Exhibit 10.2
APPLIED INNOVATION INC.
EMPLOYMENT AGREEMENT
This Agreement is made as of this 6th day of February, 2006, by and between
XXXXXXX X. XXXXXXX and APPLIED INNOVATION INC., a Delaware corporation with its
principal office at 0000 Xxxxxxxxxx Xxxxx, Xxxxxx, Xxxx 00000, its subsidiaries,
successors and assigns (the "Company").
RECITALS
A. The Company is engaged in the business of developing, manufacturing, and
marketing data communications and data transmission equipment, software, and
services to telephone companies, interexchange telephone carriers, cable
television companies, and electric utilities, for alarm data communications,
network mediation and management, interoperability of networks, and network
switching and routing, and develops and uses valuable technical and nontechnical
trade secrets and other confidential information which it desires to protect.
B. You will be employed as an executive officer of the Company.
C. The Company considers your continued services to be in the best interest
of the Company and desires, through this Agreement, to assure your continued
services on behalf of the Company on an objective and impartial basis and
without distraction or conflict of interest in the event of an attempt to obtain
control of the Company.
D. You are willing to become employed by and to remain in the employ of the
Company on the terms set forth in this agreement.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. CONSIDERATION; REPRESENTATIONS
(a) CONSIDERATION. As consideration for your entering into this
Agreement and your willingness to remain bound by its terms, the Company shall
employ you and provide you with access to certain Confidential Information as
defined in this Agreement and other valuable consideration as provided for
throughout this Agreement, including in Sections 3, 4 and 5 of this Agreement.
(b) REPRESENTATION. You represent and warrant to the Company that you
are not a party to any agreement that would prevent you from performing your
duties for the Company or which would expose the Company to a risk of suit by
reason of your employment by the Company. In addition, you represent that all
written material and related information presented
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by you or on your behalf to the Company regarding your employment and
educational activities were true and accurate when made and are true an accurate
as of the date of this Agreement.
2. EMPLOYMENT.
(a) POSITION. You will be employed as President and Chief Operating
Officer, reporting to the Chief Executive Officer of the Company. You shall
perform the duties, undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons employed in similar
executive capacities. Your duties and responsibilities will include: Sales,
Marketing, Engineering, Operations, Service and all Administrative functions
including Finance. It is contemplated that you will be elected Chief Executive
Officer of the Company and report to the Board of Directors or an executive
committee thereof, which election shall be contingent on the accomplishment of
objectives to be agreed to by you and the Company.
(b) RESTRICTED EMPLOYMENT. While employed by the Company, you shall
devote your full-time efforts to the business of the Company and shall not
engage in any outside employment, board membership, or consulting work without
first securing the approval of the Company's Board of Directors. Furthermore, so
long as you are employed under this Agreement, you agree to devote your full
time and efforts exclusively on behalf of the Company and to competently,
diligently, and effectively discharge your duties hereunder. You shall not be
prohibited from engaging in such personal, charitable, or other nonemployment
activities that do not interfere with your full time employment hereunder and
which do not violate the other provisions of this Agreement. You further agree
to comply fully with all policies and practices of the Company as are from time
to time in effect.
3. COMPENSATION
(a) BASE SALARY AND CASH BONUS PLAN. Your compensation, whether as
Chief Operating Officer or as Chief Executive Officer, will be at an annual base
rate of $275,000 through December 31, 2006 ("Basic Salary"), payable in
accordance with the normal payroll practices of the Company. Your Basic Salary
may be increased from time to time by action of the Board of Directors of the
Company. You will also be eligible for a cash bonus under a bonus plan which is
determined annually by the Board of Directors of the Company for officers of the
Company.
(b) STOCK OPTIONS. You will be eligible to receive stock options to
purchase shares of the common stock of the Company pursuant to the terms of
plans adopted by the Board of Directors of the Company from time to time. Such
options grant shall include an initial grant of 300,000 stock options under the
Company's 2001 Stock Incentive Plan ("Plan") at an exercise price equal to the
closing price of the Company's common stock on the day prior to the start of
your employment, vesting and becoming exercisable at the rate of 20% of such
options on each anniversary of the date of the grant and expiring on the tenth
anniversary of the date of the grant, unless sooner terminated in accordance
with the Plan upon termination of your employment.
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(c) RESTRICTED STOCK. You will also be eligible to receive restricted
stock grants of the common stock of the Company pursuant to the terms of plans
adopted by the Board of Directors of the Company. Such grants shall include an
initial grant of 25,000 restricted shares under the Plan, vesting 5,000 shares
on each of the following events: (i) your election as Chief Executive Officer of
the Company, (ii) achievement of the 30/90/180 Day Plan, (iii) achievement of
the Company's 2006 financial plan, both top and bottom lines, (iv) achievement
of the Company's 2007 financial plan, both top and bottom lines, and (v)
achievement of the Company's 2008 financial plan, both top and bottom lines,
unless sooner terminated in accordance with the Plan upon termination of your
employment prior to vesting.
(d) ACCELERATION OF VESTING IN EVENT OF CHANGE IN CONTROL. If a
"Change in Control," as defined in Section 9(e)(v), shall occur (i) in which the
Company does not survive as a result of such Change in Control or substantially
all of the assets of the Company are sold as a result of such Change in Control,
and (ii) in which the surviving entity does not assume the obligations of your
outstanding stock options upon the Change in Control, then vesting of all
outstanding stock options issued to you prior to the Change in Control will be
accelerated by twenty-four (24) months plus an additional twelve (12) months for
each full year you have been employed by the Company and such options will be
exercisable (to the extent then vested) for a period of thirty (30) days from
the date of the Change in Control.
(e) REIMBURSEMENT OF EXPENSES. Subject to applicable Company policies,
you will be reimbursed for necessary and reasonable business expenses incurred
in connection with the performance of your duties hereunder or for promoting,
pursuing or otherwise furthering the business or interests of the Company.
4. FRINGE BENEFITS. You will be entitled to receive employee benefits and
participate in any employee benefit plans, in accordance with their terms as
from time to time amended, that the Company maintains during your employment and
which are made generally available to all other management employees in like
positions. This includes a 401(k) and profit sharing plan. It is agreed that the
Company will pay any necessary COBRA payments on your behalf due to any break in
medical coverage for any reason, including pre-existing conditions. You will be
entitled to 20 days of paid vacation per calendar year, which will be prorated
for 2006 based on the number of months you are employed during the year.
5. RELOCATION.
This employment requires you to work full-time in the Company's Dublin,
Ohio office. Therefore, you will receive a relocation package in accordance with
the terms below to move you, your spouse, and your children living in your
household (collectively, your spouse and children living in your household are
referred to as your "Family") from your current home in New Jersey to the
Dublin, Ohio area. The aggregate relocation reimbursement hereunder is limited
to $85,000 (the "Relocation Cap"), except that temporary housing expenses and
home visits while in temporary housing as noted in (b) and (g) below,
respectively, shall not be subject to the Relocation Cap.
(a) HOUSE HUNTING TRIPS. The Company will reimburse expenses for up to
two trips for you and your Family to select a residence at the new location.
Typically these trips
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should not exceed 3 days/2 nights, but necessary exceptions will be considered
on a case by case basis. The Company will reimburse reasonable expenses for
flights/mileage, meals and hotel.
(b) TEMPORARY HOUSING EXPENSES. The Company will provide temporary
housing for you and your Family for a maximum of six months (rent and utilities
for furnished apartment or hotel room selected by the Company).
(c) TRANSPORTATION OF HOUSEHOLD GOODS. The Company will pay for
reasonable costs of transporting normal household goods, including packing,
loading, hauling and unloading of household goods (excluding cars, boats and
campers) from your present home in New Jersey to a new home in the Dublin, Ohio
area. The carrier will be selected by the Company.
(d) TRANSPORTATION OF EMPLOYEE AND FAMILY. The Company will pay for
reasonable costs associated with transporting you and your Family to your new
location. Reasonable costs include standard mileage reimbursement per vehicle
driven, plus meals and in-transit lodging.
(e) SALE OF RESIDENCE. Payment of the following expenses incidental to
the sale of the your New Jersey home will be compensated:
1. Realtor commission/Broker fee up to 5% of sale price of home.
2. Appraisal, credit report and survey when required by law or
mortgage holder.
3. Mortgagee's title policy, abstract or title guarantee.
4. Recording of mortgage and deed.
5. Local mortgage tax.
6. Reasonable attorney fees consistent with local requirements
limited to $300.00.
7. Transfer fees up to $2.00 per thousand dollars of selling price.
8. Title insurance up to $3.50 per thousand dollars of selling
price.
9. Deed preparation up to $35.00.
10. Gas and termite inspection up to $90.00.
11. Septic/well inspection up to $100.00.
12. Home warranty up to $300.00.
The following expenses are not reimbursable by the Company:
- Full or pro-rated hazard insurance
- Property taxes/aggregate escrow reserve
- Interest charges
- Home owner association dues
- Loan origination fees/mortgage related points
(f) PURCHASE OF OHIO RESIDENCE. Payment of the following expenses
incidental to the purchase of your home in the Dublin, Ohio area will be
compensated:
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- Buyer closing costs: the Company will pay for the buyer closing
costs for the purchase of the new home, providing the selling
price of the current home and purchase price of the new home have
a difference of less than 10% on the upside. If the purchase
price of your new home is more than 10% higher than the selling
price of your current home, the Company will pay for a prorated
amount of the closing costs. Reimbursable closing costs will
include the costs listed in Subsection (e) above for items 2
through 11.
- The cost of reasonable standard utility hook-ups at the new
residence.
(g) EMPLOYEE HOME VISITS WHILE IN TEMPORARY HOUSING. The Company will
reimburse you for reasonable family visit expenses during the relocation period.
Such reimbursements will be limited to coach roundtrip airfare on weekends
during the relocation period. These costs include only airfare (Ohio/New
Jersey), airport/transfers/parking and rental car while in Ohio and will be
limited to $2,000 per month.
(h) REASONABLE COSTS. All of the above relocation costs must be
reasonable in amount and subject to Company review and approval. If special
conditions exist and additional assistance is required, appropriate advance
approval is required.
(i) MISCELLANEOUS ACCOUNTABLE COSTS. The Company will provide a
$1,000.00 accountable allowance for move related expenses. The costs must be
approved by the Company and be directly related to the relocation event. As with
all other expenses under this policy a full accounting, included written
receipts with proper explanation, is to be provided before reimbursement occurs.
(j) REPAYMENT SCHEDULE FOR RELOCATION EXPENSES. If you voluntarily
resign from employment with the Company, or your employment is terminated for
cause under Section 9(b), you will reimburse the Company (and the Company may
offset against any amounts due to you for any reason) any relocation expenses
paid under this Employment Agreement as follows:
Termination within 0 - 120 days after commencement 100%
Termination within 121 - 180 days after commencement 80%
Termination within 181 - 240 days after commencement 60%
Termination within 241 - 300 days after commencement 40%
Termination within 301 - 365 days after commencement 20%
(k) TAXES AND TAX GROSS UP. As provided by law, certain relocation
expenses are not taxable while other such expenses are includible in your gross
income. The Company will gross up taxable payments/reimbursements to you to
cover any social security and Medicare taxes on such payments.
Payments/reimbursements will not be grossed up to cover any other Federal,
state, or local income taxes or any other taxes.
(l) SUBMISSION OF RELOCATION EXPENSES. All expenses reimbursable under
these relocation expense provisions which are not paid directly by the Company
must be submitted by you on an expense form with appropriate receipts. When you
submit relocation expenses for
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reimbursement, you must use an expense form that contains only relocation
related expenses.
6. CONFIDENTIAL INFORMATION.
(a) DEFINITION OF CONFIDENTIAL INFORMATION. As used throughout this
Agreement, the term "Confidential Information" means any information you acquire
during employment by the Company (including information you conceive, discover
or develop) which is not readily available to the general public and which
relates to the business, including research and development projects, of the
Company, its subsidiaries or its affiliated companies.
(b) ITEMS INCLUDED. Confidential Information includes, without
limitation, information of a technical nature (such as trade secrets,
inventions, discoveries, product requirements, designs, software codes and
manufacturing methods), matters of a business nature (such as customer lists,
the identities of customer contacts, information about customer requirements and
preferences, the terms of the Company's contracts with its customers and
suppliers, and the Company's costs and prices), personnel information (such as
the identities, duties, customer contacts, and skills of the Company's
employees) and other financial information relating to the Company and its
customers (including credit terms, methods of conducting business, computer
systems, computer software, personnel data, and strategic marketing, sales or
other business plans). Confidential Information may or may not be patentable.
(c) ITEMS EXCLUDED. Confidential Information does not include
information which you learned prior to employment with the Company from sources
other than the Company, information you develop after employment from sources
other than the Company's Confidential Information or information which is
readily available to persons with equivalent skills, training and experience in
the same fields or fields of endeavor as you. You must presume that all
information that is disclosed or made accessible to you during employment by the
Company is Confidential Information if you have a reasonable basis to believe
the information is Confidential Information or if you have notice that the
Company treats the information as Confidential Information.
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(d) PROHIBITED DISCLOSURE OR USE. Except in conducting the Company's
business, you shall not at any time, either during or following your employment
with the Company, make use of, or disclose to any other person or entity, any
Confidential Information unless (i) the specific information becomes public from
a source other than you or another person or entity that owes a duty of
confidentiality to the Company and (ii) twelve months have passed since the
specific information became public. However, you may discuss Confidential
Information with employees of the Company when necessary to perform your duties
to the Company. Notwithstanding the foregoing, if you are ordered by a court of
competent jurisdiction to disclose Confidential Information, you will officially
advise the Court that you are under a duty of confidentiality to the Company
hereunder, take reasonable steps to delay disclosure until the Company may be
heard by the Court, give the Company prompt notice of such Court order, and if
ordered to disclose such Confidential Information you shall seek to do so under
seal or in camera or in such other manner as reasonably designed to restrict the
public disclosure and maintain the maximum confidentiality of such Confidential
Information.
(e) DELIVERY UPON EMPLOYMENT SEPARATION. Upon Employment Separation,
you shall deliver to the Company all originals, copies, notes, documents,
computer data bases, disks, and CDs, or records of any kind that reflect or
relate to any Confidential Information. As used herein, the term "notes" means
written or printed words, symbols, pictures, numbers or formulae. As used
throughout this Agreement, the term "Employment Separation" means the separation
from and/or termination of your employment with the Company, regardless of the
time, manner or cause of such separation or termination.
7. INVENTIONS.
(a) DEFINITION OF INVENTIONS. As used throughout this Agreement, the
term "Inventions" means any inventions, improvements, designs, plans,
discoveries or innovations of a technical or business nature, whether patentable
or not, relating in any way to the Company's business or contemplated business
if the Invention is conceived or reduced to practice by you during your
employment by the Company. Inventions includes all data, records, physical
embodiments and intellectual property pertaining thereto. Inventions reduced to
practice within one year following Employment Separation shall be presumed to
have been conceived during employment.
(b) ASSIGNMENT TO COMPANY. Inventions are the Company's exclusive
property and shall be promptly disclosed and assigned to the Company without
additional compensation of any kind. If requested by the Company, you, your
heirs, your executors, your administrators or legal representative will provide
any information, documents, testimony or other assistance needed for the Company
to acquire, maintain, perfect or exercise any form of legal protection that the
Company desires in connection with an Invention.
(c) DELIVERY UPON EMPLOYMENT SEPARATION. Upon Employment Separation,
you shall deliver to the Company all copies of and all notes with respect to all
documents or records of any kind that relate to any Inventions.
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8. NONCOMPETITION AND NONSOLICITATION.
(a) ACKNOWLEDGEMENT OF CONFIDENTIAL INFORMATION. By entering into this
Agreement, you acknowledge that the Confidential Information has been and will
be developed and acquired by the Company by means of substantial expense and
effort, that the Confidential Information is a valuable asset of the Company's
business, that the disclosure of the Confidential Information to any of the
Company's competitors would cause substantial and irreparable injury to the
Company's business, and that any customers of the Company developed by you or
others during your employment are developed on behalf of the Company. You
further acknowledge that you have been provided with access to Confidential
Information, including Confidential Information concerning the Company's major
customers, and its technical, marketing and business plans, disclosure or misuse
of which would irreparably injure the Company.
(b) NONCOMPETITION AND NONSOLICITATION. In exchange for the
consideration specified in Section 1(a) of this Agreement -- the adequacy of
which you expressly acknowledge -- you agree that during your employment by the
Company and for a period of twelve (12) months following Employment Separation,
you shall not, directly or indirectly, as an owner, shareholder, officer,
employee, manager, consultant, independent contractor, or otherwise:
(i) Attempt to recruit or hire, interfere with or harm, or
attempt to interfere with or harm, the relationship of the Company, its
subsidiaries or affiliates, with any person who is an employee, customer or
supplier of the Company, it subsidiaries or affiliates;
(ii) Contact any employee of the Company for the purpose of
discussing or suggesting that such employee resign from employment with the
Company for the purpose of becoming employed elsewhere or provide
information about individual employees of the Company or personnel policies
or procedures of the Company to any person or entity, including any
individual, agency or company engaged in the business of recruiting
employees, executives or officers; or
(iii) Own, manage, operate, join, control, be employed by,
consult with or participate in the ownership, management, operation or
control of, or be connected with (as a stockholder, partner, or otherwise),
any business, individual, partner, firm, corporation, or other entity that
competes or plans to compete, directly or indirectly, with the Company, its
products, or any division, subsidiary or affiliate of the Company;
provided, however, that your "beneficial ownership," either individually or
as a member of a "group" as such terms are used in Rule 13d of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), of not more than two percent (2%) of the voting stock
of any publicly held corporation, shall not be a violation of this
Agreement.
(c) NONCOMPETITION CLAUSE EFFECTIVE UPON ELECTION AS CEO.
Notwithstanding anything herein to the contrary, your obligations under the
noncompetition clause in Section 8(b)(iii) will not become effective until your
election as Chief Executive Officer of the Company by the Company's Board of
Directors.
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9. TERMINATION OF EMPLOYMENT.
(a) TERMINATION UPON DEATH OR DISABILITY. Your employment will
terminate automatically upon your death. The Company will be entitled to
terminate your employment because of your disability upon 30 days written
notice. "Disability" will mean "total disability" as defined in the Company's
long term disability plan or any successor thereto. In the event of a
termination under this Section 9(a), the Company will pay you only the earned
but unpaid portion of your Basic Salary through the termination date.
(b) TERMINATION BY COMPANY FOR CAUSE. An Employment Separation for
Cause will occur upon a determination by the Company that "Cause" exists for
your termination and the Company serves you written notice of such termination.
As used in this Agreement, the term "Cause" shall refer only to any one or more
of the following grounds:
(i) Commission of an act of dishonesty involving the Company, its
business or property, including, but not limited to, misappropriation of
funds or any property of the Company;
(ii) Engagement in activities or conduct clearly injurious to the
best interests or reputation of the Company;
(iii) Willful and continued failure substantially to perform your
duties under this Agreement (other than as a result of physical or mental
illness or injury), after the Board of Directors of the Company delivers to
you a written demand for substantial performance that specifically
identifies the manner in which the Board believes that you have not
substantially performed your duties;
(iv) Illegal conduct or gross misconduct that is willful and
results in material and demonstrable damage to the business or reputation
of the Company;
(v) The clear violation of any of the material terms and
conditions of this Agreement, including misrepresentations under Section
1(b) of this Agreement, or any other written agreement or agreements you
may from time to time have with the Company;
(vi) The clear violation of the Company's code of business
conduct or the clear violation of any other rules of behavior as may be
provided in any employee handbook which would be grounds for dismissal of
any employee of the Company; or
(vii) Commission of a crime which is a felony, a misdemeanor
involving an act of moral turpitude, or a misdemeanor committed in
connection with your employment by the Company which causes the Company a
substantial detriment.
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No act or failure to act shall be considered "willful" unless it is
done, or omitted to be done, by you in bad faith or without reasonable belief
that your action or omission was in the best interests of the Company. Any act
or failure to act that is based upon authority given pursuant to a resolution
duly adopted by the Board of Directors, or the advice of counsel for the
Company, shall be conclusively presumed to be done, or omitted to be done, by
you in good faith and in the best interests of the Company.
In the event of a termination under this Section 9(b), the Company
will pay you only the earned but unpaid portion of your Basic Salary through the
termination date.
Following a termination for Cause by the Company, if you desire to
contest such determination, your sole remedy will be to submit the Company's
determination of Cause to arbitration in Columbus, Ohio before a single
arbitrator under the commercial arbitration rules of the American Arbitration
Association. If the arbitrator determines that the termination was other than
for Cause, the Company's sole liability to you will be the amount that would be
payable to you under Section 9(d) of this Agreement for a termination of your
employment by the Company without Cause. Each party will bear his or its own
expenses of the arbitration.
(c) TERMINATION BY YOU. In the event of an Employment Separation as a
result of a termination by you for any reason, you must provide the Company with
at least 30 days advance written notice ("Notice of Termination") and continue
working for the Company during the 30-day notice period, but only if the Company
so desires to continue your employment and to compensate you during such period.
In the event of such termination under this Section, the Company will pay you
the earned but unpaid portion of your Basic Salary through the termination date.
(d) TERMINATION BY COMPANY WITHOUT CAUSE. In the event of an
Employment Separation as a result of termination by the Company without Cause
after you have been elected Chief Executive Officer of the Company, the Company
will pay you the earned but unpaid portion of your Basic Salary through the
termination date and will continue to pay you your Basic Salary for an
additional six (6) months (the "Severance Period"); provided, however, any such
payments will immediately end if (i) you are in violation of any of your
obligations under this Agreement, including Sections 6, 7 and/or 8; or (ii) the
Company, after your termination, learns of any facts about your job performance
or conduct that would have given the Company Cause, as defined in Section 9(b),
to terminate your employment. If you are terminated by the Company without Cause
prior to your election as Chief Executive Officer of the Company, the Company's
sole obligation will be to pay you the earned but unpaid portion of your Basic
Salary through the termination date.
(e) TERMINATION FOLLOWING CHANGE OF CONTROL. If a "Change in Control",
as defined in Section 9(e)(v), shall have occurred and within 13 months
following such Change in Control the Company terminates your employment other
than for Cause, as defined in Section 9(b), or you terminate your employment for
Good Reason, as that term is defined in Section 9(e)(vii), then you shall be
entitled to the benefits described below:
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(i) You shall be entitled to the unpaid portion of your Basic
Salary plus credit for any vacation accrued but not taken and the
amount of any earned but unpaid portion of any bonus, incentive
compensation, or any other Fringe Benefit to which you are entitled
under this Agreement through the date of the termination as a result
of a Change in Control (the "Unpaid Earned Compensation"), plus 1.0
times your "Current Annual Compensation" as defined in this Section
9(e)(i) (the "Salary Termination Benefit"). "Current Annual
Compensation" shall mean the total of your Basic Salary in effect at
the Termination Date, plus the average annual performance bonus
actually received by you over the last three years fiscal years (or if
you have been employed for a shorter period of time over such period
during which you performed services for the Company), and shall not
include the value of any stock options granted or exercised,
restricted stock awards granted or vested, contributions to 401(k) or
other qualified plans, medical, dental, or other insurance benefits,
or other fringe benefits.
(ii) Vesting of all outstanding stock options and restricted
stock awards issued to you will be accelerated by twenty-four (24)
months plus an additional twelve (12) months for each full year you
have been employed by the Company, and thereafter such options shall
be exercisable(to the extent then vested) in accordance with such
governing stock option agreements and plans for a period of thirty
(30) days from the date of the Change in Control.
(iii) The Company shall maintain for your benefit (or at your
election make COBRA payments for your benefit), until the earlier of
(A) 12 months after termination of employment following a Change in
Control, or (B) your commencement of full-time employment with a new
employer, all life insurance, medical, health and accident, and
disability plans or programs, such plans or programs to be maintained
at the then current standards of the Company, in which you shall have
been entitled to participate prior to termination of employment
following a Change in Control, provided your continued participation
is permitted under the general terms of such plans and programs after
the Change in Control ("Fringe Termination Benefit"); (collectively
the Salary Termination Benefit and the Fringe Termination Benefit are
referred to as the "Termination Benefits").
(iv) The Unpaid Earned Compensation shall be paid to you within
15 days after termination of employment, one-half of the Termination
Benefits shall be payable to you as severance pay in a lump sum
payment within 30 days after termination of employment, and one-half
of the Termination Benefits shall be payable to you as severance pay
in 12 monthly payments commencing 30 days after termination of
employment; provided, however, the Company may immediately discontinue
the payment of the Termination Benefits if (i) you are in violation of
any of your obligations under this Agreement, including in Sections 6,
7 and/or 8; and/or (ii) the Company, after your termination, learns of
any facts about your job performance or conduct that would have given
the Company Cause as defined in Section 9(b) to terminate your
employment. You shall have
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no duty to mitigate your damages by seeking other employment, and the
Company shall not be entitled to set off against amounts payable
hereunder any compensation which you may receive from future
employment.
(v) A "Change in Control" shall be deemed to have occurred if and
when, after the date hereof, (i) any "person" (as that term is used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") on the date hereof), including any
"group" as such term is used in Section 13(d)(3) of the Exchange Act
on the date hereof, shall acquire (or disclose the previous
acquisition of) beneficial ownership (as that term is defined in
Section 13(d) of the Exchange Act and the rules thereunder on the date
hereof) of shares of the outstanding stock of any class or classes of
the Company which results in such person or group possessing more than
50% of the total voting power of the Company's outstanding voting
securities ordinarily having the right to vote for the election of
directors of the Company; or (ii) as the result of, or in connection
with, any tender or exchange offer, merger or other business
combination, or contested election, or any combination of the
foregoing transactions (a "Transaction"), the owners of the voting
shares of the Company outstanding immediately prior to such
Transaction own less than a majority of the voting shares of the
Company after the Transaction; or (iii) during any period of two
consecutive years during the term of this Agreement, individuals who
at the beginning of such period constitute the Board of Directors of
the Company (or who take office following the approval of a majority
of the directors then in office who were directors at the beginning of
the period) cease for any reason to constitute at least one-half
thereof, unless the election of each director who was not a director
at the beginning of such period has been approved in advance by
directors of the Company representing at least one-half of the
directors then in office who were directors at the beginning of the
period; or (iv) the sale, exchange, transfer, or other disposition of
all or substantially all of the assets of the Company (a "Sale
Transaction") shall have occurred.
(vi) If any portion of the payments and benefits provided under
this Agreement to you, alone or with other payments and benefits,
would constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be determined by the Company's independent
compensation specialist to be nondeductible to the Company, then the
aggregate present value of all of the amounts payable to you under
Section 9(e) hereof shall be reduced to the maximum amount which would
cause all of the payments under Section 9(e) to be deductible and in
such event you shall have the option, but not the obligation, to
designate or select those kinds of payments which shall be reduced and
the order of such reductions, but your failure to make such selections
within a period of 30 days following notice of the determination that
a reduction is necessary will result in a reduction of all such
payments, pro rata. If you disagree with the determination of the
reduced amount by the Company's independent compensation specialist,
you may contest that determination by giving notice of such contest
within 30 days of learning of the
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determination and may use an independent compensation specialist of
your choice in connection with such contest. The Company shall pay all
of your costs in connection with such contest if the ultimate
determination by the two independent compensation specialists in
consultation with each other, or by a third independent compensation
specialist, jointly chosen by the two first-named independent
compensation specialists in the event the first two cannot agree,
represents a lesser reduction in the amounts payable under Section
9(e) hereof than the Company's independent compensation specialist
established in the first instance. Otherwise, you shall pay your own
and any additional costs incurred by the Company in contesting such
determination. If there is a final determination by the Internal
Revenue Service or a court of competent jurisdiction that the Company
overpaid amounts under Section 280G of the Code, the amount of the
overpayment shall be treated as a loan to you and shall be repaid
immediately, together with interest on such amount at the prime rate
of interest at Huntington National Bank, Columbus, Ohio, or any
successor thereto, in effect from time to time. If the Internal
Revenue Service or a court of competent jurisdiction finally
determines, or if the Code or regulations thereunder shall change such
that the Company underpaid you under Section 280G of the Code, the
Company shall pay the difference to you with interest as specified
above.
(vii) As used in this Agreement, the term "Good Reason" means,
without your written consent:
(A) a material change in your status, position or
responsibilities which, in your reasonable judgment, does not
represent a promotion from your existing status, position or
responsibilities as in effect immediately prior to the Change in
Control; the assignment of any duties or responsibilities or the
removal or termination of duties or responsibilities (except in
connection with the termination of employment for total and
permanent disability, death, or Cause, or by you other than for
Good Reason), which, in your reasonable judgment, are materially
inconsistent with such status, position or responsibilities;
(B) a reduction by the Company in your Basic Salary as in
effect on the date hereof or as the same may be increased from
time to time during the term of this Agreement or the Company's
failure to increase (within twelve months of your last increase
in Basic Salary) your Basic Salary after a Change in Control in
an amount which at least equals, on a percentage basis, the
average percentage increase in Basic Salary for all executive and
senior officers of the Company, in like positions, which were
effected in the preceding twelve months;
(C) the relocation of the Company's principal executive
offices to a location outside the Columbus metropolitan area or
the relocation of you by the Company to any place other than the
location at which you performed duties prior to a Change in
Control, except for required travel
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on the Company's business to an extent consistent with business
travel obligations at the time of a Change in Control;
(D) the failure of the Company to continue in effect, or
continue or materially reduce your participation in, any
incentive, bonus or other compensation plan in which you
participate, including but not limited to the Company's stock
option plans, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan), has been made or offered
with respect to such plan in connection with the Change in
Control;
(E) the failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed or to which
you are entitled under any of the Company's pension, profit
sharing, life insurance, medical, dental, health and accident, or
disability plans at the time of a Change in Control, the taking
of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any
material fringe benefit enjoyed or to which you are entitled at
the time of the Change in Control, or the failure by the Company
to provide the number of paid vacation and sick leave days to
which you are entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(F) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume
and agree to perform this Agreement;
(G) any request by the Company that you participate in an
unlawful act or take any action constituting a breach of your
professional standard of conduct; or
(H) any breach of this Agreement on the part of the Company.
Notwithstanding anything in this Section to the contrary, your
right to terminate your employment pursuant to this Section shall
not be affected by incapacity due to physical or mental illness.
(viii) Upon any termination or expiration of this Agreement or
any cessation of your employment hereunder, the Company shall have no
further obligations under this Agreement and no further payments shall
be payable by the Company to you, except as provided in Section 9
above and except as required under any benefit plans or arrangements
maintained by the Company and applicable to you at the time of such
termination, expiration or cessation of your employment.
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(ix) Enforcement of Agreement. The Company is aware that upon the
occurrence of a Change in Control, the Board of Directors or a
shareholder of the Company may then cause or attempt to cause the
Company to refuse to comply with its obligations under this Agreement,
or may cause or attempt to cause the Company to institute, or may
institute litigation seeking to have this Agreement declared
unenforceable, or may take or attempt to take other action to deny you
the benefits intended under this Agreement. In these circumstances,
the purpose of this Agreement could be frustrated. Accordingly, if
following a Change in Control it should appear to you that the Company
has failed to comply with any of its obligations under Section 9 of
this Agreement or in the event that the Company or any other person
takes any action to declare Section 9 of this Agreement void or
enforceable, or institutes any litigation or other legal action
designed to deny, diminish or to recover from you the benefits
entitled to be provided to you under Section 9, and that you have
complied with all your obligations under this Agreement, the Company
authorizes you to retain counsel of your choice, at the expense of the
Company as provided in this Section 9(e)(ix), to represent you in
connection with the initiation or defense of any pre-suit settlement
negotiations, litigation or other legal action, whether such action is
by or against the Company or any Director, officer, shareholder, or
other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship
between the Company and such counsel, the Company consents to you
entering into an attorney-client relationship with such counsel, and
in that connection the Company and you agree that a confidential
relationship shall exist between you and such counsel, except with
respect to any fee and expense invoices generated by such counsel. The
reasonable fees and expenses of counsel selected by you as hereinabove
provided shall be paid or reimbursed to you by the Company on a
regular, periodic basis upon presentation by you of a statement or
statements prepared by such counsel in accordance with its customary
practices, up to a maximum aggregate amount of $50,000. Any legal
expenses incurred by the Company by reason of any dispute between the
parties as to enforceability of Section 9 or the terms contained in
Section 9(f), notwithstanding the outcome of any such dispute, shall
be the sole responsibility of the Company, and the Company shall not
take any action to seek reimbursement from you for such expenses.
(f) SUSPENSION OF NONCOMPETITION PERIODS. The noncompetition periods
described in Section 8 of this Agreement shall be suspended while you engage in
any activities in breach of this Agreement. In the event that a court grants
injunctive relief to the Company for your failure to comply with Section 8, the
noncompetition period shall begin again on the date such injunctive relief is
granted.
(g) NO LIMITATION OF OBLIGATIONS. Nothing contained in this Section 9
shall be construed as limiting your obligations under Sections 6, 7, or 8 of
this Agreement concerning Confidential Information, Inventions, or
Noncompetition and Nonsolicitation.
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(h) CODE SECTION 409A. Notwithstanding any provision of this Agreement
to the contrary, if the Company determines that you are a "specified employee"
as defined in Section 409A of the Code or any guidance promulgated thereunder
("Code Section 409A"), you shall not be entitled to any payments upon Employment
Separation until the earlier of (i) the date which is six months after
Employment Separation, or (ii) the date of your death.
If any provision of this Agreement (or of any award of compensation,
including equity compensation or benefits) would cause you to incur any
additional tax or interest under Code Section 409A, the Company shall, after
consulting with you and receiving your approval (which shall not be unreasonably
withheld), reform such provision in such a manner as shall not cause you to
incur any such tax or interest, for example, by providing that any payments upon
Employment Separation shall not be made until the earlier of (i) the date which
is six months after Employment Separation, or (ii) the date of your death.
10. REMEDIES; VENUE; PROCESS.
(a) REMEDIES. You hereby acknowledge and agree that the Confidential
Information disclosed to you prior to and during the term of this Agreement is
of a special, unique and extraordinary character, and that any breach of this
Agreement will cause the Company irreparable injury and damage, and consequently
the Company shall be entitled, in addition to all other legal and equitable
remedies available to it, to injunctive and any other equitable relief to
prevent or cease a breach of Sections 6, 7, or 8 of this Agreement without
further proof of harm and entitlement; that the terms of this Agreement, if
enforced by the Company, will not unduly impair your ability to earn a living or
pursue your vocation; and further, that the Company may cease paying any
compensation and benefits under Section 9 if you fail to comply with this
Agreement, without restricting the Company from other legal and equitable
remedies. The parties agree that the prevailing party in litigation concerning a
breach of this Agreement shall be entitled to all costs and expenses (including
reasonable legal fees and expenses) which it incurs in successfully enforcing
this Agreement and in prosecuting or defending any litigation (including
appellate proceedings) concerning a breach of this Agreement.
(b) JURISDICTION AND VENUE. Except for actions brought under Section
9(b) of this Agreement, the parties agree that jurisdiction and venue in any
action brought pursuant to this Agreement to enforce its terms or otherwise with
respect to the relationships between the parties shall properly lie in either
the United States District Court for the Southern District of Ohio, Eastern
Division, Columbus, Ohio, or the Court of Common Pleas of Franklin County, Ohio.
Such jurisdiction and venue is exclusive, except that the Company may bring suit
in any jurisdiction and venue where jurisdiction and venue would otherwise be
proper if you may have breached Sections 6, 7, or 8 of this Agreement. The
parties further agree that the mailing by certified or registered mail, return
receipt requested, of any process required by any such court shall constitute
valid and lawful service of process against them, without the necessity for
service by any other means provided by statute or rule of court.
11. EXIT INTERVIEW. Prior to Employment Separation, you shall attend an
exit interview if desired by the Company and shall, in any event, inform the
Company at the earliest
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possible time of the identity of your future employer and of the nature of your
future employment.
12. NO WAIVER. Any failure by the Company to enforce any provision of this
Agreement shall not in any way affect the Company's right to enforce such
provision or any other provision at a later time.
13. SAVING. If any provision of this Agreement is later found to be
completely or partially unenforceable, the remaining part of that provision or
any other provision of this Agreement shall still be valid and shall not in any
way be affected by the finding. Moreover, if any provision is for any reason
held to be unreasonably broad as to time, duration, geographical scope, activity
or subject, such provision shall be interpreted and enforced by limiting and
reducing it to preserve enforceability to the maximum extent permitted by law.
14. NO LIMITATION. You acknowledge that your employment by the Company may
be lawfully terminated at any time by the Company or by you with or without
cause in accordance with the terms of this Agreement. This Agreement is in
addition to and not in place of other obligations of trust, confidence and
ethical duty imposed on you by law.
15. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Ohio without reference to its choice of
law rules.
16. COMPLETE AND FINAL AGREEMENT. This Agreement constitutes the complete
agreement between the parties with a respect to the subject matter hereof and
supersedes and replaces any existing oral or written agreement or understanding
between you and the Company relating to the same subject matter and may be
modified only by an agreement in writing signed by both you and a duly
authorized representative of the Company.
17. FURTHER ACKNOWLEDGMENTS. YOU ACKNOWLEDGE THAT YOU HAVE RECEIVED A COPY
OF THIS AGREEMENT, THAT YOU HAVE READ AND UNDERSTOOD THIS AGREEMENT, THAT YOU
UNDERSTAND THIS AGREEMENT AFFECTS YOUR RIGHTS, AND THAT YOU HAVE ENTERED INTO
THIS AGREEMENT VOLUNTARILY.
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APPLIED INNOVATION INC.
By:
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Xxxxxxx X. Xxxxxxx
President and Chief Executive
Officer
EXECUTIVE:
----------------------------------------
Xxxxxxx X. Xxxxxxx
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