Exhibit 10(b)
FOURTH ADDENDUM
TO THAT CERTAIN
EMPLOYMENT AGREEMENT
BETWEEN
FARMSTEAD TELEPHONE GROUP, INC.
AND
XXXXXX X. XXXXXX, XX.
DATED AS OF JANUARY 1, 1998,
AS AMENDED BY THAT CERTAIN RESTATED FIRST ADDENDUM DATED
AS OF AUGUST 1, 2001;
AS FURTHER AMENDED BY THAT CERTAIN SECOND ADDENDUM DATED
AS OF JANUARY 1, 2003
AND
AS FURTHER AMENDED BY THAT CERTAIN THIRD ADDENDUM DATED
AS OF JANUARY 1, 2004
(the "Agreement")
This Fourth Addendum to the Agreement is effective as of the 1st day of
October 2004 (the "Effective Date") and all terms and provisions of this
Fourth Addendum shall take effect on and as of the Effective Date, unless
another date is specifically indicated.
RECITALS
The Executive and Company are parties to the Agreement.
The parties wish to make additional modifications to certain provisions of
the Agreement for the purposes of extending Executive's Active Employment
Period though December 31, 2007, employing Executive as the Chairman of the
Board during the remainder of his Active Employment Period and ending
Executive's employment with the Company upon the expiration or termination
of his Active Employment Period.
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the parties agree as follows.
1. All references and provisions of the Agreement relating to the
"Limited Employment Period" are deleted and shall have no force or effect
whatsoever. Neither the Company nor Executive shall have any rights,
entitlements or obligations with respect to the Limited Employment Period.
Without limiting the preceding sentences of this Paragraph in any way, it
is specifically understood and agreed that Executive shall not be entitled
to any of the compensation that otherwise would have been payable to
Executive during the initial year of the Limited Employment Period under
Paragraph 2 of the Restated First Addendum to the Agreement, Paragraph 3 of
the Second Addendum to the Agreement and/or Paragraph 3 of the Third
Addendum to the Agreement. Executive
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acknowledges that he has voluntarily agreed to the terms and conditions of
this Paragraph 1 and acknowledges that they do constitute "good reason" as
defined in Section 2.6 (b) of the Agreement.
2 The definition of "Active Employment Period" in Section 2.1(a) is
revised to include the period from October 1, 2004 through December 31,
2007, and the definitions of the terms "Employment Period" and "Term" shall
be revised to mean the Active Employment Period.
3. During the remainder of the Active Employment Period, the Company
agrees to employ the Executive as the Chairman of the Board of the Company.
Executive voluntarily agrees to no longer serve as Chief Executive Officer
or President of the Company and acknowledges that the relinquishment of
those positions do not constitute "good reason" as defined in Section 2.6
(b) of the Agreement.
4. Section 1.3 of the Agreement is revised to read as follows:
(a) Base Salary. The Company shall pay Executive a Base Salary as
follows:
(i) $160,000 during the period from October 1 through
December 31, 2004;
(ii) $200,000 during the period from January 1 through
December 31, 2005;
(iii) $250,000 during the period from January 1 through
December 31, 2006; and
(iv) $300,000 during the period from January 1 through
December 31, 2007.
The Board shall not be entitled to decrease Executive's Base
Salary except in the case of a "Permissible Base Salary Reduction".
For purposes of this Agreement a "Permissible Base Salary Reduction"
shall occur when the Board in its discretion reduces Executive's Base
Salary in response to unsatisfactory Company performance; provided
that the reduction is accompanied by (i) a reduction of at least
equal proportion to the annual base salary of the Chief Executive
Officer (if that position is held by an individual other than the
Executive) and (ii) the authorization of the Board for the Chief
Executive Officer to implement reductions to the annual base salaries
of other senior executives of the Company.
(b) Annual Bonus. For each calendar year during the remainder of
this Agreement commencing 2005, Executive shall be eligible for an
annual bonus of up to one hundred percent (100%) of Executive's Base
Salary for that calendar year, which shall be determined and paid in
accordance with subparagraphs (i) (ii) (iii) and (iv) below.
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(i) At the outset of each subject year, Executive shall
present for approval by the Board of Directors an annual
pro-forma operating plan that includes the target
earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the Company for that subject
year.
(ii) A bonus for the subject year shall be paid to Executive
in the event the Company attains at least eighty five
percent (85%) of the target EBIDTA that is approved by
the Board of Directors for that year. The bonus shall be
equal to a prorated amount of from eighty five percent
(85%) to one hundred percent (100%) of Executive's Base
Salary for the subject year, and that percentage shall be
determined by and correspond to the percentage of the
target EBIDTA that is attained by the Company.
(iii) If earned, the Company shall pay Executive the annual
bonus for the subject year within fifteen days (15) days
following the closing by the Company of its books for
that year.
(iv) In the event the Active Employment Period expires on
September 30, 2007 as scheduled, the Bonus that Executive
otherwise would have been paid had his employment
continued through the end of calendar year 2007 shall be
prorated accordingly.
(c) Acquisition Bonus. The Company and Executive acknowledge that
Executive's services and duties as Chairman of the Board include
successful conclusion of strategic acquisitions as and when
contemplated by each annual operating plan that is approved by the
Board of Directors (each an "Acquisition"). The Company and Executive
further acknowledge that the costs of each Acquisition would be
significantly reduced if the Executive in concert with the Company's
Chief Executive Officer (and supported by other internal Company
resources) can generate suitable Acquisition prospects, evaluate
those prospects and negotiate the business terms of the Acquisition;
thus eliminating the need for the Company to engage and compensate
brokers, investment bankers or other third parties, as the case may
be, to perform those functions. As an incentive for Executive to
reduce the Company's Acquisition costs in this manner, the Company
shall pay Executive a bonus equal to one percent (1%) of the
"Purchase Price" (as defined below) for each Acquisition that is
concluded during the Term of this Agreement without any obligation by
the Company to pay any fees, commissions, or any other cash or
equity-based compensation to any third party (ies) for or in
connection with (i) the identification of the entity that is the
subject of the Acquisition; (ii) the valuation of the Acquisition or
(iii) the negotiation of the purchase price and other key business
terms of the Acquisition with the selling party or its
representatives. The term "Purchase Price" as used in this section
shall mean the cash (including the principal amount of any deferred
payments) and/or value of securities paid by the Company for the
Acquisition, and shall also
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include all other manner of consideration, such as but not limited
to, the assumption by the Company of any liabilities. The Company
shall pay Executive each Acquisition Incentive Bonus that is earned
in accordance with this section within fifteen (15) days following
the closing of the Acquisition to which that bonus applies.
5. Sections 2.6 (b) is revised to read as follows:
(b) "Good reason" shall mean a reduction in Base Salary other than
a Permissible Base Salary Reduction, a material adverse change in the
method of determining Executive's bonus, a material reduction in
Executive's responsibilities or benefits, any other material breach
of this Agreement by the Company, a relocation of the Company's
corporate offices in excess of fifty (50) highway miles from the
current location of such offices, or the failure to reelect Executive
Chairman of the Board or the other removal of Executive from that
position (other than for cause by the Company or voluntarily by
Executive).
6. Sections 2.7 (a) and (b) are revised to read as follows:
(a) If the Company terminates this Agreement without cause as
referred to in Section 2.4, the Executive shall be entitled to
severance equal to three times the Executive Compensation Amount (as
defined below). For purposes of this Agreement, the "Executive
Compensation Amount" at any time shall mean the total of the
Executive's then current Base Salary plus the average amount of the
annual bonuses paid to Executive under Section 1.3 (b) for calendars
years 2005 forward, including the Assumed Bonus, as defined below,
for the calendar year in which the termination without cause becomes
effective. In the event the termination without cause is effective on
or before December 31, 2005, such severance shall be paid in equal
weekly installments over the twelve (12) months following the
effective date of the termination. In the event the termination
without cause is effective any time from January 1 though December
31, 2006, such severance shall be paid as follows: one half (1/2)
within fifteen (15) days following the effective date of termination
and the balance in equal weekly installments over the twelve (12)
months following the effective date of the termination. In the event
the termination without cause is effective on or after January 1,
2007, such severance shall be paid in full within fifteen (15) days
following the effective date of termination. The Executive also shall
be entitled to receive all standard health benefits referred to in
section 1.5 (a) and 1.5 (b) (iii) and (iv) until the earlier of (x)
the date Executive commences receiving benefits from another employer
or (y) twenty four (24) months from the effective date of
termination. The "Assumed Bonus" shall mean the bonus that Executive
would have received under Section 1.3 (b) assuming that the average
monthly EBITDA run rate for the Company during that calendar year
through end of the month immediately prior to the month in which the
termination without cause becomes effective was to remain constant
for the balance of that calendar year.
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(b) If the Executive terminates this Agreement with good reason as
referred to in Sections 2.5 and 2.6 (b), the Executive shall be
entitled to severance pay equal to three times the Executive
Compensation Amount to be paid as provided in Section 2.7 (a).
Executive shall also be entitled to continue to receive all benefits
as referred to in Section 2.7 (a) during the period referred to in
Section 2.7 (a).
7. Unless specifically defined, all capitalized terms in this Fourth
Addendum shall have the meanings assigned elsewhere in the Agreement.
8. The Agreement shall continue in full force and effect as specifically
modified by the terms of this Fourth Addendum to the Agreement.
Executed by the parties as of the Effective Date.
FARMSTEAD TELEPHONE GROUP, INC.
By: /s/ Xxxx-Xxxx Xxxxxxxxxxx
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Name: Xxxx-Xxxx Xxxxxxxxxxx
Title: C.E.O.
XXXXXX X. XXXXXX, XX.
/s/ Xxxxxx X. Xxxxxx, Xx.
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