
and the Executive an opinion that the Executive will not be liable for any
excise tax under Section 4999 of the Code. The Company and the Executive will
each provide the Accounting Firm access to and copies of any books, records, and
documents in the possession of the Company or the Executive, as the case may be,
reasonably requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determinations and calculations contemplated by this Section 4. The fees and
expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by this Section 4 will be borne by
the Company.
5. No Mitigation Obligation: The Company hereby acknowledges that it will be
difficult, and may be impossible, for the Executive to find reasonably
comparable employment following the Date of Termination. The payment of the
severance compensation by the Company to the Executive in accordance with the
terms of this Agreement will be liquidated damages, and the Executive will not
be required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor will any profits, income,
earnings, or other benefits from any source whatsoever create any mitigation,
offset, reduction, or any other obligation on the part of the Executive
hereunder or otherwise.
6. Legal Fees and Expenses: If the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or proceeding
designed to deny, or to recover from, the Executive the benefits provided or
intended to be provided to the Executive hereunder, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the Executive's
choice, at the expense of the Company to the extent hereafter provided, to
advise and represent the Executive in connection with any such interpretation,
enforcement, or defense, including, without limitation, the initiation or
defense of any litigation or other legal action, whether by or against the
Company or any member of the Board, officer, stockholder, or other person or
entity affiliated with the Company, in any jurisdiction. If the Executive
prevails, in whole or in part, in connection with any such litigation, the
Company will pay and be solely financially responsible for any and all
attorneys' and related fees' and expenses incurred by the Executive in
connection with such litigation.
7. Employment Rights: Nothing expressed or implied in this Agreement will create
any right or duty on the part of the Company or the Executive to have the
Executive remain in the employment of the Company prior to or following any
Change of Control.
8. Withholding of Taxes: Except as otherwise provided in this Agreement, the
Company may withhold from any amounts payable under this Agreement all federal,
state, city, or other taxes as the Company is required to withhold pursuant to
any law or government regulation or ruling.
9. Successors and Binding Agreement: (a) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, reorganization,
or otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this agreement in the same manner and
to the same extent the Company would be required to perform if no such
succession had taken place. This Agreement will be binding upon and inure to the
benefit of the Company and any successor to the Company, including, without
limitation, any persons acquiring directly or indirectly all or substantially
all of the business and/or assets of the Company whether by purchase, merger,
consolidation, reorganization, or otherwise (and such successor will thereafter
be deemed the "Company" for the purposes of this Agreement), but will not
otherwise be assignable, transferable, or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and/or legatees.
(c) This Agreement is personal in nature and neither of the parties hereto will,
without the consent of the other, assign, transfer, or delegate this Agreement
or any rights or obligations hereunder except as expressly provided in Sections
9(a) and 9(b). Without limiting the generality or effect of the foregoing, the
Executive's right to receive payments hereunder will not be assignable,
transferable, or delegable, whether by pledge, creation of a security interest,
or otherwise, other than by a transfer by will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary
to this Section 9(c), the Company will have no liability to pay any amount so
attempted to be assigned, transferred, or delegated.
10. Notices: For all purposes of this Agreement, all communications, including,
without limitation, notices, consents, requests, or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or two business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or one business day after having been sent by a
nationally recognized overnight courier service, addressed to the Company (to
the attention of the Chairman of the Board) at its principal executive office
and to the Executive at the Executive's principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address will be effective
only upon receipt.
11. Governing Law: The validity, interpretation, construction, and performance
of this Agreement will be governed by and construed in accordance with the
substantive laws of the State of Connecticut, without giving effect to the
principles of conflict of laws of such State, to the extent not preempted by
applicable federal law.
12. Validity: If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable,
or otherwise illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances will not be affected, and
the provision so held to be invalid, unenforceable, or otherwise illegal will be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid, or legal.
13. Non-Exclusivity of Rights: Nothing in this Agreement will prevent or limit
the Executive's present or future participation in any benefit, bonus,
incentive, or other plan or program provided by the Company for which the
Executive may qualify, nor will this Agreement in any manner limit or otherwise
affect such rights as the Executive may have under any stock option or other
agreements with the Company. Amounts or benefits which are vested or which the
Executive is otherwise entitled to receive under any plan or program of the
Company at or subsequent to the Date of Termination will be payable in
accordance with such plan or program, except as otherwise expressly provided in
this Agreement; provided, however, that any amounts received by the Executive
pursuant to this Agreement shall be in lieu of (but, if necessary to give effect
to this provision, shall be reduced by) any benefits which the Executive is
entitled to receive or may become entitled to receive under any
reduction-in-force or severance pay plan or practice which the Company now has
in effect or may hereafter put into effect, any other benefits to which the
Executive may be entitled under any previous individual agreement of employment
or severance agreement with the Company which would provide a benefit to the
Executive upon the occurrence of, or the termination of employment following, a
Change of Control (whether or not so defined in said individual agreement), and
any severance benefits required under federal or state law to be paid to the
Executive.
14. Miscellaneous: No provision of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
SCAN-OPTICS, INC.
By __________/__ss__/______________
Name: JamesC.Xxxxx
Title: Chairman, President and
Chief Executive Officer
_____________/__ss__/
Name: Xxxx X. Xxxx
