Exhibit 10.06
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into by and between
Xxxxxx Scientific International Inc., a Delaware corporation (the "Company") and
Xxxxx X. Xxxxx (the "Executive"), and dated as of the 2nd day of August, 2005.
1. TERM OF THE AGREEMENT.
This Agreement shall commence as of the date of this Agreement (the "Effective
Date"). The Executive's services under Paragraph 2 shall commence on such date
and end on December 31, 2007 or any earlier Date of Termination (as defined in
Section 4(e)) (the "Initial Employment Period" and, together with any extensions
thereof pursuant to the next sentence, the "Employment Period"). As of the last
day of the Initial Employment Period and each anniversary thereof, unless either
party hereto shall have given the other party sixty (60) days' advance notice
that there shall be no further extensions pursuant to this sentence, the
Employment Period shall be extended by an additional year. In the event of a
Change in Control, as defined in Paragraph 6, this Agreement will remain in
effect until the second anniversary of a Change in Control.
2. POSITION AND DUTIES.
During the Employment Period, the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
those held, exercised and assigned to the Executive on the day immediately
preceding the Effective Date. The Executive's services shall be performed at the
location where the Executive was employed on the day immediately preceding the
Effective Date or any office or location less than fifty (50) miles from such
location. During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote his attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a violation of
this Agreement for the Executive to (a) serve on corporate, civic, charitable,
governmental or religious boards or committees, (b) deliver lectures, fulfill
speaking engagements or teach at educational institutions, (c) participate in
political activities and fundraising, and (d) manage personal investments, so
long as such activities do not significantly interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
3. COMPENSATION.
(a) BASE SALARY. During the Employment Period, the Executive shall receive
an annual base salary of at least $375,000 ("Annual Base Salary"), which amount
may be increased from time to time and which shall be paid in accordance with
the Company's generally applicable payroll practices and policies, except that
any portion of such base salary (taking into account any increase therein after
the date hereof) that, if paid currently to Executive, would not be deductible
by the Company due to the provisions of Section 162(m) of the Internal Revenue
Code, shall be mandatorily deferred and paid to the Executive upon termination
of employment for any reason. Any amounts mandatorily deferred pursuant to the
immediately preceding sentence shall be credited to a book entry account for the
Executive under a Company sponsored deferred compensation plan and the Executive
shall have all rights and benefits as a participant in such plan, including the
right to have deemed earnings credited on such deferred amounts in accordance
with the term of such plan. During the Employment Period, the Annual Base Salary
shall be reviewed at least annually. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under this
Agreement. The Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. The Annual Base Salary can be reduced as
part of a similar reduction which is applied to all similarly situated
executives.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS GENERALLY. During the
Employment Period, and without limiting the Executive's rights under Paragraph
3(c), the Executive shall be entitled to participate in and shall receive all
benefits under all incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of the Company.
Without limiting the generality of the foregoing (including the right of the
Executive to participate in and receive all benefits under any short-term or
special bonus or other incentive compensation opportunities), the target regular
annual bonus opportunity made available to the Executive with respect to any
calendar year after 2005 shall be at least equal to 100% of his Annual Base
Salary for such year (the "Target Regular Annual Bonus"). No portion of the
bonus payable to the Executive for any calendar year during the term of this
Agreement shall be guaranteed, except as otherwise provided in Paragraphs 5 or
6.
(c) WELFARE BENEFIT PLANS. During the Employment Period, the Executive
and/or the Executive's eligible dependents, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
2
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company.
(d) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in respect of his services to the Company in accordance with the
policies, practices and procedures of the Company to the extent applicable
generally to other peer executives of the Company.
(e) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation and time off in accordance with the plans, policies,
programs and practices of the Company in all respects to the extent applicable
generally to other peer executives of the Company.
(f) PERQUISITES. During the Employment Period, the Executive shall be
entitled to receive perquisites in accordance with the policies, practices and
procedures of the Company to the extent applicable generally to other peer
executives of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Paragraph 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties hereunder with the Company or one of
its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive
3
by the Vice Chairman or the Chief Executive Officer which specifically
identifies the manner in which the Vice Chairman or Chief Executive
Officer believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct that is materially and demonstrably injurious to the
Company. For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive's action or omission was in the best interests
of the Company.
Any act, or failure to act, based upon authority given by the Board, the
direction of the Vice Chairman or the Chief Executive Officer or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company, unless such authority, direction or advice is in violation of
applicable law, regulation, Company policy or the Company's most current Code of
Conduct.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason at any time within ninety (90) days after the
Executive first has actual knowledge of the occurrence of such Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Paragraph 2 of this Agreement, or any other action by
the Company which results in a material diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) the Company's relocation of the Executive's principal place of
employment to a location more than fifty (50) miles from the place of
employment provided in Paragraph 2 hereof; or
(iii) a material breach of this Agreement by the Company that
remains uncured for a period of thirty (30) days following the Executive
providing notice of such breach to the Company or any purported
termination by the Company of the Executive's employment other than for
Cause, or due to death or Disability.
4
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Paragraph 12(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
relied upon;
(ii) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated; and
(iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date (which
date shall be not more than thirty (30) days after the giving of such
notice).
In the event the Executive provides the Company with a Notice of Termination for
Good Reason under Paragraph 4(c), the Company shall have thirty (30) days to
cure the circumstances that the Executive alleges constitute Good Reason; and if
so cured, no Good Reason shall be deemed to have occurred hereunder. The failure
by the Executive or the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively, from asserting
such fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means:
(i) if the Executive's employment is terminated by the Company for
Cause, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be;
(ii) if the Executive's employment is terminated by the Executive
for Good Reason under Paragraph 4(c), the 30th day following the Company's
receipt of the Notice of Termination, provided the circumstances that the
Executive alleges constitute Good Reason have not been cured prior to such
date;
(iii) if the Executive's employment is terminated by the Executive
for Good Reason after a Change in Control, the day the Company receives
the Notice of Termination;
5
(iv) if the Executive's employment is terminated by the Company
other than for Cause or Disability, the date on which the Company notifies
the Executive of such termination or any other later date so specified;
(v) if the Executive's employment is terminated by the Executive
other than for Good Reason, the date on which the Executive notifies the
Company of such termination or such later date chosen by the Company
within thirty (30) days of the date on which the Executive notifies the
Company of such termination; and
(vi) if the Executive's employment is terminated by reason of death
or Disability, the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) BY EXECUTIVE FOR GOOD REASON; BY THE COMPANY OTHER THAN FOR CAUSE OR
DISABILITY. In partial consideration for the noncompetition covenants of the
Executive pursuant to Paragraph 9(b) and in part as liquidated damages in lieu
of the payments and benefits to which the Executive would have been entitled
through the remainder of the Employment Period, if, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good Reason,
the Company shall pay to the Executive or his legal representative a lump sum
in cash within thirty (30) days after the Date of Termination equal to the sum
of the following amounts:
(i) two (2) times the Executive's then current Annual Base Salary;
(ii) the Executive's Annual Base Salary through the Date of
Termination;
(iii) any previous years' regular annual bonus, to the extent earned
but not previously paid;
(iv) any earned but unpaid previous years' Annual Bonus(es);
(v) payment for any accrued vacation;
(vi) the product of (x) the Target Regular Annual Bonus and (y) a
fraction, the numerator of which is the number of days in the fiscal year
in which the Date of Termination occurs through the Date of Termination
and the denominator of which is 365; and
6
(vii) the Company shall pay the Executive or his legal
representative any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) as provided by
the terms of such deferred compensation plan or program (the "Deferred
Compensation").
The sum of all of the amounts described in subparagraphs (ii), (iii), (iv), (v)
and (vii) of this Paragraph 5(a) shall be hereinafter referred to as the
"Accrued Obligations." Notwithstanding anything herein to the contrary, no
payments shall be made or benefits provided to the Executive under Paragraph 5
or 6 unless the Executive shall have executed a release and waiver of claims in
the form acceptable to the Company (the "Release") and the last day of any
applicable revocation period ("Revocation Date") under such Release shall have
expired.
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive, other than for payment of Accrued
Obligations to the Executive, his estate and/or beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations, except that the Executive shall be entitled to receive
disability and other benefits at a level generally provided by the Company to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally for other peer executives and their families.
(d) BY THE COMPANY FOR CAUSE. If the Executive's employment is terminated
by the Company for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations.
6. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Company
shall have the meaning in the Xxxxxx Scientific International Inc. 2005 Equity
and Incentive Plan, as that plan may be amended from time to time prior to any
Change in Control.
(b) TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. Upon a
termination of employment by the Executive for Good Reason (as defined in
Paragraph 6(c) below) or by the Company without Cause, in each case within two
(2) years immediately following a Change in Control of the Company, then in lieu
of any payments or benefits set forth in Paragraph 5 of this Agreement, the
Executive shall be
7
entitled to receive and the Company shall provide to the Executive those
payments and benefits set forth in Paragraph 6(d) below. Notwithstanding
anything in this Agreement to the contrary, if a Change in Control of the
Company occurs and if the Executive's employment with the Company is terminated
prior to the date on which the Change in Control of the Company occurs, and if
there is a reasonable basis that such termination of employment (1) was at the
request of a third party that has taken steps reasonably calculated to effect a
Change in Control of the Company or (2) otherwise arose in connection with or
anticipation of a Change in Control of the Company and in each of (1) and (2) a
Change in Control occurs within one (1) year following the Executive's
termination of employment as set forth in this Paragraph 6(b), then such
termination of employment shall be treated as a termination of the Executive's
employment following a Change in Control of the Company and the Executive shall
be entitled to receive the compensation and benefits set forth in Paragraph
6(d).
(c) The Executive may terminate Executive's employment for Good Reason at
any time after a Change in Control either by resignation or by retirement (if
eligible). For purposes of this Agreement, "Good Reason" after a Change in
Control shall mean any of the following:
(i) a material adverse change in the Executive's position, duties, or
responsibilities with the Company as in effect immediately prior to a
Change in Control of the Company;
(ii) a reduction by the Company in the Executive's remuneration as in
effect immediately prior to the time of a Change in Control of the
Company, unless a similar reduction is applied to all similarly situated
executives or the Company's failure to increase (within twelve (12) months
of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control of the Company in an amount similar to
other similarly situated executives at the Company receiving an increase
in base salary after the Change in Control;
(iii) any failure by the Company to continue in effect any material plan
or arrangement, including without limitation benefit and incentive plans,
in which the Executive is participating immediately prior to the time of a
Change in Control of the Company (hereinafter referred to as "Plans"),
unless the Company provides for the Executive to participate in
replacement benefit and incentive plans that are no less favorable in the
aggregate than the Plans, or the taking of any action by the Company which
would materially adversely affect the Executive's participation in or
reduce the Executive's benefits under any such Plan or replacement plan or
provide the Executive with less favorable fringe benefits in the aggregate
as compared to those enjoyed by the Executive immediately prior to the
time of a Change in Control of the Company;
8
(iv) the Executive's relocation to any place more than fifty (50) miles
from the location at which the Executive performed Executive's duties
immediately prior to the time of a Change in Control of the Company,
except for required travel by the Executive on the Company's business to
an extent substantially consistent with the Executive's business travel
obligations immediately prior to the time of a Change in Control of the
Company;
(v) any failure by the Company to provide the Executive on an annual basis
with fewer than the number of annual vacation or paid leave days to which
the Executive is entitled on an annual basis immediately prior to the time
of a Change in Control of the Company;
(vi) any material breach by the Company of any provision of this Agreement
or any other material agreement with the Executive;
(vii) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(viii) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Paragraph 4(d), and for purposes of this Agreement, no
such purported termination shall be effective.
For purposes of this definition, none of the actions described in clauses
(i) through (viii) above shall constitute "Good Reason" with respect to
the Executive if it was an isolated and inadvertent action not taken in
bad faith by the Company and if it is remedied by the Company within five
(5) business days after receipt of written notice thereof given by the
Executive.
(d) SEVERANCE UPON TERMINATION FOLLOWING A CHANGE IN CONTROL. Upon a
termination of employment as described in Paragraph 6(b), the Executive shall be
entitled to receive and the Company shall provide to the Executive the following
severance and benefits:
(i) a lump sum payment, within five (5) days of the Revocation Date, equal
to the sum of: (1) two and a half (2.5) times the sum of (i) Executive's
then current Annual Base Salary (or if greater, the Executive's Annual
Base Salary in effect immediately prior to the Change in Control), plus
(ii) the cash value of Executive's target annual incentive compensation
for the year in which the Date of Termination occurs (the "Annual Bonus"),
plus (2) the Accrued Obligations, provided that any accrued but unpaid
annual incentive payments for previous years shall be determined based
upon actual Company results and not reduced for individual performance,
plus (3) the product of (x) the Annual Bonus and (y) a
9
fraction, the numerator of which is the number of days in the fiscal year
in which the Date of Termination occurs through the Date of Termination
and the denominator of which is 365, plus (4) an amount equal to the total
value of two and a half (2.5) years of matching contributions made by the
Company on behalf of Executive under the Company's tax qualified defined
contribution plan (and under any non-qualified defined contribution plan
providing matching contributions) at a matching level equal to the level
of participation of the Executive prior to the Date of Termination, plus
any Company matching contributions under such plans forfeited as of the
Date of Termination;
(ii) the Company shall continue to provide the Executive and his eligible
dependents, for a period of two and a half (2.5) years following the Date
of Termination, with medical, dental, vision, life insurance and
accidental death and dismemberment insurance, in a manner and timing
consistent with the benefit and welfare plans, policies and programs,
executive services, perquisites and insurance plans or programs in which
the Executive participates in effect immediately prior to the time of the
Change in Control of the Company (or any successor benefit and welfare
plans, policies and programs, executive services, perquisites and
insurance plans or programs, to the extent more favorable to the
Executive) and such benefits, and costs to the Executive of such coverage,
shall be no less favorable to the Executive than as in effect as of the
Change in Control of the Company and shall not be affected by any
subsequent employment of the Executive. As of the Date of Termination,
Executive shall be fully vested in any account balance, matching and all
other benefits under any non-qualified defined contribution plans.
Following the end of the two and a half (2.5) year period during which
medical benefits are provided, the Executive shall be eligible for
continued health coverage under "COBRA" as if the Executive's employment
with the Company had terminated as of the end of such period. In the event
the Executive is ineligible, for whatever reason, to continue to be so
covered with respect to any of the above-referenced plans or programs, the
Company shall provide substantially the cash value of purchasing
essentially equivalent coverage through other sources;
(iii) the Executive shall be entitled to receive all benefits set forth
under the terms and conditions of the Xxxxxx Scientific International Inc.
Executive Retirement and Savings Program (the "Retirement and Savings
Program"). For purposes of calculating the Executive's age and years of
service for determining eligibility and level of benefits (but not the
time of commencement of benefits) of the Executive under the Retirement
and Savings Program and the Company's retiree medical and life insurance
benefits, the Executive shall be considered to have remained employed
until two and a half (2.5) years after the Date of Termination and to have
retired on the last day of such period. An Executive's annual earnings
under the Retirement and Savings Program shall include all annual
incentive bonuses and be calculated as if the Executive remained an
employee for two and a half (2.5)
10
additional years at the level of the Executive's Annual Base Salary and
Annual Bonus;
(iv) notwithstanding anything to the contrary contained in any other
agreement, with respect to all equity awards held by the Executive on the
Date of Termination, all rights that have not previously vested relating
to all stock options, restricted stock units and restricted stock awards
shall immediately vest and all restrictions shall be waived, the Executive
shall be entitled to payment of any restricted stock units and the
Executive shall have the full term of the options to exercise all
outstanding options; provided, however, that upon acceleration of vesting,
any stock options granted prior to the Effective Date of this Agreement
shall remain exercisable for the period of time as set forth under the
plan or agreement pursuant to which such stock option was granted;
(v) to the extent the Date of Termination is after the Company's fiscal
year end, but before the determination of a Long Term Incentive Plan
payout (or equivalent replacement plan), the Executive shall at the same
time as previously scheduled, receive the full target Long Term Incentive
Plan (or equivalent replacement plan) award to which he is then entitled
based upon the results for the prior fiscal year. In addition, the
Executive shall receive a lump sum payment within five (5) days following
the Revocation Date, equal to the full target of the Long Term Incentive
Plan award for the year of termination (if the Long Term Incentive Plan
program is in place) or if the Long Term Incentive Plan program is not in
place, the full target value of an equivalent replacement plan value
(which shall be no less than the Executive's full Long Term Incentive
Plan's target value for the year prior to the year of the Change in
Control). In the event the equity to be issued under the Long Term
Incentive Plan program no longer exists at the Date of Termination, the
Executive's stock options shall be converted as provided for all other
outstanding vested options held by option holders of the Company that
existed prior to the Change in Control and the restricted stock units and
restricted stock shall be converted as provided for other vested shares of
the Company that existed prior to the Change in Control. For all equity
awards granted under this Paragraph after the Effective Date, all rights
that have not previously vested relating to all stock options, restricted
stock units and restricted stock awards shall immediately vest and all
restrictions shall be waived and the Executive shall have the full term of
the options to exercise all outstanding options;
(vi) to the extent accrued but not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or that the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company.
11
(e) In the event that any payment(s), benefit(s) or other entitlement(s)
received or to be received by the Executive in connection with a Change in
Control of the Company as defined in Paragraph 6(a) or it is determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement but determined without regard to any additional payments
required under this Paragraph 6(e) (a "Payment")), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any comparable federal, state or local excise tax (such
excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), the Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment") in such an amount that
after the payment of all taxes (including, without limitation, any interest and
penalties on such taxes and the Excise Tax) on the Payment and on the Gross-Up
Payment, the Executive shall retain an amount equal to the Payment minus all
applicable taxes other than the Excise Tax on the Payment; provided, however,
that the Executive will be entitled to receive a Gross-Up Payment only if the
amount of a parachute payment as defined in Section 280G(b)(2) of the Code
exceeds the sum of (A) $50,000, plus (B) 2.99 times the Executive's base amount
as defined in Section 280G(b)(3) of the Code, and provided further, that if
the Executive is not entitled to receive a Gross-Up Payment, the Executive will
receive the greatest amount of total Payments that would not include any excess
parachute payments as defined in Section 280G(b)(1) of the Code. The intent of
the parties is that the Company shall be solely responsible for, and shall pay,
any Excise Tax on any Payment and Gross-Up Payment and any income and employment
taxes (including, without limitation, penalties and interest) imposed on any
Gross-Up Payment, and shall be liable for any loss of tax deduction caused by
the Gross-Up Payment.
(f) All determinations required to be made under Paragraph 6(e),
including, without limitation, whether and when a Gross-Up Payment is required
and the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determinations, shall be made by any nationally recognized
accounting firm, which firm must be acceptable to the Executive (the "Accounting
Firm"). The Company shall cause the Accounting Firm to provide detailed
supporting calculations to the Company and the Executive within fifteen (15)
business days after notice is given by the Executive to the Company that there
has been a Payment, or such earlier time as is requested by the Company. Within
five (5) business days after said notice is given to the Company, the Company
shall instruct the Accounting Firm to timely provide the data required by this
Paragraph 6 to the Executive. All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment as determined pursuant to
this Paragraph 6, shall be paid by the Company to the Internal Revenue Service
and/or other appropriate taxing authority on the Executive's behalf within five
(5) days after receipt of the Accounting Firm's determination. The Accounting
Firm shall make all determinations under the tax standard of "more likely than
not." The Accounting Firm shall furnish the Executive with a written opinion
that failure to disclose or report the
12
Excise Tax on the Executive's federal income tax return will not constitute a
substantial understatement of tax or be reasonably likely to result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive in the
absence of material mathematical or legal error. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payment will not have been made by the Company that should have been made
("Underpayment") or that the Gross-Up Payment was made that should not have been
made ("Overpayment"), in each case, consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies and the
Executive hereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to the Internal
Revenue Service or other appropriate taxing authority on the Executive's behalf
or, if such Underpayment has been previously paid by the Executive, to the
Executive. In the event that the Accounting Firm determines that an Overpayment
has been made, any such Overpayment shall be due and payable within ninety (90)
days after written demand to the Executive by the Company; provided, however
that the Executive shall have no duty or obligation whatsoever to repay said
amount unless the Executive's receipt of the Overpayment, or any portion
thereof, is includible in the Executive's income and the Executive's repayment
of same is not deductible by the Executive for federal and state income tax
purposes.
(g) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service or state or local taxing authority, that, if
successful, would result in any Excise Tax or an Underpayment ("Claim"). Such
notice shall be given as soon as practicable but no later than fifteen (15)
business days after the Executive is informed in writing of the Claim and shall
apprise the Company of the nature of the Claim, the administrative or judicial
appeal period, and the date on which any payment of the Claim must be paid. The
Executive shall not pay any portion of the Claim prior to the expiration of the
thirty (30) day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any amount under the
Claim is due). If the Company notifies the Executive in writing prior to the
expiration of such thirty (30) day period that it desires to contest the Claim,
the Executive shall:
(A) give the Company any information reasonably requested by the Company
relating to the Claim;
(B) take such action in connection with contesting the Claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation concerning the Claim by
an attorney selected by the Company who is reasonably acceptable to the
Executive; and
13
(C) cooperate with the Company in good faith in order to effectively
contest the Claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including, without limitation, additional interest and penalties,
attorneys' fees and costs) incurred in such contests and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income
tax (including, without limitation, interest and penalties thereon) imposed as a
result of such representation. Without limitation upon the foregoing provisions
of this Paragraph 6(g), except as provided below, the Company shall control all
proceedings concerning such contest and, at its sole option, may pursue or
forego any and all administrative appeal, proceedings, hearings and conferences
with the taxing authority pertaining to the Claim. At the written request of the
Company and upon payment to the Executive of an amount at least equal to the
Claim plus any additional amount necessary to obtain the jurisdiction of the
appropriate tribunal and/or court ("Additional Sum"), the Executive shall pay
same and xxx for a refund. The Executive agrees to prosecute any contest of a
Claim 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 requests the Executive to pay
the Claim and xxx for interest-free basis, the Company shall indemnify and
hold the Executive harmless on an after-tax basis, from any Excise Tax or income
tax (including, without limitation, interest and penalties thereon) imposed on
such advance or for any imputed income on such advance. Any extension of the
statute of limitations relating to assessment of any Excise Tax for the taxable
year of the Executive which is the subject of the Claim shall be limited solely
to the Claim. Furthermore, the Company's control of the contest shall be limited
to issues for which a Gross-Up Payment would be payable hereunder. The Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(h) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Paragraph 6(g), the Executive receives any refund of a Claim
and/or any Additional Sum, 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). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Paragraph 6(g), a determination is made that
the Executive shall not be entitled to any refund of the Claim and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund of a Claim prior to the expiration of thirty (30) days after such
determination, then the portion of such advance attributable to a Claim shall be
forgiven and shall not be required to be repaid. The amount of such advance
attributable to a Claim shall offset, to the extent thereof, the amount of the
Underpayment required to be paid by the Company to the Executive.
14
(i) If, after the advance of an Additional Sum by the Company, there is a
"Final Determination" (as defined below) made by the taxing authority that the
Executive is not entitled to any refund of such Additional Sum, or any portion
thereof, then such nonrefundable amount shall be repaid to the Company by the
Executive within thirty (30) days after the Executive receives notice of such
Final Determination. A "Final Determination" shall occur when the period to
contest or otherwise appeal any decision by an administrative tribunal or court
of initial jurisdiction has been waived or the time for contesting or appealing
same has expired.
7. NON-EXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts that are vested benefits or that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated companies
at or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. FULL SETTLEMENT.
The Company's obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action that
the Company or its affiliates may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
The provisions of this Agreement, and any payment provided for hereunder, shall
not reduce any amounts otherwise payable, or in any way diminish the Executive's
existing rights, or rights which would accrue solely as a result of the passage
of time, under any employee benefit plan, program or policy of the Company.
9. CONFIDENTIAL INFORMATION; NONCOMPETITION.
(a) Noncompetition. In consideration of the benefits described herein, the
Executive shall, contemporaneous with his execution of this Agreement, execute
the Agreement Relating to Confidential Information, Intellectual Property and
Additional Terms set forth
15
on Exhibit A hereto and the Executive agrees to the modification of the eighteen
(18) month terms set forth in the Paragraphs 1, 4, 5, 6 and 7 of Exhibit A to
two (2) years after Executive's Date of Termination. This Agreement shall not be
effective unless and until execution of the agreement attached as Exhibit A has
occurred.
(b) Injunctive Relief. The Executive agrees that it would be difficult to
measure any damages caused to the Company that might result from any breach by
the Executive of the provisions of this Paragraph 9 and Exhibit A, and that in
any event money damages would be an inadequate remedy for any such breach.
Accordingly, the Executive agrees that in the case of breach, or alleged breach,
of such provisions, the Company shall be entitled, in addition to all other
remedies that it may have, to seek an injunction or other appropriate equitable
relief to restrain any such breach without showing or proving any actual damage
to the Company.
10. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Paragraph 10 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law. If at any
time during the term of this Agreement the Executive is employed by any
corporation a majority of the voting securities of which is then owned by the
Company, "Company" as used in Paragraphs 3, 4, 5, 6, 7, 8, 9 and 10 hereof shall
in addition include such corporation. In such event, the Company agrees that it
shall pay or shall cause such corporation to pay any amounts owed to the
Executive pursuant to this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
11. INDEMNIFICATION.
Both during the Employment Period and after termination of the Executive's
employment for any reason, the Company, or any subsidiary or successor of the
Company of which
16
the Executive is an officer or member of the board of directors, shall indemnify
the Executive to the fullest extent required or permitted by its Articles of
Incorporation, bylaws and applicable law and to the same extent as any
indemnification agreement provided to the board of directors of the Company.
12. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. 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 otherwise than by a written agreement which specifically
references this Agreement and is executed by the parties hereto or their
respective successors and legal representatives.
(b) Notices. All notices and other communications hereunder 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:
Xxxxx X. Xxxxx
00 Xxxx Xxxxx Xxxx
Xxxxxxx, XX 00000
IF TO THE COMPANY:
Attention: General Counsel
Xxxxxx Scientific International Inc.
Xxxxxxx Xxxx
Xxxxxxx, XX 00000
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Withholding. The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
17
(e) Waiver. The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason as defined under Paragraphs 4(c) and 6(b), shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) Code Section 409A. This Agreement is intended to comply with the
provisions of Section 409A of the Code in such a way that the Executive will not
be subject to taxation in advance of the related distribution, excise taxes or
underpayments, penalties as a result of the timing or form of the payments to
the Executive. Notwithstanding anything to the contrary contained herein, if the
Executive is a Specified Employee (as defined in Section 409A of the Code) at
the time he would otherwise be entitled to receive any specific payment
hereunder, no distributions shall be made with respect to that specific payment
until the earliest date permitted by Section 409A(a)(2) of the Code. All other
payments which do not result in any additional payments, liability or penalties
shall be made as specified. To the extent any payment is delayed, interest will
accrue at the rate of the United States five-year Treasury rate plus 2 percent
on such delayed payment and be paid to the Executive at the same time as the
delayed payment is made.
13. ARBITRATION OF DISPUTES.
Any controversy or claim arising between the Executive and the Company
including, without limitation, any claims, demands or causes of action alleging
wrongful discharge; unlawful discrimination based on sex, age, race, national
origin, disability, religion or other unlawful basis; breach of contract; or any
claims seeking damages under any federal, state or local law, rule, regulation
or common law theory; but excluding any claims by the Executive for worker's
compensation or unemployment compensation, and excluding any claims by the
Company for injunctive relief (for instance, for breach of confidentiality,
breach of a covenant not to compete, violation of trade secrets, or unfair
competition), shall be resolved by final and binding arbitration. The Executive
voluntarily waives any right to submit claims to a judge or jury in either state
or federal court. The arbitration shall be held in Hampton, New Hampshire, or
elsewhere by mutual agreement. The selection of the arbitrator and procedure
shall be governed by the Employment Arbitration Rules of the American
Arbitration Association, as amended. The arbitrator shall be a lawyer with
expertise in negotiating and drafting executive agreements on behalf of both
executives and public corporations. The arbitrator shall apply the applicable
substantive law to any claim; for any state law claim or damages issues, the law
of New Hampshire shall govern. Upon the Executive's request, a copy of the above
referenced Employment Arbitraton Rules of the American Arbitration Association,
as amended, will be provided to the Executive. Any court having jurisdiction may
enter judgment upon an award rendered by arbitration. The Company and the
Executive agree that in the event the Executive is the prevailing party in any
arbitration, the Executive shall be awarded his
18
reasonable attorney's fees and costs to the extent provided by law. The Company
will pay the cost normally associated with the arbitration, including the
arbitrator's fee and any fee for a hearing facility. Notwithstanding anything
contained in this paragraph, the Company shall be free to pursue injunctive
relief against the Executive for violation of this Paragraph 13 of this
Agreement and/or Exhibit A.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from the Compensation Committee of the 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.
Xxxxxx Scientific International Inc. Executive
By: /s/ Xxxx X. Xxxxxxx /s/ Xxxxx X. Xxxxx
-------------------------------- ----------------------------------
Xxxx X. Xxxxxxx Xxxxx X. Xxxxx
Exhibit A: Agreement relating to Confidential Information, Intellectual
Property and Additional Terms.
19
