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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective as of October 1,
1996, is entered into by and between Digital Power Corporation, a California
corporation (the "Company") and Xxxxxx X. Xxxxx ("Employee"), in consideration
of the mutual promises and covenants made herein.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Employee to render
full-time services to the Company on an exclusive basis, upon the terms and
conditions set forth below, from the effective date of this Agreement until the
employment relationship is terminated in accordance with the provisions of this
Agreement. This Agreement shall terminate on December 31, 1999, unless
terminated earlier as provided for herein (the "Employment Term").
1.2. ACCEPTANCE. Employee hereby accepts employment with the Company and
agrees to devote his full-time attention and best efforts exclusively to
rendering the services described below. The Employee shall accept and follow the
direction and authority of the Board of Directors of the Company (the "Board")
in the performance of his duties, and shall comply with all existing and future
regulations applicable to employees of the Company and to the Company's
business.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Employee shall serve as the President and Chief
Executive Officer of the Company. In his capacity as President and Chief
Executive Officer, Employee shall do and perform all services, acts, or other
things necessary or advisable to manage and conduct the business of the Company,
including, but not limited to, the supervision, direction, and control of the
business and other employees of the Company, subject to the policies and
direction of the Board. Employee shall have all powers, duties, and
responsibilities necessary to carry out his duties, and such other powers and
duties as the Board may prescribe consistent with the Company's certificate and
bylaws.
2.2. EXCLUSIVE SERVICES. It is understood and agreed that Employee may not
engage in any other business activity during the term of his employment
hereunder, whether or not for profit or other remuneration, without the prior
written consent of the Company. Further, Employee shall not directly or
indirectly acquire any stock or interest in any corporation, partnership, or
other business entity that competes, directly or indirectly, with the business
of the Company.
2.3. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, unless otherwise instructed by the Company's Board, the
Employee shall report directly to the Board.
2.4. DIRECTOR. Employee shall serve as a Director of the Company, and
shall be nominated as Director each year subject to continued approval of the
stockholders of the Company as required by law.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay the Employee salary for the
services to be rendered by him during the term of this Agreement at the rate one
hundred ten thousand dollars ($110,000) per annum for the period of October 1,
1996 until December 31, 1996; one hundred fifty thousand dollars ($150,000) per
annum for the period of January 1, 1997 to December 31, 1997; one hundred
seventy-five thousand dollars
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($175,000) per annum for the period of January 1, 1998 to December 31, 1998; and
two hundred thousand dollars ($200,000) per annum for the period between January
1, 1999 to December 31, 1999. Such annual base salary shall be payable in
periodic installments in accordance with the terms of the Company's regular
payroll practices in effect from time to time during the term of this Agreement,
but in no event less frequently than once each month.
3.2. BONUSES. (i) During calendar year 1996, Employee shall receive a
bonus in the amount to $9,011 which will allow Employee to exercise the purchase
of 18,022 shares of common stock pursuant to Employee's existing stock option
agreement; and (ii) in addition to the bonus set forth in Section 3.2(i),
Employee' base salary, and other benefits provided to Employee hereunder,
Employee is eligible to receive bonuses based on Company performance and
Employee's attainment of objectives established annually by the Compensation
Committee of the Board of Directors.
3.3. STOCK OPTIONS. On first business day of January of each year during
the Employment Term, commencing on January 2, 1997, Employee shall be granted
stock options to purchase 100,000 shares of the Company's common stock at an
exercise price equal to the lower of (i) the closing price of the common stock
as of January 2 or (ii) the average closing price of the common stock for the
first six months of the year. The stock options may be subject to (a) the
further terms and conditions set forth in the Company's 1996 Stock Option Plan
and the Stock Option Agreement required to be executed thereunder, and (b) the
Employee's execution of all documents customarily required by the Company to
effect the grant of options.
3.4. EXPENSES. The Company shall pay or reimburse the Employee for all
reasonable, ordinary, and necessary business expenses actually incurred or paid
by Employee in the performance of Employee's services under this Agreement in
accordance with the expense reimbursement policies of the Company in effect from
time to time during the Employment Term, upon presentation of proper expense
statements or vouchers or such other written supporting documents as the Company
may reasonably require.
3.5. VACATION. Employee shall be entitled to four (4) weeks paid vacation
for each calendar year (prorated for any portion of a year, as applicable), such
vacation to accrue at the rate of thirteen and one-third (13.33) hours per
month. Notwithstanding anything to the contrary in this Agreement, vacation time
shall cease to accrue beyond eight weeks at any given time during the Employment
Term.
3.6. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, Employee shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident, and disability insurance
plans or programs and any other employee benefit or fringe benefit plans that
the Company makes available generally to its employees, as the same may be in
effect from time to time during the Employment Term.
3.7. INDEMNIFICATION. Consistent with the terms of the Company's
certificate and bylaws, the Company shall indemnify and hold Employee harmless
for any actions taken or decisions made by him in good faith while performing
services in his capacity as President and Chief Executive Officer of the Company
during the Employment Term.
3.8. ANNUAL PHYSICAL. Employee shall have the right to an annual physical
examination at the cost of the Company.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as provided for
in this Article IV, or extended by further written agreement of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to terminate
this Agreement for cause upon: (a) Employee's willful and continued failure to
substantially perform his duties with the Company (other than such failure
resulting from his incapacity due to physical or mental illness) after there is
delivered to Employee by the Board, acting reasonably and in good faith, a
written demand for substantial performance
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which sets forth in detail the specific respects in which the Board believes
Employee has not performed his duties, and giving Employee not less than thirty
(30) days to correct the deficiencies specified in the written notice; (b)
Employee's willful engagement in gross misconduct as determined by the Board
which is materially and demonstrably injurious to the Company; or (c) Employee's
commission of a felony, or an act of fraud against the Company or its
affiliates. Upon termination for cause, Employee shall not be entitled to any
severance benefits.
4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the contrary
in this Agreement, the Company reserves the right to terminate this Agreement at
any time without cause, subject to the express terms and provisions below.
If Employee is terminated without cause, Employee shall be granted a
five-year, effective the date of termination ("Termination Date"), consulting
contract at an annual salary in the amount of $200,000. Pursuant to the
consulting contract, Employee will be available to consult to the Company, but
Employee will not be required to provide during the term of the consulting
agreement more that eight hours of consulting work in any one month.
If Employee is terminated without cause, then to the extent not already
granted, the remaining options to be granted on January 2 of each year during
the Employment Term shall be granted as of the Termination Date with an exercise
price equal to the closing price of a share of common stock as of the
Termination Date. Such option shall have an exercise period of ten years from
the Termination Date.
4.4. VOLUNTARY TERMINATION BY EMPLOYEE. Notwithstanding anything to the
contrary in this Agreement, Employee may terminate this Agreement at any time
upon ninety (90) days written notice to the Company. If Employee voluntarily
terminates employment, Employee shall not be entitled to any severance benefits.
4.5. CHANGE IN CONTROL. If there is a "change in control" in the Company
during the Employment Term, then this Agreement shall be terminated, effective
as of the date the change in control, as if there was a termination without
cause in accordance with Section 4.3. For the purposes of this Section 4.5, a
"change in control" shall mean an event involving one transaction or a related
series of transactions, in which: (1) (i) the Employer issues securities equal
to 50% or more of the issued and outstanding capital stock of the Employer to
any individual, firm, partnership or other entity, including a "group" within
the meaning of Section 13 (d)(3) of the Securities Exchange Act of 0000 ("xxx
Xxxxxxxx Xxx"); (ii) the Employer is acquired in a merger or other business
combination in which the Employer is not the surviving corporation, or (iii) 50%
or more of the Employer's consolidated assets or earning power are sold or
transferred and (2) Employee is no longer President and Chief Executive Officer
of the Employer fulfilling the duties set forth in Section 2.1.
4.6. DISABILITY. If Employee becomes permanently and totally disabled,
this Agreement shall be terminated. Employee shall be deemed permanently and
totally disabled if he is unable to engage in the activities required by this
Agreement by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 3 months. If this Agreement is
terminated due to Disability, Options then held as of the date of Disability may
be exercised by the Optionee or the Employee's personal representative in whole
or in part, at any time within one year after the Disability. In addition, the
Company shall purchase disability insurance in an amount such that in the event
the Employee is disabled in accordance with this Section 4.6, the insurance
proceeds will be equal to the amount that Employee would have received, net of
taxes, under the remaining term of this Employment Agreement.
4.7. DEATH. If Employee dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his death
subject to the express terms and provisions below.
Upon the death of Employee, all unexercised options which have been granted
as of the date of death may be exercised by the designated beneficiary, as
provided in Section 6.8 below, the estate, or Employee's personal representative
in whole or in part within one year of the date of death. The Company shall
provide Employee with life insurance, at Company's expense, in an amount equal
to $1,000,000.
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4.8. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not excuse any obligation that
accrued prior to termination, nor shall termination excuse the performance of
any obligation which is required to be performed after termination. Any such
obligation shall survive the termination of employment and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR COMPETITION. Employee acknowledges that he will have access at
the highest level to, and the opportunity to acquire knowledge of, the Company's
customer lists, customer needs, business plans, trade secrets, and other
confidential and proprietary information from which the Company may derive
economic or competitive advantage, and that he is entering into the covenants
and representations in this Article V in order to preserve the goodwill and
going concern value of the Company, and to induce the Company to enter into this
Agreement. Employee agrees not to engage in any unfair competition with Company.
In addition during the Employment Term and consulting agreement, if applicable,
Employee will not work or assist directly or indirectly with a competitor of
Employer.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term and at all times
thereafter, the Employee agrees to keep secret and to retain in the strictest
confidence all confidential matters which relate to the Company or its
"affiliate" (as that term is defined in the Exchange Act), which are of a
specific nature to the Company's business and not generic skills or knowledge of
Employer, and which may include, but not necessarily be limited to, customer
lists, client lists, trade secrets, pricing lists, business plans, financial
projections and reports, business strategies, internal operating procedures, and
other confidential business information from which the Company derives an
economic or competitive advantage, or from which the Company might derive such
advantage in its business, whether or not labeled "secret" or "confidential."
5.3. NON-SOLICITATION OF CUSTOMERS. During the Employment Term, the
Employee will have access to confidential records and data pertaining to the
Company's customers, their needs, and the relationship between the Company and
its customers. Such information is considered secret and is disclosed during the
Employment Term in confidence. Accordingly, during the later of the end of the
Employment Term and one year thereafter or consulting agreement, if applicable,
the Employee and any entity controlled by him or with which he is associated (as
the terms "control" and "associate" are defined in the Exchange Act) shall not,
directly or indirectly (i) solicit for a competitive purpose, interfere with,
induce or entice away any person or entity that is or was a client, customer or
agent of the Company or its affiliate (as the term "affiliate" is defined in the
Exchange Act), or (ii) in any manner persuade or attempt to persuade any such
person or entity (A) to discontinue its business relationship with the Company
or its affiliate, or (B) to enter into a business relationship with any other
entity or person the loss of which the Employee should reasonably anticipate
would be detrimental to the Company or its affiliate in any respect.
5.4. NON-SOLICITATION OF EMPLOYEES. The Employee and any entity controlled
by him or with which he is associated (as the terms "control" and "associate"
are defined in the Exchange Act shall not, during later of the end of the
Employment Term and for one (1) year thereafter or end of the consulting
agreement, if applicable, directly or indirectly solicit, interfere with, hire,
offer to hire or induce any person who is or was an officer or employee of the
Company or any affiliate (as the term "affiliate" is defined in the Exchange
Act) (other than secretarial personnel) to discontinue his relationship with the
Company, or affiliate of the Company, in order to accept employment by, or enter
into a business relationship with, any other entity or person. (These acts are
hereinafter referred to as the "prohibited acts of solicitation.") The foregoing
restriction, however, shall not apply to any business with which Employee may
become associated after the Employment Term so long as the prohibited acts of
solicitation taken by such business are not as a result of the active
participation or involvement, direct or indirect, by the Employee.
5.5. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company otherwise, the Employee agrees to promptly deliver to the
Company all Company or affiliate memoranda, notes, records, reports, manuals,
drawings, designs, computer files in any media, and other documents
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(including extracts and copies thereof) relating to the Company or its
affiliate, and all other property of the Company.
5.6. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed by
the Employee, either alone or with others, during the Employment Term and
consulting agreement, if applicable, whether or not conceived or developed
during Employee's working hours, and which are related to the Company's
business, shall be the sole property of the Company. Employee shall execute all
documents, including patent applications and assignments, required by the
Company to establish the Company's rights under this provision.
5.7. REPRESENTATIONS. The Employee represents and warrants to the Company
that he has full power to enter into this Agreement and perform his duties
hereunder, and that his execution and delivery of this Agreement and the
performance of his duties shall not result in a breach of, or constitute a
default under, any agreement or understanding, whether oral or written,
including, without limitation, any restrictive covenant or confidentiality
agreement, to which he is a party or by which he may be bound.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other shall
be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; provided, however, that notices of change
of address or telex or facsimile number shall be effective only upon actual
receipt by the other party. Notices shall be delivered at the following
addresses, unless changed as provided for herein.
To the Employee:
Xxxxxx X. Xxxxx
0000 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
To the Company:
Attention: Secretary
Digital Power Corporation
00000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
6.2. NO ASSIGNMENT. This Agreement, and the rights and obligations of the
parties, may not be assigned by either party without the prior written consent
of the other party.
6.3. APPLICABLE LAW. This Agreement and the relationships of the parties
in connection with the subject matter of this Agreement shall be governed by,
and construed under, the laws of the State of California.
6.4. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements or understandings of the parties, either oral or written, with
respect to this employment of Employee by the Company, and contains the complete
and final agreement and understanding of the parties with respect thereto.
Employee acknowledges that no representation, inducements, promises, or
agreements, oral or otherwise, have been made by the Company or any of its
officers, directors, employees or agents, which are not expressed herein, and
that no other agreement shall be valid or binding on the Company.
6.5. WITHHOLDING TAXES. All amounts payable under this Agreement, whether
such payment is to be made in cash or other property, including, without
limitation, stock of the Company, may be subject to withholding for Federal,
state, and local income taxes, employment and payroll taxes, and other legally
required withholding taxes and contributions to the extent appropriate in the
determination of the Company,
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and the Employee agrees to report all such amounts as ordinary income on his
personal income tax returns and for all other purposes, as called for.
At the election of Employee, Employee shall have the right to sell to the
Company any vested stock options (at the then fair market value of the common
stock less the exercise price) in order to meet any withholding requirements or
pay income taxes on income related to such options.
6.6. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall not be
affected by such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent and, to the full extent
permitted by law, any provision or restrictions found to be invalid shall be
amended with such modifications as may be necessary to cure such invalidity, and
such restrictions shall apply as so modified, or if such provisions cannot be
amended, they shall be deemed severable from the remaining provisions and the
remaining provisions shall be fully enforceable in accordance with law.
6.7. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any provision of this Agreement by the other party shall not be
deemed a waiver of such provision or a relinquishment of any right thereunder,
nor shall it affect the validity of this Agreement nor prevent enforcement of
such provision or any similar provision, at any time.
6.8. DESIGNATION OF BENEFICIARY. If the Employee shall die before receipt
of all payments and benefits to which he is entitled under this Agreement,
payment of such amounts or benefits in the manner provided herein shall be made
to such beneficiary as he shall have designated in a writing that is filed with
the Secretary of the Company or, in the absence of such designation, to his
estate or personal representative.
6.9. ARBITRATION. Any controversy between Employer and Employee involving
the construction or application of any of the terms, provisions, or conditions
of this Agreement shall be submitted to arbitration. Arbitration shall comply
with and be governed by the provisions of the American Arbitration Association.
6.10. ATTORNEYS FEES. In the event of any litigation arising out of this
Agreement, or the parties' performance as outlined herein, the prevailing party
shall be entitled to an award of costs, including an award of reasonable
attorney's fees.
6.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
EMPLOYER: DIGITAL POWER CORPORATION
By: /s/ XXXXXX X. XXXXXXXXXX
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Xxxxxx X. Xxxxxxxxxx
Chairman of the Board
EMPLOYEE: By: /s/ XXXXXX X. XXXXX
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Xxxxxx X. Xxxxx
President and CEO
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