INCOME CONTINUATION AGREEMENT
Exhibit
10.5
This
Agreement, made and entered into in the town of Syosset, New York, effective as
of June 27,
2008, by and between Porta Systems Corp., a Delaware corporation with its
principal executive offices at 0000 Xxxxxxx Xxxxxxxx, Xxxxxxx, Xxx
Xxxx 00000(xxx "Corporation”), and Xxxxxx X. Xxxxxxxx, an individual
residing at 0 Xxxxxxxxx Xxxxx, Xxxxxxxx, Xxx Xxxx 00000 (the
"Executive").
WHEREAS,
the Corporation and the Executive entered into an Executive Continuation
Agreement, effective as of August 1, 2006 (the “Prior Agreement”), and which
shall be replaced in its entirety by this Agreement, and which Prior Agreement
shall be of no further force or effect immediately upon the execution of this
Agreement; and
NOW,
THEREFORE, to induce the Executive to remain in his current position, and to
compensate the Executive for his valuable services to the Corporation and its
subsidiaries should his services be terminated under circumstances hereinafter
described, and for other good and valuable consideration, the receipt and
adequacy of which each party acknowledges, the Corporation and the Executive
agree as follows:
1. Term. This
Agreement shall commence on the date hereof and shall continue until July 31,
2010, and, unless the Corporation gives written notice to the Executive of its
election not to extend or renew this Agreement at least sixty (60) days prior to
August 1 of any year, effective August 1 of each such year, commencing August 1,
2010, the term of this Agreement shall be extended and renewed automatically for
one (1) additional year.
2. Compensation
Payable. No compensation shall be payable under this Agreement
unless and until there shall have been change in Control of the Corporation (as
defined in paragraph 3 hereof) while the Executive is still an employee of the
Corporation and the Executive’s employment by the Corporation terminates in the
manner which would entitle him to the benefit of the payments under paragraph 4
hereof.
3. Change in
Control. For purposes of this Agreement, a "Change in
Control" shall mean a change in control of a nature that would be required to be
reported in response to Item 6(f) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”);
provided that, without limitation, such a Change in Control shall also be deemed
to have occurred if (i) and “person” (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation’s then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of the Directors of the Corporation cease for
any reason to constitute at least a majority thereof unless the election of each
new director was nominated or ratified by at least two-thirds of
the directors then still in office who were directors at the
beginning of such period. Notwithstanding any of the above to the
contrary, the Executive and the Corporation agree that the refinancing of the
senior and junior debt of the Corporation, whereby Cheyne Special Situations
Fund L.P. and others shall obtain 91% of the stock of the
Corporation, shall not be deemed a Change of Control of the
Corporation.
4. Termination after Change of
Control. If any of the events described in paragraph 3
hereof constituting a Change of Control shall have occurred, the Executive shall
be entitled to the benefits provided in this paragraph 4 hereof upon the
subsequent termination of his employment unless such termination is: (a) because
of the Executive’s death; or (b) by the Corporation for Cause or Disability as
provided in paragraph 5 or 6 hereof; or (c) by the Corporation and occurs more
than eighteen (18) months subsequent to the date of the Change of Control or (d)
by the Executive for Good Reason and occurs more than eighteen (18) months
subsequent to the date of the Change of Control. In the
event the Executive shall become entitled to receive benefits under this
paragraph 4, the Corporation shall pay to the Executive as severance pay in one
lump sum on the fifth day following the Date of Termination or, at the election
of the Executive, in equal monthly installments the following
amounts:
(i) The
Executive’s full salary through the Date of Termination at the rate in effect at
the time the Notice of Termination is given; and
(ii) In
lieu of any further salary payments to the Executive for the periods subsequent
to the Date of Termination, an amount equal to the product of (A) the sum of the
Executive’s monthly salary at the rate in effect as of the Date of Termination,
or if higher, as in effect immediately prior to the Change in Control, plus the
pro rata monthly amount of him sot recent annual executive bonus or, if higher,
his most recent annual bonus paid immediately prior to the Change of Control,
multiplied by (B) 24.
5. Discharge for
Cause. The Corporation, through action taken by a majority of
its entire Board of Directors at a meeting held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with his counsel, to be heard before the Board of Directors), may at
any time at its option, exercised by notice to the Executive, terminate his
services for Cause (as hereinafter defined). In the event of termination for
Cause, the Corporation shall have no further obligations or liabilities to the
Executive hereunder. For purposes of this Agreement, term “Cause” means (i) any
conviction of the Executive of a felony under the laws of the United States or
any state thereof; or (ii) the willful and continued failure by the Executive to
substantially perform his duties with the Corporation (other than such failure
resulting from his incapacity due to physical or mental illness), after a demand
for substantial performance is delivered to the Executive by the Board of
Directors which specifically identifies the manner in which the Board of
Directors believes when the Executive has not substantially performed his
duties. For purpose of this paragraph 5, no act or failure to act on the
Executive’s part shall be considered “willful” unless done, or omitted to be
done by the Executive not in good faith and without reasonable belief that the
Executive’s action or omission was in the best interest of the
Corporation.
6. Death or
Incapacity. In the event of the Executive’s death during the
term of this Agreement prior to his becoming entitled to benefits under
paragraph 4, this Agreement shall terminate on the date of his death and no
benefits shall be payable hereunder. In the event that, during the term of this
Agreement prior to his becoming entitled to benefits under paragraph 4, the
Executive shall become totally incapacitated by any physical or mental illness
or disability for a period of one hundred eighty (180) consecutive days and
within thirty (30) days after written notice of termination is given the
Executive shall not have returned to the fulltime performance of his duties, the
Corporation may terminate this Agreement for "Disability" and no benefits shall
be payable hereunder.
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7. Termination by Executive for
Good Reason. The Executive may terminate his employment
with the Corporation for "Good Reason" at any time within eighteen (18) months
of a Change in Control and in such circumstances will be entitled to the
benefits provided in paragraph 4 hereto. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any one of the following events without the
Executive's express written consent: (i) the assignment of the Executive to any
duties substantially inconsistent with his position, duties, responsibilities or
status with the Corporation immediately prior to the Change in Control, or any
removal of the Executive from, or any failure to reelect him to his then current
position, except in connection with a termination of his employment for Cause or
Disability; (ii) a reduction by the Corporation in the amount of the Executive’s
base salary or other employee perquisites as compared to that which was paid or
made available to him immediately prior to the Change in Control; (iii) the
failure by the Corporation to continue to provide the Executive with
substantially similar bonus opportunities as enjoyed immediately prior to the
Change in Control or benefits the Executive enjoyed under the Corporation’s
benefit programs in which he was participating at the time of the Change in
Control; (iv) the failure by the
Corporation to provide the Executive with the number of paid vacation days to
which he was entitled in accordance with the Corporation’s normal vacation
policy or arrangement with the Executive in effect at the time of the Change in
Control; (v) the relocation of the Executive’s principal office to a location
more than twenty-five (25) miles from the location of such office immediately
prior to the Change in Control; (vi) requiring travel on the Corporation’s
business to an extent substantially greater than the Executive’s business travel
obligations immediately prior to the Change in Control; (vii) any failure of the
Corporation to obtain the express written assumption of the obligation to
perform this Agreement by any successor; or (viii) any breach by the Corporation
of any of the provisions of this Agreement or any failure by the Corporation to
carry out any of its obligations hereunder.
8. Date of
Termination. "Date of Termination" shall mean the date on which the
Notice of Termination is given.
9. Notices. All
notices required or permitted to be given hereunder shall be by registered or
certified mail addressed to the respective parties at their addresses
hereinabove set forth or at such other addresses as may hereafter be designated
in writing by such party and all such notices shall be deemed to be given on the
date when such notice was mailed. Notices sent to the Corporation shall be sent
to the attention of the Chairman of the Corporation. Any termination by the
Corporation pursuant to paragraph 5 above shall be communicated by written
notice of termination to the Executive. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide the basis for
termination of the Executive’s employment under the provision so
indicated.
10. Non-Competition. Solely
in the event that the Executive terminates his employment for Good Reason
pursuant to paragraph 7 hereof, then for the eighteen (18) month period
thereafter, the Executive shall not directly or indirectly engage in, as a
director, officer, employee or stockholder, in any business, association, or
corporation (other than the Corporation, or any subsidiary or successor of it)
that is engaged in whole or in part in a business that is in substantial and
direct competition with the business of the Corporation or any of its
subsidiaries, provided that the Executive may own not in excess of 5% of any
class of securities of any such competitive entity that is registered under
section 12 of the Securities Exchange Act of 1934, as amended, or is otherwise
publicly traded.
11. Merger or
Consolidation. In the event the Corporation shall merge
into or consolidate with another corporation, or transfer or sell all or
substantially all of its assets to another corporation or other entity, such
successor corporation or other entity shall be
required to assume the obligations of the Corporation hereunder, and this
Agreement shall be binding on and inure to the benefit of the successor
corporation or other entity and such successor corporation or other entity shall
be obligated to perform all of the terms and conditions hereof, whether or not
such successor expressly assumes such obligations. In this Agreement, the term
"Corporation" shall include any such successor.
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12. Non-assignability. This
Agreement is personal in nature and neither of the parties hereto shall, without
the consent of the other, assign or transfer this Agreement or any rights or
obligations hereunder. Without limiting the foregoing, the Executive’s right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his will or by the
laws of descent and distribution, and in the event of any attempted assignment
or transfer contrary to this paragraph the Corporation shall have no liability
to pay any amount so attempted to be assigned or transferred.
13. Mitigation. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor shall the
amount of any payment provided for in this Agreement be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the Date of Termination, or otherwise. The Corporation’s
obligations to pay the Executive the compensation and make the arrangements
provided herein shall be absolute and unconditional and shall not be affected by
any circumstances including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have. All amounts
payable by the Corporation hereunder shall be paid without notice and demand.
Except as expressly provided herein, the Corporation waives all rights which it
may now have or may hereafter have conferred upon it, by statute or otherwise,
to terminate, cancel or rescind this Agreement in whole or in part.
14. Arbitration. Any
dispute, disagreement or other question arising from this Agreement or the
interpretation thereof shall be settled by arbitration in accordance with the
commercial rules then in effect of the American Arbitration Association, except
that the arbitrator(s) shall be selected in accordance with the following
procedure: any dispute, disagreement or other question shall be referred to and
decided by a single arbitrator if the parties can agree upon one within fifteen
(15) days after either of the parties shall notify the other in writing that it
wishes to avail itself of the provisions of this paragraph 14; otherwise, such
dispute, disagreement or other question shall be referred to and decided by
three arbitrators, one to be appointed by the Corporation and one to be
appointed by the Executive, each such appointment to be made within ten (10)
days after the expiration of the fifteen (15) day period referred to above, and
the third arbitrator to be appointed by the first two arbitrators within twenty
(20) days after the expiration of such ten (10) day period. If the first two
arbitrators cannot reach agreement on the third arbitrator within said twenty (20) day period,
the third arbitrator shall be an impartial arbitrator appointed by the President
of the American Arbitration Association within thirty (30) days after the
expiration of said twenty (20) day period. Hearings of the arbitrator(s) shall
be held in New York, New York, unless the parties agree otherwise. Judgment upon
an award rendered by the arbitrator(s) may be entered in any court of competent
jurisdiction, including courts in the state of New York. Any award so rendered
shall be final and binding upon the parties hereto. Subject to paragraph 15
hereof, all costs and expenses of the arbitrator(s) shall be paid as determined
by such arbitrator(s), and all costs and expenses of experts, witnesses and
other persons retained by the parties shall be borne by them
respectively.
15. Indemnification for Expenses
and Advancement of Expenses.
(a) Upon
the occurrence of a Change in Control, the Corporation shall pay, and indemnify
the Executive against, all costs and expenses, including, without limitation,
the fees and expenses of attorneys, arbitrators, experts and witnesses, incurred
by or on behalf of the Executive in connection with any arbitration or legal
claim or proceeding arising from this Agreement or the interpretation thereof,
to the extent that the Executive is successful, on the merits or otherwise, in
any such claim or proceeding. If the Executive-is not
wholly successful in such claim or proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such claim or proceeding, then the Corporation shall indemnify the Executive
against all such costs and expenses incurred by him or on his behalf in
connection with each successfully resolved claim, issue or matter. For the
purposes of this paragraph 15, and without limiting the foregoing, the
termination of any claim, issue or matter in any such claim or proceeding by
dismissal, with or without prejudice, shall be deemed to be a successful result
as to such claim, issue or matter.
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(b) The
Corporation shall advance all such costs and expenses incurred by or on behalf
of the Executive in connection with any such claim or proceeding within twenty
(20) days after the receipt by the Corporation of a statement or statements from
the Executive requesting such advance or advances from time to time, whether
prior to or after final disposition of such claim or proceeding. Such statement
or statements shall reasonably evidence the costs and expenses incurred by the
Executive and shall include or be preceded or accompanied by an undertaking by
or on behalf of the Executive to repay any costs and expenses advanced if it
shall ultimately be determined that the Executive is not entitled to be
indemnified against such costs and expenses.
16. Tax
Withholding. The Corporation shall have the right to
withhold from any transfer or payment made to the Executive or to any other
person hereunder, whether such payment is to be made in cash or other property
all applicable Federal, state, city or other taxes or foreign taxes as they
shall be required, in the determination of the Corporation, pursuant to any
statue or governmental regulation or ruling.
17. Miscellaneous. In
the event that the Executive shall die after becoming entitled to benefits
hereunder but prior to the complete payment thereof, all such remaining amounts
shall be paid to the Executive's estate or beneficiary. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by the Executive and such officer as
may be specifically designated by the Board of Directors of the corporation and
such provision shall be modified, waived or discharged only to the extent set
forth in such writing. This Agreement sets forth the entire agreement of the
parties hereto and supersedes any prior expressions of intent or understanding,
whether written or oral, with respect to the subject matter hereof. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of New York, without application of
conflict of laws provisions. The parties hereby agree to the
exclusive jurisdiction of the Federal and State courts located in New York
County, State of New York, and hereby submit to the jurisdiction of said courts
and waive any defense of forum
non conveniens or an similar defense. The invalidity or unenforceability
of any provision of this Agreement shall in no way effect the validity or
enforceability of any other provision. For purposes of this Agreement, the term
"subsidiary" shall mean any corporation or business entity controlled by the
corporation in question, and the term "affiliate" shall mean and include any
corporation or business entity controlling, controlled by, or under common
control with the corporation in question.
IN WITNESS WHEREOF, the
parties have executed and delivered this Agreement as of the date first above
written.
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By:
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/s/ Xxxxxxx Xxxxxxxx
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Xxxxxxx
Xxxxxxxx
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Senior
Vice President, Secretary and Treasurer
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/s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx
X. Xxxxxxxx
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