EXHIBIT 10.3
CHANGE-IN-CONTROL SEVERANCE PAY AGREEMENT
THIS AGREEMENT is made this 2nd day of November, 1998, by and between
Recovery Engineering, Inc., a Minnesota corporation, (the "Company") and Xxxxxxx
X. Xxxxxxxxx (the "Executive").
RECITALS
A. The Executive is the Chief Financial Officer of the Company as of
the date of this Agreement, and has been an employee of the Company since
February 1996.
B. The Board of Directors of the Company desires to retain the
Executive in the employ of the Company.
C. The Board of Director believes that it is essential to preserve and
maintain the stability and continuity of management of the Company by providing
the Executive with economic and other security from the uncertainty of risks
inherent in a potential or threatened takeover of the Company which might
jeopardize the Executive's employment.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises of the parties hereto, the Company and the Executive agree as follows:
1. Eligibility for Severance Pay. The Executive shall be eligible to
receive severance pay, in the amounts and at the times described in paragraph 3,
if:
(a) the Executive's employment with the Company and all of its
subsidiaries (if any) is terminated within 24 months after there has
been a "change in control," as such term is hereinafter defined; and
(b) the Executive's termination of employment was not:
(i) on account of the Executive's death;
(ii) on account of a physical or mental
condition that entitles the Executive to benefits under any
long-term disability plan maintained by the Company or any of
its subsidiaries, as then in effect;
(iii) for conduct involving serious willful
misconduct (such as commission by the Executive of a felony or
a common law fraud against the Company) which is detrimental
in a significant way to the business of the Company or any or
its subsidiaries; or
(iv) on account of the Executive's voluntary
resignation; provided, that a resignation shall not be
considered to be voluntary for the purposes of this Agreement
if it occurs under the circumstances described in paragraph
11(a), or if,
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subsequent to the change in control, there has been: (1) a
reduction in the Executive's compensation; (2) an alteration
in the Executive's status, title or position with the Company
or in the nature of the Executive's responsibilities from
those in effect immediately prior to the change in control, or
the assignment to the Executive of any duties inconsistent
with his or her status, title or position with the Company; or
(3) a change in the place in which the Executive is required
to perform his or her duties, if the new place is more than 25
miles from his or her previous place of employment.
2. Change in Control. For the purposes of this Agreement, a "change in
control" shall be deemed to have occurred if:
(a) the shareholders of the Company shall adopt a resolution
providing for its dissolution or liquidation, or for a merger,
consolidation, or other corporate reorganization of the Company under
circumstances in which the Company will not be the surviving party; or
(b) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934) (other than the Company
or any of its subsidiaries or any employee benefit plan of the Company
or any of its subsidiaries) becomes a beneficial owner, directly or
indirectly, of securities of the Company representing 25% or more of
the voting power of all of the Company's then outstanding securities;
or
(c) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of the Company ceased for any reason to constitute at least a majority
thereof (unless the nomination of each new director was approved by a
vote of at least two thirds of the directors then still in office who
were directors at the beginning of such period); or
(d) the Board of Directors of the Company shall approve the
sale of all, or substantially all, of the business or assets of the
Company.
3. Amount and Payment of Severance Pay. The Executive shall receive:
(a) a lump sum cash payment, no later than 30 days after the
date on which the Executive's employment terminates, in an amount equal
to two times the Executive's average annual compensation (as defined
below);
(b) continuation of coverage under the Company's group
medical, group life, and group long-term disability plans, if any, and
under any individual policy or policies of life insurance maintained by
the Company, with the same rate of employer contributions as for active
employees, until the earlier to occur of:
(i) the expiration of 24 months from the date on
which the Executive's employment terminates; or
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(ii) the date on which the Executive obtains
comparable coverage provided by a new employer.
(c) a lump sum cash payment, payable no later than 30 days
after the date on which the Executive's employment terminates, in an
amount equal to the sum of:
(i) the amount by which the fair market
value of that number of shares of stock subject to any stock
option which is forfeited or which otherwise becomes
non-exercisable by the Executive by reason of the termination
of his or her employment (determined as of the date of such
termination) exceeds the option price for such shares;
(ii) such additional amounts (or the fair
market value of such additional property) in excess of the
amount determined pursuant to subparagraph (i) that would have
been paid or distributed to the Executive upon the exercise of
any such forfeited stock options, had such options been
exercisable, and exercised, by the Executive as of the date
his or her employment terminated;
(iii) an amount equal to the fair market
value of any shares of restricted stock forfeited by the
Executive by reason of the termination of his or her
employment, determined as of the date of such termination; and
(iv) an amount equal to the amount that the
Executive would have received if any stock appreciation right
which is forfeited or which otherwise becomes non-exercisable
by the Executive by reason of the termination of his or her
employment had been exercisable, and exercised, by the
Executive as of the date of such termination.
It is understood and agreed that this payment is to occur only to the
extent the Executive is not entitled to exercise his or her options or
stock appreciate rights, or to retain his or her restricted stock,
after the termination of his or her employment under the provisions of
the Executive's stock option, restricted stock, or stock appreciation
rights agreements.
For purposes of this paragraph 3, the term "average annual compensation" shall
mean the average rate of annual salary payable to the Executive for the calendar
year in which the Executive's employment terminates and for the two immediately
preceding calendar years, plus the average annual bonus or incentive payments
awarded to the Executive for the same three calendar years; provided, that if
bonus or incentive compensation awards have not been determined for the calendar
year in which the Executive's employment terminates prior to the date of such
termination, such average shall be determined using the bonuses or incentive
payments awarded to the Executive for the three calendar years immediately
preceding the year in which the Executive's employment terminates; and provided
further, that if the Executive has not been employed by the Company for two full
calendar years preceding the year in which the Executive's employment
terminates, "average annual compensation" shall be based on the Executive's
average annual rate of salary plus the average annual bonus or incentive
payments determined as described above, for the entire period of the Executive's
employment. The Executive's average annual compensation shall be determined
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prior to any reduction for deferred compensation, "401(k)" plan contributions,
and similar items, and any reduction in the Executive's rate of salary occurring
within 24 months after a change in control shall be disregarded. In addition,
the insurance coverage provided under this paragraph shall be governed by the
insurance coverage provided to such the Executive immediately prior to any
reduction in such coverage occurring within 24 months after any change in
control.
4. Limitations. If any part of the amounts to be paid to or for the
benefit of the Executive pursuant to this Agreement constitute "parachute
payments" within the meaning of section 280G of the Internal Revenue Code of
1986, as from time to time amended (the "Code"), such amounts shall be reduced
as provided below so that the aggregate present value of the amounts payable
pursuant to this Agreement which constitute such parachute payments will be
equal to 299% of the Executive's "annualized includible compensation for the
base period," as such term is defined in section 280G(d)(1) of the Code. Such
reductions shall be made in the benefits provided pursuant to subparagraph 3(b),
in the inverse order of their anticipated payment, before any reductions are
made in the amounts payable pursuant to subparagraphs 3(a) or 3(c). For the
purpose of this subparagraph, present value shall be determined in accordance
with section 1274(b)(2) of the Code.
5. No Funding of Severance Pay. Nothing herein contained shall require
or be deemed to require the Company or a subsidiary to segregate, earmark, or
otherwise set aside any funds or other assets to provide for any payments
required to be made hereunder, and the rights of the terminating Executive to
severance pay hereunder shall be solely those of a general, unsecured creditor
of the Company. However, the Company may, in its discretion, deposit cash or
property, or both, equal in value to all or a portion of the amounts anticipated
to be payable hereunder for the Executive into a trust, the assets of which are
to be distributed at such times as determined by the trustee of such trust;
provided, that such assets shall be subject at all times to the rights of the
Company's general creditors.
6. Death. In the event of the Executive's death, any amount or benefit
payable or distributable to the Executive pursuant to paragraph 3(a) or
paragraph 3(c) shall be paid to the beneficiary designated by the Executive for
such purpose in the last written instrument, if any, received by the Boards of
Directors of the Company prior to the Executive's death, or, if no beneficiary
has been designated, to the Executive's estate.
7. Rights in the Event of Dispute. If a claim or dispute arises
concerning the rights of the Executive or a beneficiary to benefits under this
Agreement, regardless of the party by whom such claim or dispute is initiated,
the Company shall, upon presentation of appropriate vouchers, pay all legal
expenses, including reasonable attorneys' fees, court costs, and ordinary and
necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive (such person
being hereinafter referred to as the Executive's "claimant"), in connection with
the bringing, prosecuting, defending, litigating, negotiating, or settling such
claim or dispute; provided, that:
(a) the Executive or the Executive's claimant shall repay to
the Company any such expenses theretofore paid or advanced by the
Company if and to the extent that the party disputing the Executive's
rights obtains a judgment in its favor from a court of competent
jurisdiction, which judgment has become final, whether because the time
to
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appeal from such judgment has expired with no appeal taken or
otherwise, and it is determined that such expenses were not incurred by
the Executive or the Executive's claimant while acting in good faith;
and provided further, that
(b) in the case of any claim or dispute initiated by the
Executive or the Executive's claimant, such claim shall be made, or
notice of such dispute given, with specific reference to the provisions
of this Agreement, to the Board of Directors of the Company within one
year after the occurrence of the event giving rise to such claim or
dispute.
8. Amendment. This Agreement may not be amended or modified except by a
written instrument signed by both parties as of a date contemporaneous herewith
or subsequent hereto.
9. No Obligation to Mitigate Damages. In the event the Executive
becomes eligible to receive benefits hereunder the Executive shall have no
obligation to seek other employment in an effort to mitigate damages. To the
extent the Executive shall accept other employment after the termination of his
or her employment, the compensation and benefits received from such employment
shall not reduce any compensation and benefits due under this Agreement, except
as provided in paragraph 3(b).
10. Other Benefits. The benefits provided under this Agreement shall,
except to the extent otherwise specifically provided herein, be in addition to,
and not in derogation or diminution of, any benefits that the Executive or the
Executive's beneficiary may be entitled to receive under any other plan or
program now or hereafter maintained by the Company or by any of its
subsidiaries.
11. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the Company's obligations under
this Agreement in the same manner and to the same extent that the
Company would be required to perform them if no such succession had
taken place unless, in the opinion of legal counsel mutually acceptable
to the Company and the Executive, such obligations have been assumed by
the successor as a matter of law. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession (unless the
foregoing opinion is rendered to the Executive) shall entitle the
Executive to terminate his or her employment and to receive the
payments provided for in paragraph 3 above. As used in this Agreement,
"Company" shall mean the Company, as presently constituted, and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this paragraph 11 or which otherwise becomes
bound by all the terms and provisions of this Agreement as a matter of
law.
(b) The Executive's rights under this Agreement shall inure to
the benefit of, and shall be enforceable by, the Executive's legal
representative or other successors in interest, but shall not otherwise
be assignable or transferable.
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12. Notices. Any notices referred to herein shall be in writing and
shall be sufficient if delivered in person or sent by U.S. registered or
certified mail to the Executive at his or her address on file with the Company
(or to such other address as the Executive shall specify by notice), or to the
Company at 0000 00xx Xxxxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000, Attn: Board of
Directors.
13. Waiver. Any waiver of any breach of any of the provisions of this
Agreement shall not operate as a waiver of any other breach of such provisions
or any other provisions, nor shall any failure to enforce any provision of this
Agreement operate as a waiver of any party's right to enforce such provision or
any other provision.
14. Severability. If any provision of this Agreement or the application
thereof is held invalid or unenforceable by a court of competent jurisdiction,
the invalidity or unenforceability thereof shall not affect any other provisions
or applications of this Agreement which can be given effect without the invalid
or unenforceable provision or application.
15. Governing Law. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Minnesota, except to the extent superseded by applicable federal law.
16. Headings. The headings and paragraph designations of this Agreement
are included solely for convenience of reference and shall in no event be
construed to affect or modify any provisions of this Agreement.
17. Gender and Number. In this Agreement where the context admits,
words in any gender shall include the other genders, words in the plural shall
include the singular, and words in the singular shall include the plural.
18. Replacement of Prior Agreement. This Agreement replaces and
supersedes in its entirety the Executive Severance Pay Agreement, dated March
24, 1997, by and between the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY: RECOVERY ENGINEERING, INC.
By /s/ XXXXX X. XXXXXXXX
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Xxxxx X. Xxxxxxxx
President and Chief Executive Officer
EXECUTIVE:
/s/ XXXXXXX X. XXXXXXXXX
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Xxxxxxx X. Xxxxxxxxx
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