EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as
of April 1, 2005 (the "Effective Date") by and between Xxxxxx Medical
Technology, Inc., a Delaware corporation (the "Company"), and Xxxxxxx X. Xxxxxxx
(the "Employee").
Introduction. The Employee is an employee of the Company. The Company and
the Employee desire to set forth the terms and conditions of the Employee's
employment with the Company. Based on the foregoing, and for and in
consideration of the mutual covenants contained herein, the parties, intending
to be legally bound, hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the Employee
hereby accepts employment, upon the terms and conditions herein set forth.
2. Duties. The Employee is engaged as the Senior Vice President & Chief
Technology Officer of the Company and hereby promises to perform and discharge
well and faithfully the duties which may be assigned to him from time to time by
the President of the Company or the Board of Directors of the Company (the
"Board") in connection with the conduct of the Company's business.
3. Extent of Services. The Employee shall devote his entire time,
attention, and energies to the business of the Company and shall not, without
the written approval of the Company, during the term of this Agreement be
engaged in any other business activity, regardless of whether such activity is
pursued for gain, profit or other pecuniary advantage; provided, however, that
this requirement shall not be construed as preventing the Employee from (a)
investing his personal assets in businesses which do not compete with the
Company in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor, or (b) purchasing securities in any corporation engaged in a business
competitive to that of the Company whose securities are regularly traded on the
Nasdaq Stock Market, a national or regional stock exchange, or the
over-the-counter market, provided that such purchase shall not result in his
collectively owning beneficially at any one time one percent (1%) or more of the
equity securities of such corporation. Nothing in this paragraph 3 shall prevent
the Employee from serving on the board of directors of any other company, so
long as the Board has provided written approval of each directorship held by the
Employee.
4. Compensation Matters.
(a) Base Salary. For services rendered under this Agreement, the
Company shall pay the Employee an aggregate salary of $225,000 per annum (the
"Base Salary"), payable (after deduction of applicable payroll taxes) in
accordance with the Company's customary payroll practices in effect from time to
time.
(b) Incentive Bonus. During the Employee's employment hereunder, in
addition to the Base Salary, the Employee shall be eligible to receive an annual
performance incentive bonus (an "Incentive Bonus") in accordance with the terms
and subject to the
conditions of the Company's Executive Performance Incentive Plan, as the same
may be amended from time to time (the "Incentive Plan"). The Employee's
entitlement to receive an Incentive Bonus for any calendar year will depend on
whether, and to what extent, certain performance goals established for such year
by the Compensation Committee of the Board (the "Committee") have been achieved.
The Incentive Bonus, if any, payable to the Employee for any calendar year shall
not exceed two times the Base Salary earned by the Employee in such year. The
Committee shall determine in good faith the Employee's entitlement to an
Incentive Bonus based on the achievement of such performance goals as soon as
reasonably practicable after the end of each calendar year. The Company shall
pay the Incentive Bonus, if any, to the Employee within ten (10) days after the
Committee makes such determination and in any event not later than March 15 of
the year following the calendar year in which the services upon which the
Incentive Bonus is based were performed.
(c) Equity Incentive Plan Awards. The Employee shall be eligible to
receive stock options and other awards granted by the Committee from time to
time under the Company's 1999 Equity Incentive Plan, as the same may be amended
from time to time (the "Equity Plan"). Any such grant of stock options or other
awards under the Equity Plan shall be made in accordance with and subject to the
terms of the Equity Plan and any agreement pursuant to which such stock options
or other awards are granted.
(d) Fringe Benefits. The Employee shall be eligible to receive, and
to participate in programs for, such fringe benefits (including, without
limitation, medical insurance and retirement benefits) as the Company may make
available generally to its executive officers from time to time during the term
of this Agreement. The Employee shall be responsible for making any generally
applicable employee contributions required under such fringe benefit programs.
(e) Annual Compensation Review. The Committee shall review the
Employee's compensation at least once per year and shall make any increase to
the Base Salary or award any bonus to the Employee that the Committee, in its
sole and absolute discretion, determines is merited based upon the Employee's
performance and is consistent with the Company's compensation policies. The
Company shall pay any bonus to the Employee not later than March 15 of the year
following the year in which the services upon which the bonus in based were
performed.
5. Sick Leave and Vacation. During the term of this Agreement, the
Employee shall be entitled to annual vacation of at least four weeks, or such
greater time period if permitted by Company policy, to be taken at his
discretion in a manner consistent with his obligations to the Company under this
Agreement. The actual dates of such vacation periods shall be agreed upon
through mutual discussions between the Company and the Employee; provided,
however, that the Company shall have the ultimate decision with respect to the
actual vacation dates to be taken by the Employee, which decision shall not be
unreasonable. The Employee also shall be entitled to sick leave consistent with
Company policy.
6. Expenses. During the term of this Agreement, the Company shall
reimburse the Employee for all reasonable out-of-pocket expenses incurred by the
Employee in connection with the business of the Company and in performance of
his duties under this Agreement upon
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the Employee's presentation to the Company of an itemized accounting of such
expenses with reasonable supporting data.
7. Term.
(a) The Employee's employment under this Agreement shall commence on
the Effective Date and shall expire on March 31, 2006. Notwithstanding the
foregoing but subject to paragraph 7(b), the Company may, at its election,
terminate the obligations of the Company as follows:
(i) upon 30 days' notice if the Employee becomes disabled,
meaning that as a result of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of at least twelve (12) months, the Employee either (A)
is unable to engage in any substantial gainful activity, or (B) receives income
replacement benefits for a period of at least three (3) months under an accident
and health plan covering employees of the Company; or
(ii) for Cause upon notice of such termination to the
Employee. For purposes of this Agreement, the Company shall have "Cause" to
terminate its obligations hereunder upon (A) the determination by the President
or the Board that the Employee has ceased to perform his duties hereunder (other
than as a result of his incapacity due to physical or mental illness or injury),
which failure amounts to an intentional and extended neglect of his duties
hereunder, (B) the Employee's death, (C) the determination of the President or
the Board that the Employee has engaged or is about to engage in conduct
materially injurious to the Company, (D) the Employee's having been convicted of
a felony, or (E) the Employee's participation in activities proscribed by the
provisions of paragraphs 9 or 11 or material breach of any of the other
covenants herein; or
(iii) without Cause upon 30 days' notice of such termination
to the Employee.
(b) (i) If this Agreement is terminated pursuant to paragraph
7(a)(i), the Company, subject to paragraph 11(c), shall provide to the Employee
with respect to a period of twelve (12) months after the date of termination (A)
(1) the Base Salary for such period, at the Base Salary in effect on the date of
termination, minus (2) the amount or amounts (if any) that the Employee receives
during such period under any disability insurance policy or plan maintained by
the Company or the Employee or under Social Security or similar laws, which net
amount shall be payable (after deduction of applicable payroll taxes) in
accordance with the Company's customary payroll practices in effect from time to
time, and (B) continued coverage for such period under the Company's then
existing health benefit and life insurance programs on the same terms that were
applicable to the Employee on the date of termination.
(ii) If this Agreement is terminated pursuant to paragraph
7(a)(ii), or if the Employee resigns, the Company, subject to paragraph 11(c),
may, but shall not be obligated to, provide to the Employee, for and in
consideration of the Employee's compliance with the covenants set forth in
paragraph 11, with respect to a period of up to twenty-four (24) months
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after the date of termination or resignation, as determined by the Company in
its sole and absolute discretion, the Base Salary for such period, at the Base
Salary in effect on the date of termination or resignation, payable (after
deduction of applicable payroll taxes) in accordance with the Company's
customary payroll practices in effect from time to time and with a final payment
due not later than March 15 of the year following the year in which the
termination or resignation occurred.
(iii) If this Agreement is terminated pursuant to paragraph
7(a)(iii), or if after the occurrence of a Change in Control (as defined in
paragraph 13) the term of this Agreement expires as set forth in the first
sentence of paragraph 7(a) and the Employee's employment with the Company is
terminated without Cause within twelve (12) months after such expiration, the
Company, subject to paragraph 11(c), shall provide to the Employee, for and in
consideration of the Employee's compliance with the covenants set forth in
paragraph 11, with respect to a period of not less than twelve (12) months and
not more than twenty-four (24) months after the date of termination or
expiration, as determined by the Company in its sole and absolute discretion,
(A) the Base Salary for such period, at the Base Salary in effect on the date of
termination or expiration, payable (after deduction of applicable payroll taxes)
in accordance with the Company's customary payroll practices in effect from time
to time and with a final payment due not later than December 31 of the year in
which the termination or expiration occurred, and (B) continued coverage for
such period under the Company's then existing health benefit and life insurance
programs on the same terms that were applicable to the Employee on the date of
termination or expiration.
(c) The Employee shall be under no obligation to mitigate any of the
costs incurred by the Company in providing post-employment pay and benefits to
the Employee under paragraph 7(b).
8. Representations. The Employee hereby represents to the Company that (a)
he is legally entitled to enter into this Agreement and to perform the services
contemplated herein, and (b) he has the full right, power and authority, subject
to no rights of third parties, to grant to the Company the rights contemplated
by paragraph 10.
9. Disclosure of Information. The Employee recognizes and acknowledges
that the Company's and its predecessors' trade secrets, know-how and proprietary
processes as they may exist from time to time are valuable, special and unique
assets of the Company's businesses, access to and knowledge of which are
essential to the performance of the Employee's duties hereunder. The Employee
will not, during or after the term of his employment by the Company, in whole or
in part, disclose such trade secrets, know-how or proprietary processes to any
person, firm, corporation, association or other entity for any reason or purpose
whatsoever, nor shall the Employee make use of any such property for his own
purposes or for the benefit of any person, firm, corporation, association or
other entity (except the Company) under any circumstances during or after the
term of his employment, provided that after the term of his employment these
restrictions shall not apply to such trade secrets, know-how and proprietary
processes, if any, which are then in the public domain (provided further that
the Employee was not responsible, directly or indirectly, for such trade
secrets, know-how or proprietary processes entering the public domain without
the Company's consent).
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10. Inventions. The Employee hereby sells, transfers and assigns to the
Company or to any person or entity designated by the Company all of the right,
title and interest of the Employee in and to all inventions, ideas, disclosures
and improvements, whether patented or unpatented, and copyrightable material,
made or conceived by the Employee, solely or jointly, during the term hereof
which relate to methods, apparatus, designs, products, processes or devices
sold, leased, used or under consideration or development by the Company or any
of its predecessors, or which otherwise relate to or pertain to the business,
functions or operations of the Company or any of its predecessors or which arise
from the efforts of the Employee during the course of his employment for the
Company or any of its predecessors. The Employee shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details and data pertaining to the aforementioned inventions, ideas, disclosures
and improvements. The Employee shall execute and deliver to the Company such
formal transfers and assignments and such other papers and documents as may be
necessary or required of the Employee to permit the Company or any person or
entity designated by the Company to file and prosecute the patent applications
and, as to copyrightable material, to obtain copyright thereof. Any invention
relating to the business of the Company and disclosed by the Employee within one
year following the termination or expiration of this Agreement shall be deemed
to fall within the provisions of this paragraph 10 unless proved to have been
first conceived and made following such termination or expiration.
11. Covenants Not To Compete or Interfere.
(a) During the term of this Agreement and the period, if any, with
respect to which the Company provides post-employment pay and benefits to the
Employee under paragraph 7(b), the Employee shall not, directly or indirectly
(whether as an officer, director, owner, employee, partner or other
participant), engage in any Competitive Business in the United States of America
and any other country where the Company or any of its subsidiaries conducts
business operations over which the Employee has management responsibility. As
used herein, the term "Competitive Business" means the manufacturing, supplying,
producing, selling, distributing, marketing, or providing for sale of any
orthopaedic product, device or instrument manufactured or sold by the Company or
its subsidiaries or in clinical development sponsored by the Company or its
subsidiaries, in each case, as of the date of termination of the Employee's
employment.
(b) During the term of this Agreement and the period, if any, with
respect to which the Company provides post-employment pay and benefits to the
Employee under paragraph 7(b), the Employee shall not interfere with, disrupt or
attempt to interfere with or disrupt the relationships, contractual and
otherwise, between the Company and its subsidiaries and the suppliers,
employees, sales representatives, distributors, customers, contractors, lessors
and lessees of the Company and its subsidiaries.
(c) Without limiting the rights and remedies available to the
Company, in the event of any breach by the Employee of any of the covenants set
forth in this paragraph 11:
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(i) the Company's obligation to make any payment or provide
any benefits to the Employee under paragraphs 7(b) and 13 shall cease
immediately and permanently, which shall not have any impact whatsoever on the
Employee's continuing obligation to comply with paragraphs 11(a) and 11(b);
(ii) the Employee shall repay to the Company, within ten (10)
days after he receives written demand therefor, an amount equal to (A) ninety
percent (90%) of the payments and benefits previously received by the Employee
under paragraphs 7(b) and 13 of this Agreement, plus (B) interest on such amount
at an annual rate equal to the lesser of ten percent (10%) or the maximum
non-usurious rate under applicable law, from the dates on which such payments
and benefits were received to the date of repayment to the Company; and
(iii) the Employee shall pay to the Company from time to time,
within ten (10) days after he receives written demand therefor, an amount or
amounts equal to the reasonable costs and expenses (including reasonable
attorneys' fees and expenses) incurred by or on behalf of the Company in
enforcing this paragraph 11(c) from and after the date on which the Company
delivers notice of such breach to the Employee.
(d) It is the desire and intent of the parties that the provisions
of this paragraph 11 be enforced to the fullest extent permissible under the
applicable laws in each jurisdiction in which enforcement is sought.
Accordingly, if any portion of this paragraph 11 is adjudicated to be invalid or
unenforceable, this paragraph 11 shall be deemed curtailed, whether as to time
or location, to the minimum extent required for its validity under applicable
law and shall be binding and enforceable with respect to the Employee as so
curtailed, such curtailment to apply only with respect to the operation of this
paragraph 11 in the jurisdiction in which such adjudication is made. If a court
in any jurisdiction, in adjudicating the validity of this paragraph 11, imposes
any additional terms or restrictions with respect to this paragraph 11, this
paragraph 11 shall be deemed amended to incorporate such additional terms or
restrictions.
12. Remedies. The Employee acknowledges and agrees that (a) a monetary
remedy for any breach of any of the covenants set forth in paragraphs 9, 10 and
11 would be inadequate and impracticable, (b) such a breach would cause the
Company irreparable harm, and (c) the Company shall be entitled to specific
performance and to temporary, preliminary and permanent injunctive relief
without the necessity of proving actual damages. Therefore, in addition to any
other right or remedy to which the Company may be entitled at law or in equity
(including, without limitation, the rights and remedies set forth in paragraph
11(c)), the Company shall be entitled to enforce the covenants set forth in
paragraphs 9, 10 and 11 by a decree of specific performance and to temporary,
preliminary and permanent injunctive relief to prevent any breach or threatened
breach of any such covenants, without posting any bond or other undertaking.
13. Change in Control Gross-Up Payment. If the Employee becomes entitled
to post-employment pay and benefits under paragraph 7(b)(iii) as a result of a
Change in Control, or if the vesting of the unvested stock options and other
awards granted by the Company to the Employee under the Equity Plan or otherwise
is accelerated as a result of a Change in Control, the Company shall cause an
independent, nationally recognized accounting firm or executive compensation
consulting firm selected by the Company (the "Firm") promptly to review, at the
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Company's sole expense, the applicability of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or distribution of
any type by the Company to or for the benefit of the Employee, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement,
the stock option or other award agreements, or otherwise (the "Total Payments").
If the Firm determines that the Total Payments result in an excise tax imposed
by Section 4999 of the Code or any comparable state or local law, or any
interest or penalty imposed with respect to such excise tax (such excise tax and
any such interest and penalty are referred to collectively as the "Excise Tax"),
the Company shall make to the Employee, within ten (10) days after the Company
receives such determination and in any event not later than March 15 of the year
following the year in which the Change in Control or the termination of the
Employee's employment, as applicable, occurred, an additional cash payment (the
"Gross-Up Payment") equal to an amount such that after payment by the Employee
of all taxes (including any interest or penalty imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Employee would retain an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments. For purposes of the foregoing determination,
the Employee's tax rate will be deemed to be the highest statutory marginal
federal and state tax rates applicable to the Employee (on a combined basis)
then in effect. If any tax authority finally determines that a greater Excise
Tax should be imposed upon the Total Payments than is determined by the Firm or
is reflected in the Employee's tax return pursuant to this paragraph 13, the
Company shall pay to the Employee, within ten (10) days after the Employee
notifies the Company of such final determination, the remaining balance of the
Gross-Up Payment calculated based on the amount of Excise Tax finally determined
to be payable by such tax authority. If any tax authority determines that a
lesser Excise Tax should be imposed upon the Total Payments than is determined
by the Firm or is reflected in the Employee's tax return pursuant to this
paragraph 13, the Employee shall return to the Company, within ten (10) days
after receipt by the Employee of a refund from the tax authority, the excess of
the Gross-Up Payment made by the Company to the Employee over the Gross-Up
Payment required to satisfy the Excise Tax as determined by the tax authority.
For the purposes of this Agreement, the term "Change in Control"
means the first to occur on or after the Effective Date of any of the following:
(a) the acquisition by any person or persons acting as a group
("Person") of capital stock of Xxxxxx Medical Group, Inc., a Delaware
corporation and the sole stockholder of the Company ("WMG"), which, when added
to any capital stock of WMG already owned by the Person, constitutes more than
fifty percent (50%) of either (i) the total fair market value of the outstanding
capital stock of WMG, or (ii) the total voting power of the outstanding capital
stock of WMG; provided, however, that a Change in Control will not be deemed to
have occurred when any Person who owns more than fifty percent (50%) of the
total fair market value or the total voting power of the outstanding capital
stock of WMG as of the date of this Agreement acquires any additional capital
stock of WMG; and provided further, that an increase in the percentage of the
outstanding capital stock of WMG owned by a Person as a result of a transaction
in which WMG acquires its capital stock in exchange for property will be treated
as an acquisition of such capital stock by such Person; or
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(b) the acquisition by a Person, in a single transaction or a series
of transactions within a twelve (12) month period, of capital stock of WMG
representing not less than thirty-five percent (35%) of the total voting power
of the outstanding capital stock of WMG; or
(c) the acquisition by a Person, in a single transaction or a series
of transactions within a twelve (12) month period, of consolidated assets of WMG
which have a total gross fair market value of not less than forty percent (40%)
of the total gross fair market value of all of the consolidated assets of WMG
immediately prior to such acquisition(s), in each case without regard to any
liabilities associated with such assets; provided, however, that a Change in
Control will not be deemed to have occurred when such assets are acquired by:
(i) an entity of which WMG owns, directly or indirectly, fifty
percent (50%) or more of the total fair market value or the total voting power
of the outstanding capital stock;
(ii) a Person which owns, directly or indirectly, fifty
percent (50%) or more of the total fair market value or the total voting power
of the outstanding capital stock of WMG;
(iii) an entity of which a Person described in clause (ii)
owns, directly or indirectly, fifty percent (50%) or more of the total fair
market value or the total voting power of the outstanding capital stock;
(iv) an entity which is controlled by the stockholders of WMG
immediately after the transfer; or
(v) a stockholder of WMG in exchange for or with respect to
capital stock of WMG; or
(d) a majority of the members of the Board is replaced in any twelve
(12) month period by directors whose appointment or election is not endorsed by
a majority of the members of the Board prior to the date of the appointment or
election.
In making a determination as to whether a Change in Control has occurred, the
foregoing definition shall be construed and applied in a manner that avoids the
imposition of federal income tax on the Employee by operation of Section 409A of
the Code.
14. Insurance. The Company may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
the Employee at 0000 Xxxxxxx Xxxx Xxxxxxxx, Xxxxxxxxxx, XX, 00000, or to the
Company at Xxxxxx Medical Technology, Inc.,
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0000 Xxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxx 00000, Attention: General Counsel, or to
such other address as either party shall notify the other.
16. Waiver of Breach. A waiver by the Company or the Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of the other party.
17. Governing Law. This Agreement shall be governed by, construed under,
and enforced in accordance with the laws of the State of Tennessee without
regard to conflicts-of-laws principles that would require the application of
any other law.
18. Assignment. This Agreement may be assigned, without the consent of the
Employee, by the Company to any person, partnership, corporation, association or
other entity which has purchased all or substantially all the assets of the
Company, provided that such assignee assumes all the liabilities of the Company
hereunder.
19. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter referred to herein and supersedes any
and all prior negotiations, understandings, arrangements, letters of intent, and
agreements, whether written or oral, between the Employee and the Company, its
subsidiaries, or any of its or their directors, officers, employees or
representatives with respect thereto.
20. Amendment. This Agreement may not be amended, supplemented, or
otherwise modified except by a written agreement executed by all of the parties.
21. Delayed Commencement of Certain Payments. Notwithstanding any
provision of this Agreement to the contrary, the parties intend that this
Agreement be construed and applied in a manner that will conform its provisions
with the requirements for avoidance of additional federal income tax pursuant to
Section 409A of the Code, to the extent that such Section applies to the
payments provided hereunder. Without limiting the foregoing, in the event that
the Employee is a "specified employee" within the contemplation of Section
409A(a)(2)(B) of the Code at the time that any payment otherwise would be made
based upon the Employee's separation from service with the Company within the
contemplation of Section 409A(a)(2)(A)(i) of the Code, then in no event shall
such payment or the commencement thereof be made before the six-month
anniversary of the date of such separation from service or, if earlier, the date
of the Employee's post-separation death.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on April 25, 2005, but effective as of the Effective Date.
COMPANY:
XXXXXX MEDICAL TECHNOLOGY, INC.
By: /s/ Xxxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxxx X. Xxxxxx
President and Chief Executive Officer
EMPLOYEE:
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxx
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