EXHIBIT 10.17
EMPLOYMENT AGREEMENT
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Agreement by and between Gateway, Inc., a Delaware corporation (the "Company")
and Xxxxxxx Xxxxxxx (the "Executive"), made as of the 8th day of December, 1999.
1. Employment Period. The Company hereby agrees to employ the Executive,
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and the Executive hereby accepts such employment, pursuant to the terms and
conditions set forth in this Agreement, for a period commencing January 1, 2000
(the "Commencement Date") and ending December 31, 2003, unless terminated
earlier as provided herein (the "Initial Employment Period"), provided that the
Initial Employment Term shall be automatically extended for successive one (1)
year periods ("Additional Periods") unless terminated earlier as provided herein
or a party gives written notice to the other party of non-extension at least
ninety (90) days prior to the end of the Initial Employment Period or the then
Additional Period. A notice of non-extension by the Company shall be deemed a
Termination without Cause as of the end of the then Initial Employment Period or
Additional Period or such earlier date after notice as the Executive shall
elect. The period of Executive's actual employment hereunder after the
Commencement Date shall be referred to herein as the "Employment Period."
2. Position and Duties.
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(a) During the Employment Period, the Executive shall be employed as
President and Chief Executive Officer of the Company and shall report directly
to the Board of Directors of the Company (the "Board"). Executive shall have
the duties and authority commensurate with his positions in public companies of
similar size.
(b) The Executive shall devote substantially his full business time,
attention and efforts to his duties and responsibilities hereunder. It shall
not be a violation of this Section for the Executive to (i) manage his personal
investments, (ii) be involved in charitable, civic and professional activities,
(iii) serve on for profit corporate boards or committees approved by the Board
or the Chairman of the Board or (iv) deliver lectures or fulfill speaking
engagements, provided that the activities referred to in subparts (i) through
(iv) do not interfere substantially with the performance of the Executive's
responsibilities as an employee of the Company or violate the Company's written
rules and policies. In the event the Board notifies Executive in
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writing that any such activity presents a conflict, or an appearance of a
conflict, of interest with the Company, or violates the Company's written rules
and policies, the Executive shall cease the activity as soon as reasonably
practicable. A copy of the Non-Competition Agreement signed by Executive as a
condition of employment is attached hereto as Exhibit "A" and made a part
hereof, provided that such agreement shall be deemed to have been modified to
provide that California rather than South Dakota law shall apply.
3. Salary, Bonus and Benefits.
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(a) Base Salary. During the Employment Period, the Executive shall
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receive an annual base salary of at least $1,000,000 (as increased from time to
time, "Annual Base Salary"), payable pursuant to the Company's normal payroll
practices. The Board may increase but not decrease Annual Base Salary from time
to time.
(b) Annual Bonus. During the Employment Period, the Executive's
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annual target bonus shall be at least equal to 100% of the Executive's Annual
Base Salary (the "Target Bonus") and shall be increased or reduced in accordance
with the pay-out formula if established target performance goals are exceeded or
not met. The target performance goals shall be established by the Compensation
Committee of the Board (the Compensation Committee) at the beginning of each
calendar year if pursuant to a plan subject to Section 162(m) of the Internal
Revenue Code or otherwise, by the Company.
(c) Benefits. The Executive shall be treated in the same manner as,
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and shall be entitled to such benefits and other perquisites as provided to,
other senior executive officers of the Company who are required to be listed in
the Company's annual proxy statement ("Reporting Officers"), as adjusted to
reflect his positions. In this regard, the Executive shall be entitled to
benefits under the Company's vacation, benefit and welfare plans which are
generally applicable to other Reporting Officers including, without limitation,
the Company's relocation plan, 1996 Long-Term Incentive Equity Plan, Retirement
Savings Plan, Short-Term and Long-Term Disability Plans.
4. Stock Options.
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(a) Initial Option Grant. At the time Executive commenced employment
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with the Company, Executive was given an initial option grant ("Initial
Options") to purchase 1,000,000 shares (which was thereafter adjusted for the
stock split that occurred on September 7,
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1999) of Gateway common stock. The parties agree that the terms and conditions
of the grant of Initial Options (set forth in Executive's employment contract
dated January 19, 1998 and the grant) are incorporated herein by reference and
made a part hereof.
(b) New Option Grant. The Executive is being granted by the
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Compensation Committee, effective December 8, 1999, a ten year option to
purchase 2,000,000 shares of Gateway common stock (the "New Options"). The New
Options grant will have a xxxxx xxxxx equal to the closing price on the New York
Stock Exchange of the Company's common stock on December 8, 1999 and is being
granted pursuant to, and be subject to, the terms of the Company's 1996 Long-
Term Incentive Equity Plan (the "Plan"). The New Options shall vest in four
equal installments on each of the first four anniversaries of the grant date,
provided that full vesting of the New Options shall occur upon any of the
following events (as each is defined in this Agreement): (i) Termination
without Cause (Section 5(a)), (ii) Termination for Good Reason (Section 5(b)),
(iii) Change in Control (Section 5(c)), (iv) death while employed (Section
5(d)), or (v) termination as a result of Disability (Section 5(d)). The
Executive shall have until the close of trading on the New York Stock Exchange
one (1) year from the date of (i) Termination without Cause, (ii) Termination
for Good Reason, (iii) termination for any reason on or after a Change in
Control, or (iv) death or termination on account of Disability to exercise all
vested New Options. In all other cases of termination, the Executive shall have
ninety (90) days following termination to exercise all vested New Options. In
the case of any termination, the above periods will be extended for a time
period equal to the length of any Company imposed blackout period because of
securities law restrictions (including without limitation Rule 10b-5) or
accounting limitations. All New Options held by the Executive which are
unvested on the date of termination of employment will terminate and expire as
of the date of termination of employment.
(c) Recurring Options. Commencing in calendar year 2000 and
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thereafter in each calendar year during the Employment Period, the Company will
recommend to the Compensation Committee that the Executive receive, twice
annually in accordance with the terms of the Plan (or any replacement plan
therefor), an option grant (calculated using the Black Scholes formula of option
pricing) that would be equivalent to a Black Scholes value of $4,876,000. For
example, using the Black Scholes formula, if the stock price of Gateway
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common stock was $50/share at the time of the grant, the Executive would receive
160,026 shares of Gateway common stock ($4,876,000 divided by $30.47 [being the
Black Scholes value at $50/share], which equals 160,026 shares of stock). All
stock option grants under Sections 4(c) of this Agreement will be granted under,
and be subject to, the Plan (or its replacement). All recurring options granted
prior to those commencing in calendar year 2000 were, and shall continue to be,
subject to the terms of the grant and the Plan.
5. Termination of Employment.
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(a) Termination without Cause and Termination with Cause. The Company
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may terminate the Executive's employment during the Employment Period without
Cause or with Cause. For purposes of this Agreement, Termination without Cause
shall mean any termination by the Company during the Employment Period other
than for Cause or as a result of death or Disability. Termination for Cause
shall mean termination, within one hundred twenty (120) days of the Chairman of
the Board becoming aware of the event, resulting from the Executive's (i)
conviction (including a plea of guilty or nolo contendere) of any felony of any
kind (other than Limited Vicarious Liability or a routine traffic infraction) or
any other crime (whether it is a felony or not) involving securities fraud or
theft of substantial assets of the Company, (ii) material breach of the Non-
Competition Agreement signed by Executive as a condition of employment (attached
hereto as Exhibit "A") which breach is not cured within twenty (20) days of
written notice thereof; (iii) willful misconduct with regard to the Company, or
gross neglect or dereliction of duty resulting in either case in material
economic harm to the Company; (iv) failure to attempt to follow in good faith
the reasonable lawful direction of the Board despite written instruction to do
so. Limited Vicarious Liability, as used above, shall mean any liability which
is (x) based on acts of the Company for which the Executive is charged solely as
a result of his offices with the Company and (y) in which he was not directly
involved or had prior knowledge of such actions or intended actions with, in
either case, knowledge or reasonable belief that a law was being violated by
such acts.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless he has (i) had ten (10) days written
notice setting forth the reasons for the Company's intention to terminate for
Cause, (ii) had an opportunity to be heard before the Board, and (iii) received
a Notice of Termination from the Board stating that in the opinion of a
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majority of the full Board that the Executive is guilty of the conduct set forth
above and specifying the particulars thereof.
(b) Good Reason. The Executive may terminate employment for Good
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Reason. Good Reason means: (i) diminution in the Executive's titles, (ii) the
assignment of duties to the Executive that are materially and adversely
inconsistent with the Executive's positions, (iii) any material diminution in
Executive's authority, responsibility or reporting lines, including but not
limited to maintaining Executive's then positions in the Company but the Company
becoming more than fifty percent (50%) owned by another entity and Executive not
having the same titles, responsibilities and duties in the parent entity, (iv)
removal from, or failure to reelect Executive to, the Board, (v) any material
breach by the Company of this Agreement or (vi) the failure of the Compensation
Committee of the Board to make the grants to be recommended pursuant to Section
4(c). If the Executive determines that Good Reason exists, the Executive must
notify the Company in writing, within 180 days following the Executive's
knowledge of the first event which the Executive determines constitutes Good
Reason, or such event shall not constitute Good Reason under this Agreement. If
the Company remedies such event within thirty (30) days following receipt of
notice, the Executive may not terminate employment for Good Reason as a result
of such event.
(c) Change in Control. Either the Company or the Executive may
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terminate the Executive's employment for any reason within six (6) months
following the effective date of a Change in Control. For purposes of this
Agreement, Change in Control shall have the same meaning as it does in the Plan.
(d) Death or Disability. The Executive's employment shall terminate
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automatically upon the Executive's death during the Employment Period. The
Executive's employment under this Agreement shall terminate for "Disability"
where the Executive has been unable to render the material services required by
his position as President and Chief Executive Officer as a result of physical or
mental incapacity for a period of 180 consecutive days and the Company has
notified the Executive of such termination while he is so disabled. The parties
agree that exceeding such a period would constitute an undue hardship for the
Company under Federal and state law including, without limitation, the Americans
with Disabilities Act and the California Fair Employment and Housing Act.
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(e) Termination without Good Reason. The Executive may terminate his
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employment with the Company without Good Reason at any time. Notice of non-
extension by the Executive shall be deemed a Termination without Good Reason at
the end of the Employment Period.
(f) Notice of Termination. Any termination of the Executive's
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employment by the Company or by the Executive shall be communicated by Notice of
Termination to the other party in accordance with Sections 5 and 9(b) of this
Agreement. For purposes of this Agreement, a Notice of Termination means a
written notice which (i) indicates the specific termination provision in this
Agreement being relied upon, (ii) to the extent practicable, sets forth in
reasonable detail the facts and circumstances claimed to provide the basis for
termination, and (iii) if the date of termination is other than the date of
receipt of such notice, specifies the termination date.
6. Payment Obligations of the Company upon Termination.
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(a) Termination without Cause; Termination for Good Reason; Change in
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Control. Upon (i) Termination without Cause (including notice of non-extension
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by the Company), (ii) Termination for Good Reason, or (iii) Termination for any
reason (other than Cause) within six (6) months after the effective date of a
Change in Control, the Company shall pay the Executive an amount equal to three
(3) times the sum of (i) Executive's Annual Base Salary plus (ii) the lesser of
(x) the highest annual incentive bonus received by the Executive during either
of the last two completed fiscal years and (y) an amount equal to the
Executive's Annual Base Salary. The amount will be paid in a single lump sum
payment within twenty (20) days after the date of termination. The parties agree
that this payment will be the Executive's sole and exclusive remedy for
termination under this Section 6(a) of the Agreement. The parties further agree
that if Executive gives Notice of Termination as a result of a Change in
Control, the Executive will (at the option of the Company) either (i) continue
in his then position as an employee of the Company (at Executive's then existing
Annual Base Salary) for a period of three (3) months following the effective
date of the Change in Control (unless terminated earlier by the Company for
Cause or by the Executive for Good Reason) or (ii) provide senior level
consulting services to the Company as an employee for a period of three (3)
months following the effective date of the Change in Control, in either case on
the same compensation terms as then existing,
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prorated for the 3 month period. Any Company stock options or other equity, if
any, held by the Executive as of the date of termination will be handled in
accordance with Section 4 of this Agreement and the applicable plan and grants.
In addition, the Executive will be entitled to Accrued Amounts, as defined in
Section 6(d) below.
(b) Termination for Cause or without Good Reason. If the Executive's
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employment is terminated by the Company for Cause or by the Executive without
Good Reason during the Employment Period, the Company will pay to the Executive
the Executive's Annual Base Salary through the date of termination, to the
extent not yet paid, and the Company shall have no further obligations under
this Agreement. In addition, all outstanding Company stock options and other
equity awards, if any, will be handled in accordance with Section 4 of this
Agreement and the applicable plan and grants. In addition, the Executive will
also be entitled to other Accrued Amounts.
(c) Death or Disability. If the Executive's employment is terminated
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by reason of the Executive's death or Disability not covered by Section 6(a)
during the Employment Period, the Company will pay the Executive (or the
Executive's heirs or representatives, if applicable) the Executive's Annual Base
Salary through the date of termination, to the extent not yet paid and other
Accrued Amounts. In addition, any Company stock options or other equity, if
any, held by the Executive as of the date of termination will be handled in
accordance with Section 4 of this Agreement and the applicable plans and grants.
(d) Accrued Amounts shall mean (i) Annual Base Salary, benefits,
fringes and expense reimbursements due for the period prior to any termination,
(ii) any bonuses earned but unpaid for any prior fiscal year and, unless a
termination covered by Section 6(b) above, a pro rata bonus (based on period of
service in the current fiscal year and on actual achievement against targets
during the fiscal year) and (iii) any other amounts due under the terms of any
plan or program.
7. Excise Tax.
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(a) In the event that any payment made, directly or indirectly, by
the Company to or for the benefit of the Executive (which payment is contingent
on a change in the ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company, as those terms
are defined under Internal Revenue Code ("Code") Section
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280G) (a "Change in Ownership") (a "Payment") is subject to excise tax imposed
by Section 4999 of the Code on "Excess Parachute Payments" as defined in Section
280G of the Code ("Excise Tax"), then the Executive shall be entitled to receive
an amount equal to such Excise Tax (the "Gross-Up Payment") but will not be
reimbursed for any excise tax or additional taxes payable with respect to such
Gross-Up Payment.
(b) Subject to the provisions of 7(c), and any determination by the
Internal Revenue Service, all determinations required to be made under this
Section 7, including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made by the Company's auditors
immediately prior to the Change in Ownership in consultation with the Executive
and his advisors. Any Gross-Up Payment, as determined pursuant to this Section
7, shall be paid by the Company to the Executive within ten (10) days of the
auditor's determination. Notwithstanding the foregoing, in the event that the
Gross-Up Payment, net of all applicable income, excise and payroll taxes, is
less than the amount that Executive would receive, net of all applicable income,
excise and payroll taxes, if Executive's total compensation were reduced to the
level that is the maximum amount Executive could receive without there being any
"Excess Parachute Payment" under Section 280G of the Code (the "No Parachute
Maximum"), Executive's compensation shall be reduced to the No Parachute Maximum
by reducing the lump sum payment due hereunder.
(c) If the Executive receives notice from the Internal Revenue
Service of any claim related to Excess Parachute Payments, the Executive shall
promptly notify the Company. If the Company notifies the Executive in writing
that it desires to contest any claim of Excess Parachute Payment, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request from time to time,
including, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Company and reasonably acceptable to
Executive;
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceeding
relating to such claim.
The Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such contest. Without limitation on the foregoing
provisions of this Section 7(c), the Company shall control all proceedings taken
in connection with such contest (except to the extent there are issues unrelated
to Code Section 4999 being simultaneously contested) and, at its sole option,
may pursue or forgo any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and xxx for
a refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and xxx for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance.
(d) If, after receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(c), the Executive becomes entitled to receive a
refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto).
8. Successors.
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(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive except by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's heirs or legal representatives. Notwithstanding the
foregoing, any amounts that become payable hereunder pursuant to
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Section 6, shall be payable to Executive's estate if not paid prior to the
Executive's death.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns, provided that the Company may not
assign this Agreement except in connection with the assignment or disposition of
all or substantially all of the assets or stock of the Company or by law as a
result of a merger or consolidation and only if such assignee promptly delivers
to Executive a written assumption of this Agreement in form and substance
reasonably acceptable to Executive.
9. Miscellaneous.
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(a) This Agreement shall be governed, by, and construed in accordance
with, the laws of the State of California, without reference to its conflict of
law rules. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or
modified except by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive
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Xxxxxxx Xxxxxxx
Chief Executive Officer
0000 Xxxxx Xxxxxx Xxxxx
Xxx Xxxxx, XX 00000
If to the Company
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Gateway Inc.
0000 Xxxxx Xxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Attn: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section 10(b). Notices and communications shall be
effective when actually received by the addressee.
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(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(f) Except as provided herein, the Executive and the Company
acknowledge that this Agreement constitutes the entire agreement between the
parties and supersedes any prior agreement between the Executive and the Company
concerning the subject matter hereof, including without limitation, as of the
Commencement Date the Executive's current employment agreement dated January 19,
1998 ("Prior Agreement"). The Executive agrees that, except as provided herein,
the Prior Agreement shall terminate as of the Commencement Date, and the
Executive explicitly waives any rights to payments or benefits under the Prior
Agreement, other than any accrued base salary or benefits owed and unpaid prior
to the Commencement Date. The Executive shall not be entitled to participate in
any severance plans or severance programs of the Company during the Employment
Period.
(g) The Company shall indemnify Executive with respect to claims
(both during and after employment) relating to Executive's service as an
employee, officer and director of the Company and its affiliation and as a
fiduciary of any benefit plan of any of the foregoing to the full extent
permitted by applicable law and the Company shall cover the Executive under the
Company's Directors and Officers indemnification insurance policy (as in effect
from time to time) both during and after employment with regard to actions or
inactions in such capacities.
(h) The Company will reimburse Executive for all legal fees and
expenses incurred in reviewing this Agreement. In addition, the prevailing
party in any litigation with regard to this Agreement or the grants hereunder,
as determined by the Court, shall be awarded
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by the Court his or its reasonable legal fees and disbursements, provided that
such fees and disbursements shall not exceed one tenth of one percent of the
paying party's net worth at the time of the judgment.
(i) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization of its Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
COMPANY
By: _________________________________
Title:_________________________________
__________________________________
Xxxxxxx Xxxxxxx
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