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Exhibit 10.1
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EXECUTIVE EMPLOYMENT AGREEMENT
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THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") executed and
effective the 1st day of March 2011 (the "Effective Date"), by and between
DYNATRONICS CORPORATION, a Utah corporation having its principal place of
business in Salt Lake City, Utah (the "Company"), and XXXXX X. XXXXXXXX, a
resident of Utah (the "Executive" and, together with the Company, the
"Parties").
R E C I T A L S:
WHEREAS, Executive has been and currently is engaged by the Company to
serve as an executive officer of the Company;
WHEREAS, Executive is currently employed by the Company pursuant to the
terms of an Employment Agreement between the Company and Executive effective as
of March 1, 2009, which agreement was entered into by the Parties following the
mutual termination of an earlier Employment Agreement between them prior to its
expiration date (collectively, the "Prior Agreements");
WHEREAS, Executive desires to continue his employment with the Company on
the terms and conditions set forth herein; and
WHEREAS, the Company desires to continue such employment relationship and
enter into this Agreement, which will supersede the Prior Agreements and set
forth the terms and conditions under which Executive will continue to serve the
Company; and
WHEREAS, the Company has agreed to employ Executive in exchange for
Executive's compliance with the terms and conditions contained herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the covenants contained herein, the
above recitals and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Definitions. For purposes of this Agreement, all initially capitalized
words and phrases used in this Agreement have the following meanings:
"Affiliate" shall mean, with respect to any individual or entity, any
other individual or entity who, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with such
individual or entity.
"Agreement" shall have the meaning set forth in the introductory
paragraph above.
"Application" shall have the meaning set forth in Section 9.
"Base Salary" shall have the meaning set forth in Section 4(a)
"Board" shall mean the Board of Directors of the Company.
"Bonus" shall have the meaning set forth in Section 4(b).
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"Business" shall mean the business of the design, manufacture,
marketing and distribution of physical medicine products and aesthetic products.
"Cause" shall mean that Executive has (a) continually failed to
substantially perform his duties to the Company, including, without limitation,
failing to increase sales; or (b) been grossly negligent in the discharge of his
duties to the Company (in any case, other than by reason of a Disability,
physical or mental illness or analogous condition); or (c) been convicted of or
pled nolo contendere to a felony or a misdemeanor with respect to which fraud or
dishonesty is a material element; or (d) materially breached any material
Company policy or agreement with the Company.
"Change of Control" shall mean the first of the following events to
occur after the Effective Date:
(a) any Person or group of Persons together with its Affiliates, but
excluding (i) the Company or any of its Subsidiaries, (ii) any employee benefit
plans of the Company or (iii) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes, directly or indirectly, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities (not
including in the securities beneficially owned by such Person any securities
acquired directly from the Company);
(b) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on the
Effective Date, constitute the Board and any new director (other than a director
whose initial assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation, relating
to the election of directors of the Company) whose appointment or election by
the Board or nomination for election by the Company's stockholders was approved
or recommended by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on the Effective Date or whose
appointment, election or nomination for election was previously so approved or
recommended;
(c) the consummation of a merger or consolidation of the Company or
any direct or indirect Subsidiary of the Company with any other corporation or
entity regardless of which entity is the survivor, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of the Company, such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation;
(d) the stockholders of the Company approve a plan of complete
liquidation or winding-up of the Company or there is consummated an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets; or
(e) the occurrence of any transaction or series of transactions
deemed by the Board to constitute a change in control of the Company.
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Notwithstanding the foregoing, (i) a "Change of Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the holders of the common
stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions, and (ii) a
"Change of Control" shall not occur for purposes of this Agreement as a result
of any primary or secondary offering of Company common stock to the general
public through a registration statement filed with the Securities and Exchange
Commission.
In addition, notwithstanding the foregoing, to the extent that (i) any payment
under this Agreement is payable solely upon or following the occurrence of a
Change of Control and (ii) such payment is treated as "deferred compensation"
for purposes of Code Section 409A, no event that would not qualify as a "change
in the ownership of the Company," a "change in the effective control of the
Company," or a "change in the ownership of a substantial portion of the assets
of the Company" as such terms are defined in Section 1.409A-3(i)(5) of the
Treasury Regulations, shall be treated as a "Change of Control" under this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" shall have the meaning set forth in Section 4(a).
"Company" shall have the meaning set forth in the introductory
paragraph above.
"Confidential Information" means (a) information of the Company or
any Subsidiary thereof, to the extent not considered a Trade Secret under
applicable law, that (i) relates to the Business of the Company or any
Subsidiary thereof; (ii) possesses an element of value to the Company or any
Subsidiary thereof; (iii) is not generally known to the Company's competitors;
and (iv) would damage the Company, or any Subsidiary thereof, if disclosed, and
(b) information of any third party provided to the Company which the Company is
obligated to treat as confidential. Confidential Information includes, but is
not limited to, future business plans, the composition, description, schematic
or design of products, future products or equipment of the Company or any
Subsidiary thereof, communication systems, audio systems, system designs and
related documentation, advertising or marketing plans, information regarding
independent contractors, Employees, clients and Customers of the Company or any
Subsidiary thereof, and information concerning the Company's financial structure
and methods and procedures of operation. Confidential Information shall not
include any information that is or becomes generally available to the public
other than as a result of an unauthorized disclosure, has been independently
developed and disclosed by others without violating this Agreement or the legal
rights of any Party or otherwise enters the public domain through lawful means.
"Contact" means any interaction between Executive and a Customer
which (a) takes place in an effort to establish, maintain and/or further a
business relationship on behalf of the Company, or any Subsidiary thereof, and
(b) occurs during the last year of Executive's employment with the Company.
"Customer" means any person or entity to whom the Company, or any
Subsidiary thereof, has sold or has solicited to sell its products or services.
"Defense Costs" has the meaning set forth in Section 13.
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"Disability" means a physical or mental condition entitling
Executive to benefits under the applicable long-term disability plan of the
Company or any of its Subsidiaries, or if no such plan exists, a "permanent and
total disability" (within the meaning of Code Section 22(e)(3)) or as determined
by the Company in accordance with applicable laws. Notwithstanding the
foregoing, to the extent that (i) any payment under this Agreement is payable
solely upon the Executive's Disability and (ii) such payment is treated as
"deferred compensation" for purposes of Code Section 409A, Disability shall have
the meaning provided in Section 1.409A-3(i)(4) of the Treasury Regulations.
"Duties" means, solely for purposes of Section 8 of this Agreement,
functioning as the Company's Executive Vice President of Business Development,
Sales & Marketing. The Executive will exercise the authority and assume the
responsibilities: (i) specified in the Company's Bylaws; (ii) of an Executive
Vice President of a corporation of the size and nature of the Company; and (iii)
prescribed by the Board from time to time, with the current description set
forth in Exhibit A, attached hereto and by reference made a part hereof.
"Effective Date" shall have the meaning set forth in the
introductory paragraph above.
"Employee" means any person who (a) is employed by the Company, or
any Subsidiary thereof, at the time Executive's employment with the Company
terminates; (b) was employed by the Company, or any Subsidiary thereof, during
the last year of Executive's employment with the Company; or (c) is employed by
the Company, or any Subsidiary thereof, during the Restricted Period.
"Employment Period" shall have the meaning set forth in Section 3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Executive" shall have the meaning set forth in the introductory
paragraph above.
"Fiscal Year" shall mean the 12-month period ending June 30 each
year or such other period as the Company may hereafter elect as its Fiscal Year
for financial reporting purposes.
"Good Reason" means (a) a demotion of Executive, including his
removal as an executive officer of the Company, provided, however, that a change
in title shall not in and of itself constitute a "demotion" for purposes of this
subsection (a); (b) a material diminution in Executive's duties or
responsibilities (provided, however, that the failure of Executive to be elected
to the Company's Board of Directors, or a requirement to utilize skills in
addition to those utilized in Executive's current position, and/or a change in
direct reports to reflect the organizational structure of the Company prior to,
or of any successor entity following a Change of Control, shall not in and of
itself be considered a "material diminution" as contemplated by this subsection
(b)); (c) a reduction of ten percent (10%) or more in Executive's annual Base
Salary; (d) the failure to pay any Bonus earned for any year, including a year
in which a Change of Control occurs pursuant to the terms of any applicable plan
or arrangement in effect prior to such Change of Control; (e) the relocation of
Executive's principal place of employment to a location more than fifty (50)
miles from Executive's principal place of employment, except for required travel
on the Company's business to an extent substantially consistent with Executive's
historical business travel obligations; or (f) an election by Executive within
ninety (90) days following a Change of Control, to resign and terminate his
employment. Executive's continued employment shall not constitute consent to, or
a waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder, provided that Executive provides the Company with a written
notice of resignation within ninety (90) days following the occurrence of the
event constituting Good Reason and the Company shall have failed to remedy such
act or omission within thirty (30) days following its receipt of such notice.
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"Incentive Plans" means the Company's (i) 1992 Amended and Restated
Stock Option Plan, and (ii) 2005 Equity Incentive Award Plan, as amended from
time to time.
"Licensed Materials" means any materials that Executive utilizes for
the benefit of the Company (or any Subsidiary thereof), or delivers to the
Company or the Company's Customers, which (a) do not constitute Work Product,
(b) are created by Executive or of which Executive is otherwise in lawful
possession and (c) Executive may lawfully utilize for the benefit of, or
distribute to, the Company or the Company's Customers.
"Parties" shall have the meaning set forth in the introductory
paragraph above.
"Person" shall mean a "person" as defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (a) the Company (or any Subsidiary thereof),
(b) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, (c) an underwriter temporarily holding securities pursuant
to an offering of such securities, or (d) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
"Prior Agreements" shall have the meaning set forth in the recitals
above.
"Restricted Period" means the period of time encompassing
Executive's employment with the Company and two (2) years after termination of
Executive's employment with the Company.
"Separation Conditions" shall have the meaning set forth in Section
6(c).
"Severance Delay Period" means the period beginning on the date of
the Executive's termination of employment with the Company and ending on the
thirtieth day thereafter. Notwithstanding the foregoing, in the event that the
Executive's termination of employment occurs in connection with an exit
incentive program or other employment termination program offered to a group or
class of employees, as defined under the Older Worker Benefit Protection Act, 29
U.S.C. Section 626, the Severance Delay Period shall mean the period beginning
on the date of the Executive's termination of employment with the Company and
ending on the sixtieth day thereafter.
"Subsidiary" means a corporation, partnership or other entity of
which a majority of the voting interests of such corporation, partnership or
other entity are at the time owned directly or indirectly through one or more
intermediaries or Subsidiaries, or both, by the Company.
"Territory" means the continental United States.
"Trade Secrets" means information of the Company (or any Subsidiary
thereof), and its licensors, suppliers, clients and Customers, without regard to
form, including, but not limited to, technical or non-technical data, a formula,
a pattern, a compilation, a program, a device, a method, a technique, a drawing,
a process, financial data, financial plans, product plans or a list of actual or
potential Customers or suppliers which is not commonly known by or available to
the public and which information (a) derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and (b) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
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"Without Cause" which shall mean any termination of employment by
the Company which is not defined in Section 5(a) through Section 5(g) of this
Agreement.
"Work Product" means (a) any data, databases, materials,
documentation, computer programs, inventions (whether or not patentable),
designs and/or works of authorship, including but not limited to, discoveries,
ideas, concepts, properties, formulas, compositions, methods, programs,
procedures, systems, techniques, products, improvements, innovations, writings,
pictures, audio, video, images of Executive and artistic works, and (b) any
subject matter protected under patent, copyright, proprietary database,
trademark, trade secret, rights of publicity, confidential information or other
property rights, including all worldwide rights therein, that is or was
conceived, created or developed in whole or in part by Executive while employed
by the Company and that either (i) is created within the scope of Executive's
employment; (ii) is based on, results from or is suggested by any work performed
within the scope of Executive's employment and is directly or indirectly related
to the Business of the Company or a line of business that the Company may
reasonably be interested in pursuing; (iii) has been or will be paid for by the
Company; or (iv) was created or improved in whole or in part by using the
Company's time, resources, data, facilities or equipment.
2. Employment and Duties.
(a) The Company shall employ Executive as Executive Vice President
of Business Development, Sales & Marketing. Executive shall perform all duties
that are consistent with Executive's position and that may otherwise be assigned
to Executive by the Company from time to time. Executive shall report directly
to the Chief Executive Officer or any other executive designated by the Board
from time to time.
(b) Executive agrees to (i) devote all necessary working time
required of Executive's position; (ii) devote Executive's best efforts, skill
and energies to promote and advance the Business and/or interests of the Company
and its Subsidiaries; and (iii) fully perform Executive's obligations under this
Agreement.
(c) During Executive's employment, Executive shall not render
services to any other entity, regardless of whether Executive receives
compensation, without the prior written consent of the Company. Executive may,
however, (i) engage in community, charitable and educational activities; (ii)
manage Executive's personal investments; and (iii) with the prior written
consent of the Board (or a designated committee thereof), serve on corporate
boards or committees of up to two (2) public companies other than the Company
and a reasonable number of privately held companies including companies operated
or controlled by the Executive or a relative or family member of the Executive,
provided, however, that such activities do not conflict or interfere with the
performance of Executive's obligations under this Agreement or conflict with the
interests of the Company.
(d) Executive agrees to comply with the policies and procedures of
the Company as may be adopted and changed from time to time, including without
limitation, those described in the Company's employee handbook and Code of
Business Conduct and Ethics. If this Agreement conflicts with such policies or
procedures, this Agreement will control.
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(e) As an officer of the Company, Executive owes a duty of care and
loyalty to the Company as well as a duty to perform such duties in a manner that
is in the best interests of the Company.
3. Term of Agreement. The term of this Agreement shall be for a period of
five (5) years, commencing on the Effective Date and terminating on the fifth
anniversary of the Effective Date (together with any and all Renewal Terms, as
defined below, the "Employment Period"), provided, however, that the restrictive
covenants applicable to and all post-termination obligations of Executive
contained in Section 8 of this Agreement shall survive termination of this
Agreement; provided, that following the initial five-year Employment Period, the
term of this Agreement shall be automatically renewed for successive one-year
terms (each a "Renewal Term") without action by either Party; and provided,
however, that either Party may terminate its obligations hereunder at the end of
the initial five-year Employment Period and any Renewal Term thereafter by
giving the other Party written notice of termination at least thirty (30) days
and no more than ninety (90) days before the end of the initial five-year term
or the subsequent Renewal Term, as the case may be.
4. Compensation. During the Employment Period, the compensation of the
Executive shall be as provided by this Section 4.
(a) Base Salary. Company will pay to the Executive an annual base salary
("Base Salary") as determined from time to time by the Compensation Committee of
the Board (the "Committee"), minus applicable withholdings, payable in
accordance with the Company's normal payroll practices. Executive's Base Salary
will be adjusted annually at the discretion of the Committee based upon the
performance of Executive and the Company. At the Effective Date, Executive's
Base Salary is One Hundred and Sixty Thousand Dollars ($160,000).
(b) Bonus. During the Employment Period, Executive will be eligible to
receive an annual bonus, if, as determined by the Committee in its sole
discretion, Executive meets certain criteria established from year to year by
the Committee (the "Bonus"). Executive will not receive any Bonus if Executive
does not meet such criteria. The Bonus will be subject to all applicable
withholdings and will be paid (to the extent earned) in quarterly installments
or as otherwise determined by the Committee. The initial Bonus payable under
this Agreement shall be as provided on the attached Exhibit B, by this reference
incorporated in and made a part of this Agreement.
(c) Incentive Savings and Retirement Plans. The Executive shall be
entitled to participate, during the Employment Period, in all incentive
(including annual and long-term incentive) savings and retirement plans, 401(k),
practices, policies and programs generally available to other senior executives
of the Company.
(d) Welfare Benefits. Executive and/or the Executive's family, as the case
may be, shall be entitled to participate in, and shall receive all benefits
under, all welfare benefit plans, practices, policies and programs generally
provided by the Company (including without limitation, medical, prescription,
dental, disability, employee life, group life, dependent life, accidental death
and travel accident insurance plans and programs) at a level that is equal to
other senior executives of the Company.
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(e) Fringe Benefits. Executive shall be entitled to participate in all
fringe benefit programs generally provided by the Company to its senior
executives. As of the Effective Date, those fringe benefits include (i) use of a
luxury class Company vehicle ("Company Vehicle") or a corresponding automobile
allowance, including the payment of gas, oil, maintenance and insurance in
connection with such Company Vehicle or allowance, as the case may be, (ii) life
insurance benefit with a minimum face value of $100,000, with premiums paid by
the Company, (iii) disability insurance benefits paid by the Company for the
present UNUM policy or its replacement, and (iv) a term life insurance policy in
the face amount of $750,000 with Executive as owner of the policy and
beneficiaries as designated by Executive. Executive acknowledges that the
payment of benefits under this Section 4 (e), including, without limitation,
Executive's personal use of the Company Vehicle, may be subject in part or full
to withholding and payment of income and other taxes for which Executive shall
be responsible.
(f) Expenses. Executive shall be entitled to receive prompt reimbursement
for all reasonable employment-related expenses which are incurred by the
Executive. The Executive shall be reimbursed upon the Company's receipt of
accountings in accordance with practices, policies and procedures applicable to
senior executives of the Company. Executive may retain all frequent traveler
benefits accrued, including reimbursements as allowed by Company policy for the
use of such benefits for work-related corporate travel. The Company will also
provide a reasonable allowance to reimburse Executive for travel and lodging
expenses for Executive's spouse to accompany him on a maximum of two (2)
business trips per year made by Executive on Company business within the scope
of his duties under this Agreement.
(g) Office and Support Staff. Executive shall be entitled to an office,
furnishings, supplies, and other appointments, commensurate with the position
occupied by Executive, all of which shall be adequate for the performance of the
Executive's duties. Executive may hire staff to assist Executive in his duties.
Executive may use furnished supplies and equipment for reasonable and incidental
non-business purposes.
(h) Paid Time Off. The Executive shall be entitled to up to five (5) weeks
of paid time off ("PTO") per calendar year. Such PTO shall accrue without
cancellation, expiration or forfeiture, subject however to the policy of the
Company that no PTO may be carried over from any prior year.
(i) Stock Options. Executive holds fully-vested options (the "Options") to
purchase 25,000 shares of the Company's common stock par value $.001 per share
("Common Stock") at $1.42 per share with an expiration date of November 22,
2015, and 40,000 shares of Common Stock at $1.72 per share with an expiration
date of May 24, 2015. Subject to (i) the terms of the Incentive Plans, and (ii)
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Options shall be deemed qualified Incentive Stock Options under Section 422 of
the Code.
(j) Restricted Stock Award. Executive is granted a restricted stock award
("Restricted Stock Award") of 200,000 shares of the Company's common stock, in
the form attached hereto as Exhibit B, by this reference incorporated in and
made a part of this Agreement. In addition, the Company shall gross up the
Executive's salary to minimize the tax implications related to the vesting of
the Restricted Stock Award made pursuant to this Section 4(j), up to an amount
not to exceed 20 percent (20%) of the taxable value of such award. The gross-up
amount, if any, under this Section 4(j) will not be paid to Executive, but it
will be applied by the Company against payment of any withholding obligation it
may have in connection with the grant or the payments to be made under this
Section 4(j).
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5. Termination. This Agreement and Executive's employment may be
terminated by any of the following events:
(a) Expiration of the Employment Period;
(b) Mutual written agreement between Executive and the Company at any
time;
(c) Executive's death;
(d) Executive's Disability which renders Executive unable to perform the
essential functions of Executive's job even with reasonable accommodation;
(e) By the Company for Cause;
(f) By Executive for Good Reason;
(g) Resignation by Executive without Good Reason; or (h) Without Cause,
which shall mean any termination of employment by the Company which is not
defined in Section 5(a) through Section 5(g) above.
6. Company's Post-Termination Obligations.
(a) Termination under Sections 5(a), 5(b), 5(c), 5(d), 5(e) and 5(g).
(1) If Executive's employment terminates for the reasons set
forth in Section 5(c), Section 5(d), Section 5(e) or Section 5(g) above, then
the Company will pay Executive (i) all accrued but unpaid wages, based on
Executive's then current Base Salary, through the termination date; (ii) all
approved, but unreimbursed, business expenses, provided that a request for
reimbursement of business expenses is submitted in accordance with the Company's
policies and submitted within five (5) business days of Executive's termination
date; and (iii) solely in the event this Agreement is terminated pursuant to
either Section 5(c) or Section 5(d) during an annual Bonus period, all earned
and accrued but unpaid Bonuses prorated to the date of Executive's death or
Disability. Amounts payable pursuant to this Section 6(a)(1) above shall be paid
within thirty (30) days of the Executive's termination date.
(2) In addition, solely in the event that termination occurs
for the reasons set forth in Section 5(a) (due to a notice given by the Company
pursuant to Section 3) or Section 5(d), if within eighteen (18) months of such
termination a Change of Control takes place, the Company shall make a lump-sum
cash transition payment to Executive in the amount of $400,000, payable at the
date of closing of the Change of Control transaction and the portion, if any, of
the Restricted Stock Award remaining unvested at the original date of
termination shall be restored and delivered to Executive. If Executive's
employment terminates for any of the reasons set forth in Section 5(a) (due to a
notice given by the Company pursuant to Section 3) or in Section 5(b) above,
then the Company will pay Executive (i) all accrued but unpaid wages through the
termination date, based on Executive's then current Base Salary; (ii) a
separation payment equal to twelve (12) months of Executive's then current Base
Salary; (iii) all accrued but unpaid vacation through the termination date,
based on Executive's then current Base Salary; (iv) all approved, but
unreimbursed, business expenses, provided that a request for reimbursement of
business expenses is submitted in accordance with the Company's policies and
submitted within five (5) business days of Executive's termination date; and (v)
all earned and accrued but unpaid Bonuses. Fifty percent (50%) of the amounts or
benefits payable under this Sections 6(a)(2)(i), (ii), (iii) and (v) shall be
paid on the first regularly scheduled payroll period occurring immediately
following the expiration of the Severance Delay Period, with the balance to be
paid ratably according to the scheduled payroll practices of the Company over
the subsequent six (6) months. Payment of amounts or benefits under Section
6(a)(2)(iv) shall be made according to established policy of the Company.
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(b) Termination Under Sections 5(f) and 5(h).
(1) If Executive's employment terminates for any of the
reasons set forth in Section 5(f) or Section 5(h) above, then the Company will
pay Executive (i) all accrued but unpaid wages through the termination date,
based on Executive's then current Base Salary; (ii) a separation payment equal
to twelve (12) months of Executive's then current Base Salary; (iii) all accrued
but unpaid vacation through the termination date, based on Executive's then
current Base Salary; (iv) all approved, but unreimbursed, business expenses,
provided that a request for reimbursement of business expenses is submitted in
accordance with the Company's policies and submitted within five (5) business
days of Executive's termination date; and (v) all earned and accrued but unpaid
Bonuses.
(2) In addition, (i) the Company shall transfer to the
Executive title, free and clear of all encumbrances, to either (a) the Company
Vehicle used by the Executive at the time the Executive's employment with the
Company terminates, or (b) a vehicle of substantially similar market value as
the market value of the Company Vehicle at the time Executive's employment with
the Company terminates; (ii) the Restricted Stock Award shall immediately vest
to the extent any portion thereof remains unvested at such termination date,
provided, however, no tax bonus as provided in 4(j) shall be paid on the
accelerated vesting portion of the stock, but only on the portion that vests in
the year of termination; and (iii) the Company shall make a cash payment to
Executive in the amount of $400,000.
(3) Fifty percent (50%) of the cash amounts or benefits
payable under this Section 6(b) shall be paid on the first regularly scheduled
payroll period occurring immediately following the expiration of the Severance
Delay Period, with the balance to be paid ratably according to the scheduled
payroll practices of the Company over the subsequent six (6) months; provided,
however, that the amount payable under Section 6(b)(2)(iii), above, shall be
payable in equal quarterly installments of $50,000 commencing at the end if the
first calendar quarter from the date of termination and continuing until paid in
full, and the amount payable under Section 6(b)(1)(iv) shall be paid in
accordance with Company policy and practice.
(4) Except as set forth in this Section 6(b), the Company
shall have no other obligations to Executive for termination pursuant to
Sections 5(f) and 5(h).
(c) The Company's obligation to provide the payments set forth in Section
6(a) and Section 6(b) above shall be conditioned upon the following (the
"Separation Conditions"):
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(i) Executive's (or, in the case of Executive's death or
Disability, Executive's estate or trustee, as applicable) execution (and the
expiration of any applicable revocation period) of a separation agreement in a
form prepared by the Company prior to the expiration of the Severance Delay
Period, which will include a general release from liability so that Executive
will release the Company and its Subsidiaries from any and all liability and
claims of any kind as permitted by law; and
(ii) Executive's compliance with the restrictive covenants
(Section 8) and all post-termination obligations, including, but not limited to,
the obligations contained in this Agreement.
(d) If Executive does not execute (or revokes) an effective separation
agreement as set forth in Section 6(c) above prior to the expiration of the
Severance Delay Period (or if any applicable revocation period has not yet ended
prior to such time), the Company will not provide any payments or benefits to
Executive under Section 6(a) and Section 6(b). The Company's obligation to make
the separation payments set forth in Section 6(a) and Section 6(b) shall
terminate immediately upon any breach by Executive of any post-termination
obligations to which Executive is subject.
(e) Except as provided in this Section 6, following termination of
Executive's employment pursuant to Section 5, and except as provided in Section
7 in the event of a Change of Control, the Company shall have no other
obligations for compensation of Executive.
7. Change of Control.
(a) Notwithstanding anything to the contrary in the Incentive Plans
or any award agreement, upon a Change of Control, (i) all of Executive's
outstanding unvested equity-based awards (including, but not limited to, the
Restricted Stock Award) granted pursuant to the Incentive Plans, shall vest and
become immediately exercisable and unrestricted, without any action by the Board
or any committee thereof, and (ii) Executive shall be paid a one-time lump sum
bonus in the amount of $400,000 in connection with the closing of the Change of
Control transaction.
(b) The payments and benefits set forth in this Section 7 shall be
provided to Executive in lieu of any benefits to which Executive may be entitled
under Section 6(b)(2)(ii) and (iii) above; provided, however, that Executive's
right to receive the separation payments and benefits set forth in this Section
7 shall be subject to the Separation Conditions set forth in Section 6(c) above.
8. Executive's Post-Termination Obligations.
(a) Return of Materials. Upon the termination of Executive's
employment for any reason, Executive shall return to the Company all of the
Company's property, including, but not limited to, keys, passcards, credit
cards, customer lists, rolodexes, tapes, software, computer files, marketing and
sales materials and any other property, record, document or piece of equipment
belonging to the Company.
(b) Set-Off. If Executive has any outstanding obligations to the
Company upon the termination of Executive's employment for any reason, Executive
hereby authorizes the Company to deduct any amounts owed to the Company from
Executive's final paycheck and/or any amounts that would otherwise be due to
Executive, including under Section 6 or Section 7 above, but only to the extent
such set-off is made in accordance with Treasury Regulation
1.409A-3(j)(4)(xiii). No other set-off shall be permitted under this Agreement.
11
(c) Non-Disparagement. During Executive's employment and upon the
termination of Executive's employment with the Company for any reason, Executive
shall not make any disparaging or defamatory statements, whether written or
verbal, regarding the Company.
(d) Restrictive Covenants. Executive acknowledges that the
restrictions contained in this Section 8 are reasonable and necessary to protect
the legitimate business interests of the Company and will not impair or infringe
upon Executive's right to work or earn a living after Executive's employment
with the Company terminates.
(e) Trade Secrets and Confidential Information.
(i) Executive represents and warrants that Executive (A) is
not subject to any legal or contractual duty or agreement that would prevent or
prohibit Executive from performing the duties contemplated by this Agreement or
otherwise complying with this Agreement, and (B) is not in breach of any legal
or contractual duty or agreement, including any agreement concerning trade
secrets or confidential information owned by any other party.
(ii) Executive agrees that Executive will not (A) use,
disclose or reverse engineer Trade Secrets or Confidential Information for any
purpose other than the Company's Business, except as authorized in writing by
the Company; (B) during Executive's employment with the Company, use, disclose
or reverse engineer (1) any confidential information or trade secrets of any
former employer or third party or (2) any works of authorship developed in whole
or in part by Executive during any former employment or for any other party,
unless authorized in writing by the former employer or third party; or (C) upon
Executive's resignation or termination with the Company (1) retain Trade Secrets
or Confidential Information, including any copies existing in any form
(including electronic form), which are in Executive's possession or control or
(2) destroy, delete or alter Trade Secrets or Confidential Information without
the Company's prior written consent.
(iii) The obligations under this Section 8 shall remain in
effect as long as Trade Secrets and Confidential Information constitute trade
secrets or confidential information under applicable law. The confidentiality,
property and proprietary rights protections available in this Agreement are in
addition to, and not exclusive of, any and all other rights to which the Company
is entitled under federal and state law, including, but not limited to, rights
provided under copyright laws, trade secret and confidential information laws
and laws concerning fiduciary duties.
(f) Non-Competition. During the Restricted Period, Executive agrees
that Executive shall not perform services which are substantially similar and/or
equivalent to the Duties, individually or on behalf of any person, firm,
partnership, association, business organization, corporation or entity engaged
in the Business within the Territory. The Parties agree and acknowledge that (i)
the periods of restriction and Territory of restriction contained in this
Agreement are fair and reasonable in that they are reasonably required for the
protection of the Company and that the Territory is the area in which Executive
performs services for the Company and (ii) by having access to information
concerning Employees and actual or prospective Customers of the Company or any
of its Subsidiaries, Executive shall obtain a competitive advantage as to the
Company.
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(g) Non-Solicitation of Customers. During the Restricted Period,
Executive will not, directly or indirectly, solicit any Customer of the Company
for the purpose of providing any goods or services competitive with the Business
within the Territory. The restrictions set forth in this Section 8(g) apply only
to the Customers with whom Executive had Contact.
(h) Non-Recruitment of Employees. During the Restricted Period,
Executive will not, directly or indirectly, solicit, recruit or induce any
Employee to (i) terminate his or her employment relationship with the Company or
any of its Subsidiaries or (ii) work for any other person or entity engaged in
the Business.
(i) Post-Employment Disclosure. During the Restricted Period,
Executive shall provide a copy of this Agreement to persons and/or entities for
whom Executive works or consults as an owner, partner, joint venturer, employee
or independent contractor. If, during the Restricted Period, Executive works or
consults for another person or entity as an owner, partner, joint venturer,
employee or independent contractor, Executive shall provide the Company with
such person or entity's name, the nature of such person or entity's business,
Executive's job title and a general description of the services Executive will
provide.
(j) Resignation. Upon the termination of Executive's employment with
the Company for any reason and upon the request of the Company, Executive shall
deliver to the Company a written resignation from all offices, membership on the
Board and fiduciary positions in which Executive serves for the Company and each
of its Subsidiaries and Affiliates.
9. Work Product. Executive's employment duties may include creating,
developing and/or inventing in areas directly or indirectly related to the
Business of the Company or to a line of business that the Company may reasonably
be interested in pursuing. If ownership of all right, title and interest to the
legal rights in and to the Work Product will not vest exclusively in the
Company, then, without further consideration, Executive assigns all
presently-existing Work Product to the Company and agrees to assign, and
automatically assigns, all future Work Product to the Company. The Company will
have the right to obtain, and hold in its own name, copyrights, patents, design
registrations, proprietary database rights, trademarks, rights of publicity and
any other protection available in the Work Product. At the Company's request,
Executive agrees to perform, during or after Executive's employment with the
Company, any acts to transfer, perfect and defend the Company's ownership of the
Work Product, including, but not limited to (a) executing all documents
(including a formal assignment to the Company) necessary for filing an
application or registration for protection of the Work Product (an
"Application"); (b) explaining the nature of the Work Product to persons
designated by the Company; (c) reviewing Applications and other related papers;
or (d) providing any other assistance reasonably required for the orderly
prosecution of Applications. Executive agrees to provide the Company with a
written description of any Work Product in which Executive is involved (solely
or jointly with others) and the circumstances attendant to the creation of such
Work Product.
10. License. During Executive's employment and after Executive's
employment with the Company terminates, Executive grants to the Company an
irrevocable, nonexclusive, worldwide, royalty-free license to (a) make, use,
sell, copy, perform, display, distribute or otherwise utilize copies of the
Licensed Materials; (b) prepare, use and distribute derivative works based upon
the Licensed Materials; and (c) authorize others to do the same. Executive shall
notify the Company in writing of any Licensed Materials Executive delivers to
the Company.
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11. Release. During Executive's employment and after Executive's
employment with the Company terminates, Executive consents to the Company's use
of Executive's image, likeness, voice or other characteristics in the Company's
products or services. Executive releases the Company from any causes of action
that Executive has or may have arising out of the use, distribution, adaptation,
reproduction, broadcast or exhibition of such characteristics.
12. Injunctive Relief. Executive agrees that, if Executive breaches
Section 8 of this Agreement, (a) the Company would suffer irreparable harm; (b)
damages would be difficult to determine, and money damages alone would be an
inadequate remedy for the injuries suffered by the Company; and (c) if the
Company seeks injunctive relief to enforce this Agreement, Executive hereby
waives and will not (i) assert any defense that the Company has an adequate
remedy at law with respect to the breach; (ii) require that the Company submit
proof of the economic value of any Trade Secret or Confidential Information; or
(iii) require the Company to post a bond or any other security. Nothing
contained in this Agreement shall limit the Company's right to any other
remedies at law or in equity.
13. Payment of Defense Costs. If Executive is individually named as a
defendant in a lawsuit relating to or arising out of Executive's employment with
the Company, then the Company agrees to pay the reasonable attorneys' fees and
expenses Executive incurs in defending such lawsuit (the "Defense Costs"). The
Company will not pay any damages or any other sums or relief for which Executive
is held personally liable. If Executive is held liable, then Executive agrees to
reimburse the Company for all Defense Costs the Company paid to Executive or on
Executive's behalf. The Company's obligation under this Section 13 shall not
apply to any claim or lawsuit brought by the Company against Executive. Payment
of the Defense Costs shall be the Company's only obligation under this Section
13; provided, however, that nothing in this Section 13 shall be construed to
limit either Party's rights or obligations under any indemnification agreement
or the Company's organizational documents, as applicable
14. Clawback. Notwithstanding anything contained herein to the contrary,
any amounts paid or payable to Executive pursuant to this Agreement or otherwise
by the Company, including, but not limited to, any equity compensation granted
to Executive, may be subject to forfeiture or repayment to the Company in
accordance with Code Section 409A and pursuant to any clawback policy as adopted
by the Board from time to time, and Executive hereby agrees to be bound by any
such policy.
15. Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is determined to be unenforceable, in whole or in
part, then such provision shall be modified so as to be enforceable to the
maximum extent permitted by law. If such provision cannot be modified to be
enforceable, the provision shall be severed from this Agreement to the extent
unenforceable. The remaining provisions and any partially enforceable provisions
shall remain in full force and effect.
16. Attorneys' Fees. In the event of litigation relating to this
Agreement, the prevailing Party shall be entitled to recover attorneys' fees and
costs of litigation in addition to all other remedies available at law or in
equity.
14
17. Waiver. Either Party's failure to enforce any provision of this
Agreement shall not act as a waiver of that or any other provision. Either
Party's waiver of any breach of this Agreement shall not act as a waiver of any
other breach.
18. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties concerning the subject matter of this Agreement. This
Agreement supersedes any prior communications, agreements or understandings,
whether oral or written, between the Parties relating to the subject matter of
this Agreement, including without limitation the Prior Agreements. Other than
the terms of this Agreement, no other representation, promise or agreement has
been made with Executive to cause Executive to sign this Agreement.
19. Amendments. This Agreement may not be amended or modified except in a
writing signed by both Parties.
20. Successors and Assigns. This Agreement shall be assignable to, and
shall inure to the benefit of, the Company's successors and assigns, including,
without limitation, successors through merger, name change, consolidation or
sale of a majority of the Company's stock or assets and shall be binding upon
Executive. Executive shall not have the right to assign Executive's rights or
obligations under this Agreement. The covenants contained in Section 8 of this
Agreement shall survive the termination of Executive's employment with the
Company, regardless of which Party causes the termination or the reason for the
termination.
21. Governing Law. The laws of the State of Utah shall govern this
Agreement. If Utah's conflict of law rules would apply another state's laws, the
Parties agree that Utah law shall still govern.
22. No Strict Construction. If there is a dispute about the language of
this Agreement, the fact that one Party drafted this Agreement shall not be
considered in its interpretation.
23. Notices. Whenever any notice is required, it shall be given in writing
addressed as follows:
If to the Company: DYNATRONICS CORPORATION
0000 Xxxx Xxxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
With a copy DURHAM XXXXX & XXXXXXX
(which shall not Attn: Xxxxx X. Xxxxxxx, Esq.
constitute notice) to: 000 Xxxx Xxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
If to the Executive: Xxxxx X. Xxxxxxxx
0000 Xxxxxxxxxxx Xxx
Xxxxx, XX 00000
Notice shall be deemed given and effective when deposited in the U.S. mail, sent
to the receiving Party by electronic means or when actually received. Either
Party may change the address to which notices shall be delivered or mailed by
notifying the other Party of such change in accordance with this Section.
15
24. Consent to Jurisdiction and Venue. Executive agrees that any claim
arising out of or relating to this Agreement shall be brought in a state or
federal court of competent jurisdiction in Utah. Executive consents to the
personal jurisdiction of the state and/or federal courts located in Utah.
Executive waives (a) any objection to jurisdiction or venue, or (b) any defense
claiming lack of jurisdiction or improper venue in any action brought in such
courts.
25. Affirmation. Executive acknowledges that Executive has carefully read
this Agreement, Executive knows and understands its terms and conditions and
Executive has had the opportunity to ask the Company any questions Executive may
have had prior to signing this Agreement.
26. Compliance with Code Section 409A and Other Applicable Provisions of
the Code.
(a) It is intended that (i) each payment or installment of payments
provided under this Agreement is a separate "payment" for purposes of Code
Section 409A, and (ii) that the payments satisfy, to the greatest extent
possible, the exemptions from the application of Code Section 409A, including
those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term
deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two (2) year
exception) and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation
pay). Notwithstanding anything to the contrary herein, if the Company determines
(i) that on the date of Executive's "separation from service" (as such term is
defined under Treasury Regulation 1.409A-1(h)) or at such other time that the
Company determines to be relevant, Executive is a "specified employee" (as such
term is defined under Treasury Regulation 1.409A-1(i)(1)) of the Company, and
(ii) that any payments to be provided to Executive pursuant to this Agreement
are or may become subject to the additional tax under Code Section 409A(a)(1)(B)
or any other taxes or penalties imposed under Code Section 409A if provided at
the time otherwise required under this Agreement, then such payments shall be
delayed until the date that is six (6) months after the date of Executive's
"separation from service" (as such term is defined under Treasury Regulation
1.409A-1(h)) or, if sooner, the date of Executive's death. Any payments delayed
pursuant to this Section 26 shall be made in a lump sum on the first day of the
seventh month following Executive's "separation from service" (as such term is
defined under Treasury Regulation 1.409A-1(h)) or, if sooner, the date of
Executive's death. It is intended that Agreement shall comply with the
provisions of Code Section 409A and the Treasury Regulations relating thereto so
as not to subject Executive to the payment of additional taxes and interest
under Code Section 409A. In furtherance of this intent, this Agreement shall be
interpreted, operated, and administered in a manner consistent with these
intentions.
(b) In addition, to the extent that any reimbursement, fringe
benefit or other, similar plan or arrangement in which Executive participates
during the term of Executive's employment under this Agreement or thereafter
provides for a "deferral of compensation" within the meaning of Code Section
409A, (i) the amount eligible for reimbursement or payment under such plan or
arrangement in one calendar year may not affect the amount eligible for
reimbursement or payment in any other calendar year (except that a plan
providing medical or health benefits may impose a generally applicable limit on
the amount that may be reimbursed or paid), (ii) subject to any shorter time
periods provided herein or the applicable plans or arrangements, any
reimbursement or payment of an expense under such plan or arrangement must be
made on or before the last day of the calendar year following the calendar year
in which the expense was incurred, and (iii) the right to any reimbursement or
in-kind benefit is not subject to liquidation or exchange for another benefit.
16
(c) Notwithstanding anything herein to the contrary, a termination
of Executive's employment shall not be deemed to have occurred for purposes of
any provision of this Agreement providing for the payment of any amounts or
benefits upon or following a termination of employment unless such termination
is also a "separation from service" within the meaning of Code Section 409A (and
Treasury Regulation 1.409A-1(h)) (which, by definition, includes a separation
from any other entity that would be deemed a single employer together with the
Company for this purpose under Code Section 409A (and Treasury Regulation
1.409A-1(h)), and for purposes of any such provision of this Agreement,
references to a "termination," "termination of employment," "termination date,"
or similar terms shall mean "separation from service."
(d) For the avoidance of doubt, the Company shall pay any amounts
that are due under this Agreement following Executive's termination of
employment, death, Disability or other event within the periods of time that are
specified in this Agreement, provided, however, that the Company, in its sole
and absolute discretion, shall determine the date or dates on which any such
payment shall be made during such specified period.
(e) By accepting this Agreement, Executive hereby agrees and
acknowledges that neither the Company nor its Subsidiaries make any
representations with respect to the application of Code Section 409A to any tax,
economic or legal consequences of any payments payable to Executive hereunder.
Further, by the acceptance of this Agreement, Executive acknowledges that (i)
Executive has obtained independent tax advice regarding the application of Code
Section 409A to the payments due to Executive hereunder, (ii) Executive retains
full responsibility for the potential application of Code Section 409A to the
tax and legal consequences of payments payable to Executive hereunder and (iii)
the Company shall not indemnify or otherwise compensate Executive for any
violation of Code Section 409A that my occur in connection with this Agreement.
The Parties agree to cooperate in good faith to amend such documents and to take
such actions as may be necessary or appropriate to comply with Code Section
409A.
Signatures on Following Page
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IN WITNESS WHEREOF the Parties have executed this Agreement on the date
first written above.
DYNATRONICS CORPORATION,
a Utah corporation
By: /s/ Xxxxxx X. Xxxxxxxxx, Xx.
--------------------------------
Name: Xxxxxx X. Xxxxxxxxx, Xx.
Title: President and CEO
XXXXX X. XXXXXXXX,
an individual
/s/ Xxxxx X. Xxxxxxxx
------------------------------------
Xxxxx X. Xxxxxxxx
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EXHIBIT A
Responsibilities and Authority of Executive Vice President of Business
Development, Sales & Marketing
Responsibilities:
-----------------
Manages and directs all Business Development and Marketing functions
Receives reports of General Sales Manager (or equivalent)
Hiring of personnel for his department
Develops and supervises execution of Marketing strategies
Develops product definition for all manufactured products
Drives for improvement of existing products
Evaluates products for distribution
Management Team Member
Receives reports on sales efforts of the Company from appropriate Sales
executives
Authority:
---------
Acts in full stead of President/CEO in the latter's absence
Fully empowered to decide and implement Marketing strategies
Development of Customer Incentive Programs within allowed budgets
Hires needed personnel to meet the Marketing business plan (compensation
packages require advance approval of the President/CEO)
Approves expenditures for marketing travel, trade shows, advertising and other
budget categories within his purview (as approved by the Board)
May grant exceptions to Company policies for employees under his management
Signs Purchase Orders for equipment, supplies, and services for his department:
