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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into, at
Irvine, California, as of the first day of July 1998, by and between
xxxxxxxxx.xxx,inc., a corporation duly organized under the laws of the State of
Delaware (the "Company"), with offices at 00000 XxxXxxxxx Xxxx., Xxxxxx Xxxxx,
Xxxxxx, Xxxxxxxxxx, 00000-0000, and Xxxx X. Xxxxxxx (hereinafter referred to as
the "Executive"), who resides at 0000 Xxxxx Xxxxx, Xxx Xxxxxxxx, Xxxxxxxxxx
00000.
RECITALS
WHEREAS: The Company currently employs and desires to continue to
employ the Executive as President and Chief Executive Officer.
WHEREAS: The Executive is currently employed and desires to continue to
be so employed by the Company, subject to the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and with reference to the above recitals, the parties hereby
agree as follows:
ARTICLE 1
TERM OF EMPLOYMENT
The Company hereby employs the Executive as President and Chief
Executive Officer of the Company and the Executive hereby accepts such
employment by the Company for a period of three (3) years (the "Term")
commencing from July 1, 1998 (the "Commencement Date") and expiring upon the
third anniversary of the Commencement Date, unless extended at the mutual option
of the parties. Notwithstanding the above, in the event of a Change of Control
of the Company prior to January 1, 2001 and while the Executive remains employed
by the Company, the Term shall automatically extend for a period of three (3)
years commencing from the date of the Change of Control. For purposes of this
Agreement "Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation but not including any initial or secondary public
offering) in one or a series of related transactions of all or substantially all
of the assets of the Company taken as a whole to any person (a "Person") or
group of persons acting together (a "Group") (other than any of the Company's
wholly-owned subsidiaries, any Company employee pension or benefits plan, or any
person or entity owning at least five (5) percent of the common stock of the
Company as of October 1, 1998), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transactions (including any stock or other purchase, sale, acquisition,
disposition, merger or consolidation, but not including any initial or secondary
public offering) the result of which is that any Person or Group (other than any
of the Company's wholly-owned subsidiaries, any Company employee pension or
benefits plan, or any person or entity owning at least five (5) percent of the
common stock of the Company as of October 1, 1998), becomes the beneficial
owners of more than 40 percent of the aggregate voting power of all classes of
stock of the Company having the right to elect directors under ordinary
circumstances; or (iv) the first day on which a majority of the members of the
board of directors of the Company (the "Board") are not individuals who were
nominated for election or elected to the Board with the approval of two-thirds
of the members of the Board just prior to the time of such nomination or
election.
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ARTICLE 2
DUTIES AND OBLIGATIONS
2.1 During the Term of this Agreement, the Executive shall: (i) devote
his full business time, attention and energies to the business of the Company;
(ii) shall use his best efforts to promote the interests of the Company; (iii)
shall perform all functions and services as the President and Chief Executive
Officer of the Company, including general management and supervision over the
operations of the business and employees of the Company; (iv) shall act in
accordance with the policies and directives of the Company as determined from
time to time by its Board and communicated to the Executive in writing; and (v)
shall report directly to the Board.
2.2 The Executive covenants and agrees that, while actually employed by
the Company, he shall not engage in any other business duties or pursuits
whatsoever, or directly or indirectly render any services of a business or
commercial nature to any other person or organization, including, but not
limited to, providing services to any business that is in competition with or
similar in nature to the Company, whether for compensation or otherwise, without
the prior written consent of the Board. However, the expenditure of reasonable
amounts of time for educational, charitable, or professional activities shall
not be deemed a breach of this Agreement, if those activities do not materially
interfere with the services required under this Agreement, and shall not require
the prior written consent of the Board. Notwithstanding anything herein
contained to the contrary, this Agreement shall not be construed to prohibit the
Executive from making passive personal investments or conducting personal
business, financial or legal affairs or other personal matters if those
activities do not materially interfere with the services required hereunder. In
addition to the foregoing, notwithstanding anything contained herein to the
contrary, this Agreement shall not be construed to prohibit the Executive from
serving as a director or board member of any other corporation, company, or
other business entity, and such service shall not require approval by the Board.
2.3 The principal location in which the Executive's services are to be
performed will be the Irvine, California area. The Executive shall not be
required to change such principal location without his consent.
ARTICLE 3
COMPENSATION
3.1 As compensation for the services to be rendered by the Executive
pursuant to this Agreement, the Company hereby agrees to pay the Executive a
base salary equal to at least Three Hundred Twenty Five Thousand Dollars
($325,000.00) per year during the Term of this Agreement, which rate shall be
reviewed by the Board at least annually and may be increased (but not reduced)
by the Board in such amounts as the Board deems appropriate. The base salary
shall be paid in substantially equal bimonthly installments, in accordance with
the normal payroll practices of the Company.
3.2 The Company shall provide the Executive with the opportunity to
earn an annual bonus for each fiscal year of the Company, occurring in whole or
in part during the Term. The annual bonus payable to the Executive shall be in
such amount and based on such criteria for the award as may be established by
the Board from time to time. Any bonus shall be paid as promptly as practicable
following the end of the preceding fiscal year. The Executive shall participate
also in all other short-term and long-term bonus or incentive plans or
arrangements in which other senior executives of the Company are eligible to
participate from time to time. The provisions of this Section 3.2 shall be
subject to the provisions of Section 3.5.
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3.3 As further consideration for the services rendered by the Executive
during the Term, the Executive shall be granted stock options to purchase shares
of the Company's common stock on the terms and conditions set forth in the
attached Schedule A (each an "Option").
3.4 The Company shall have the right to deduct or withhold from the
compensation due to the Executive hereunder any and all sums required for
federal income and employee social security taxes and all state or local income
taxes now applicable or that may be enacted and become applicable during the
Term.
3.5 In the event the Company becomes a "publicly held corporation"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company may provide for shareholder approval of any
performance based compensation provided herein which is first created after the
Company becomes so "publicly held," and may provide for the establishment of a
compensation committee to establish any applicable performance goals and
determine whether such performance goals have been met.
ARTICLE 4
EMPLOYEE BENEFITS
4.1 The Company agrees that the Executive shall be entitled to all
ordinary and customary perquisites afforded to executive employees of the
Company, at the Company's sole expense (except to the extent employee
contribution may be required under the Company's benefit plans as they may now
or hereafter exist), which shall in no event be less than the benefits afforded
to the Executive on the date hereof and the other executive employees of the
Company as of the date hereof or from time to time, but in any event shall
include any qualified or non-qualified pension, profit sharing and savings
plans, any death benefit and disability benefit plans, life insurance coverages,
any medical, dental, health and welfare plans or insurance coverages and any
stock purchase programs that are approved by the Board on terms and conditions
at least as favorable as provided to the Executive on the date hereof and other
senior executives of the Company as of the date hereof or from time to time.
4.2 The Executive shall be entitled to four (4) weeks of paid vacation
for each year of his employment hereunder (including four weeks for 1998),
which, to the extent unused in any given year, may be carried over in accordance
with the policies of the Company then in effect. Notwithstanding anything to the
contrary, however, the Executive shall be entitled to carry over any unused
vacation for a period not less than two (2) years.
4.3 The Executive shall be entitled to a car allowance of One Thousand
Five Hundred Dollars ($1,500) per month during the Term.
4.4 The Company shall reimburse the Executive for all reasonable fees
and costs incurred for his health club membership, work-out sessions with a
trainer and the purchase and installation of a home computer, printer and fax
machine. All amounts paid pursuant to this Section 4.4 shall be equal on a net
after tax basis to the fees incurred by the Executive, provided, however, that,
as a condition to such reimbursement, the Executive shall furnish to the Company
adequate records and other documentary evidence substantiating each expenditure.
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ARTICLE 5
BUSINESS EXPENSES
5.1 The Company shall pay or reimburse the Executive for all reasonable
and authorized business expenses incurred by the Executive during the Term; such
payment or reimbursement shall not be unreasonably withheld so long as said
business expenses have been incurred for and promote the business of the Company
and are normally and customarily incurred by employees in comparable positions
at other comparable businesses in the same or similar market. Notwithstanding
the above, and except as otherwise provided in Section 4.4 hereof, the Company
shall not pay or reimburse the Executive for the costs of any membership fees or
dues for private clubs, civic organizations, and similar organizations or
entities, unless such organizations and the fees and costs associated therewith
have first been approved in writing by the Board.
5.2 The Company shall reimburse the Executive for expenses incurred
with business-related travel. Notwithstanding the above, the Company shall not
pay or reimburse the Executive for the costs of any business-related travel to
the extent such costs exceed the cost of Business Class.
5.3 As a condition to reimbursement under this Article 5, the Executive
shall furnish to the Company adequate records and other documentary evidence
required by federal and state statutes and regulations for the substantiation of
each expenditure. The Executive acknowledges and agrees that failure to furnish
the required documentation may result in the Company denying all or part of the
expense for which reimbursement is sought.
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ARTICLE 6
TERMINATION OF EMPLOYMENT
6.1 Termination for Cause. The Board may, during the Term, without
notice to the Executive, terminate this Agreement and discharge the Executive
for Cause, whereupon the respective rights and obligations of the parties
hereunder shall terminate; provided, however, that the Company shall immediately
pay the Executive any amount due and owing pursuant to Articles 3, 4, and 5,
prorated to the date of termination; provided, further, however, that no
termination for Cause may occur without the Executive having the right to a
hearing with the Executive's counsel present. As used herein, the term "for
Cause" shall refer to the termination of the Executive's employment as a result
of any one or more of the following: (i) any conviction of the Executive for a
felony; (ii) the gross willful misconduct of the Executive which has a direct
and material injurious effect on the business or reputation of the Company; or
(iii) the gross dishonesty of the Executive which is directly and materially
injurious to the business and reputation of the Company. For purposes of this
Section 6.1, no act or failure to act, on the part of the Executive, shall be
considered "willful" if it is done, or omitted to be done, by the Executive in
good faith or with reasonable belief that his action or omission was in the best
interest of the Company. The Executive shall have the opportunity to cure any
such acts or omissions (other than item (i) above) within fifteen (15) days of
the Executive's receipt of a resolution adopted by the Board finding that, in
the good faith opinion of the Board, the Executive is guilty of acts or
omissions constituting "Cause," which resolution has been duly adopted by an
affirmative vote of a majority of the Board (excluding the Executive and any
individual alleged to have participated in the acts constituting "Cause"). Any
such vote shall be taken at a meeting of the Board called and held for such
purpose, after reasonable written notice is provided to the Executive setting
forth in reasonable detail the facts and circumstances claimed to provide a
basis of termination for Cause and the Executive is given an opportunity,
together with his counsel, to be heard before the Board.
6.2 Termination Without Cause. Anything in this Agreement to the
contrary notwithstanding, the Board shall have the right, at any time in its
sole and subjective discretion, to terminate this Agreement without Cause upon
not less than thirty (30) days prior written notice to the Executive. The term
"termination without Cause" shall mean the termination of the Executive's
employment for any reason other than those expressly set forth in Section 6.1,
or no reason at all, and shall also mean the Executive's decision to terminate
this Agreement by reason of any act, decision or omission by the Company or the
Board that: (A) materially modifies, reduces, changes, or restricts the
Executive's salary, bonus opportunities, options or other compensation benefits
or perquisites, or the Executive's authority, functions, services, duties,
rights, and privileges as, or commensurate with the Executive's position as,
President and Chief Executive Officer of the Company as described in Section 2.1
hereof; (B) relocates the Executive without his consent from the Company's
offices located at 00000 XxxXxxxxx Xxxxxxxxx, Xxxxxx, Xxxxxxxxxx, 00000-0000 to
any other location in excess of fifty (50) miles beyond the geographic limits of
Irvine, California; (C) deprives the Executive of his titles and positions of
President and Chief Executive Officer of the Company and/or his position as a
member of the Board; or (D) involves or results in any failure by the Company to
comply with any provision of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive (each a "Good Reason"). In the event the Company or the Executive
shall exercise the termination right granted pursuant to this Section 6.2, the
Company shall, within thirty (30) days of notice of termination to or from the
Executive (as the case may be), pay to the Executive in a single lump-sum
payment the base salary that would have been received by the Executive if he had
remained employed by the Company for the greater of (A) the remaining balance of
the Term or (B) two (2) years; provided, however, that for purposes of
calculating the payment pursuant to this sentence, the Executive's base salary
per year shall be the highest rate in effect during the Term. The Company also
shall (i) continue to provide to the Executive and his beneficiaries, at its
sole cost, the insurance coverages referred to in Section 4.1 above, and (ii)
pay to the Executive in a single lump-sum payment the aggregate cost of the
benefits (other than insurance coverages)
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under Section 4.1 hereof, in each case to the extent he would have received such
insurance coverages and benefits had he remained employed by the Company for the
greater of (A) the remaining balance of the Term or (B) two (2) years.
6.3 Termination for Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the Term. If the
Company determines in good faith that the Disability (as defined below) of the
Executive has occurred during the Term, it shall give written notice to the
Executive of its intention to terminate his 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, provided that, within the
thirty (30) days after such receipt, the Executive shall not have returned to
full-time performance of his duties.
Anything in this Agreement to the contrary notwithstanding,
upon the death or Disability of the Executive, the Company shall provide the
Executive or his successors, heirs, designees, or assigns, with continued
payment of the Executive's then current base salary and all benefits under
Article 4 hereof for two (2) years. For purposes of this Agreement, "Disability"
shall mean the inability of the Executive to perform his duties to the Company
on account of physical or mental illness or incapacity for a period of one
hundred eighty (180) consecutive calendar days, or for a period of two hundred
ten (210) calendar days, whether or not consecutive, during any three hundred
sixty-five (365) day period.
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6.4 Termination Without Good Reason. Anything in this Agreement to the
contrary notwithstanding, the Executive shall have the right, at any time in his
sole and subjective discretion, to terminate this Agreement without Good Reason
upon not less than thirty (30) days prior written notice to the Company. In the
event the Executive voluntarily terminates his employment hereunder other than
for Good Reason, the respective rights and obligations of the parties hereunder
shall terminate; provided, however, that the Company shall immediately pay the
Executive any amount due and owing pursuant to Articles 3, 4, and 5, prorated to
the date of termination.
6.5 Termination Prior to or Following a Change of Control.
Notwithstanding, the foregoing, in the event the employment of the Executive is
terminated during the six (6) month period immediately prior to, or the first
thirty-six (36) months following, a Change of Control either (i) by the
Executive for Good Reason or (ii) by the Company other than for Cause,
Disability or death, then, in addition to the payments and benefits provided in
Section 6.2 hereof, the Company shall, within thirty (30) days of notice of
termination to the Executive, pay to the Executive in a single lump-sum payment
(i) an amount equal to (A) the highest annual bonus paid by the Company to the
Executive during the three (3) fiscal years prior to termination, multiplied by
(B) two (2); and (ii) an amount equal to the cost of all other benefits under
Article 4 hereof for the greater of (A) the remaining balance of the Term or (B)
two (2) years. For purposes of this Section 6.5, "Term" shall be the period of
time of this Agreement as defined by Article 1 hereof, which includes any
extension thereof by reason of a Change of Control prior to January 1, 2001.
6.6 Anything in this Agreement to the contrary notwithstanding, upon
the Executive's termination under this Article 6, the Company's obligations with
respect to any stock option to purchase shares of the Company's common stock
granted to the Executive shall be determined by the terms and conditions of such
option as set forth in the Executive's written option agreement regarding such
option, which shall be fully consistent with the terms and conditions set forth
in attached Schedule A with respect to the options described therein.
ARTICLE 7
PARACHUTE TAX INDEMNITY
7.1 Gross-Up Payment.
(a) If it shall be determined that any amount paid, distributed or
treated as paid or distributed 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 or otherwise, but determined without regard to any
additional payments required under this Article 7) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, being hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all federal, state and local taxes
(including any interest or penalties imposed with respect to such taxes),
including without limitation, any income taxes (including any interest or
penalties imposed with respect thereto) and Excise Tax imposed on the Gross-up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments, provided, however, that in no event will
the amount of the Gross-Up Payment payable pursuant to this Article 7 exceed
Five Million Dollars ($5,000,000.00).
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(b) The determinations of whether and when a Gross-Up Payment is
required under this Article 7 shall be made by independent tax counsel (the "Tax
Counsel") based on its good faith interpretation of applicable law. The amount
of such Gross-Up Payment and the valuation assumptions to be utilized in
arriving at such determination shall be made by an independent nationally
recognized accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. The Tax Counsel and
Accounting Firm shall initially be appointed by the Company after consultation
in good faith with the Executive and subject to the approval of the Executive
(which approval shall not be unreasonably withheld), provided, however, that if
the potential amount of the Gross-Up Payment (but for the limit in Section
7.1(a) above) could exceed Five Million Dollars, the Executive shall have the
opportunity to appoint a new Tax Counsel and Accounting Firm after consultation
in good faith with the Company. If the Tax Counsel and Accounting Firm selected
by the Company determine that the amount of the Gross-Up Payment is less than $5
million, but Executive provides an opinion of a second independent Tax Counsel
that the Gross-Up Payment (but for the limit in Section 7.1(a) above) could be
greater than $5 million, then Executive shall be entitled to appoint the Tax
Counsel and the Accounting Firm after consultation in good faith with the
Company and subject to the approval of the Company (which approval shall not be
unreasonably withheld). All fees and expenses of any Tax Counsels and Accounting
Firms referred to above shall be borne by the Company. Any Gross-Up Payment, as
determined pursuant to this Article 7, shall be paid by the Company to the
Executive within ten (10) days of the receipt of the Accounting Firm's
determination. Any determinations by the Tax Counsel and Accounting Firm shall
be binding upon the Company and the Executive, provided, however, if it is later
determined that there has been an underpayment of Excise Tax and that Executive
is required to make an additional Excise Tax payment(s) on any Payment or
Gross-Up Payment, the Company shall provide a similar full gross-up on such
additional liability, subject to the overall $5 million limit set forth in
Section 7.1(a) above.
(c) For purposes of any determinations made by any Tax Counsel and
Accounting Firm acting under Section 7.1(b) above:
(i) All Payments and Gross-Up Payments with respect to
Executive shall be deemed to be "parachute Payments"
under Section 280G(b)(2) of the Code and to be
"excess parachute payments" under Section 280G(b)(1)
of the Code that are fully subject to the Excise Tax
under Section 4999 of the Code, except to the extent
(if any) that such Tax Counsel determines in writing
in good faith that a Payment in whole or in part does
not constitute a "parachute payment" or otherwise is
not subject to Excise Tax;
(ii) The value of any non-cash benefits or deferred or
delayed payments or benefits shall be determined in a
manner consistent with the principles of Section 280G
of the Code; and
(iii) Executive shall be deemed to pay federal, state and
local income taxes at the actual marginal rate
applicable to individuals in the calendar year in
which the Gross-Up Payment is made, net of any
applicable reduction in federal income taxes for any
state and local taxes paid on the amounts in
question.
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7.2 Claims and Proceedings. The Executive shall notify the Company in
writing of any Excise Tax claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later then twenty (20)
business days after the Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim
is to be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
Excise Tax claim, the Executive shall: (i) give the Company any information
reasonably requested by the Company relating to such claim; (ii) take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company after consultation in good faith with Executive and
subject to approval by Executive (which approval shall not be unreasonably
withheld) under the circumstances set forth in Section 7.1; (iii) cooperate with
the Company in good faith in order to effectively contest such claim; and (iv)
permit the Company to participate in any proceeding relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation of the foregoing provisions of
this Article 7, if the Gross-Up Payment payable hereunder (determined on the
basis of the amount being contested), together with any previous Gross-Up
Payment made by the Company to the Executive hereunder (collectively the
"Aggregate Gross-Up Payment"), would not exceed Five Million Dollars
($5,000,000) (determined without regard to the $5 million limit in Section
7.1(a)), the Company shall control the Excise Tax portion of any proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such Excise Tax claim and may, at its
sole option, either direct the Executive to pay the tax claimed and xxx for a
refund or contest the Excise Tax claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine. If the Company directs the
Executive to pay such Excise Tax claim and xxx for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis,
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest and penalties) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and provided, however, that any Company-directed extension of the
statute of limitations relating to payment of taxes for the Executive's taxable
year with respect to which such contested Excise Tax amount is claimed to be due
shall be effective only if it can be and is limited to the contested Excise Tax
liability. Notwithstanding anything to the contrary herein, the Executive shall
control the settlement or contest, as the case may be, of all non-Excise Tax
issues and of any Excise Tax issues with respect to which the Aggregate Gross-Up
Payment payable hereunder (but for the limit in Section 7.1(a) above) would
exceed Five Million Dollars ($5,000,000). The Executive shall be entitled to
settle or contest, as the case may be, any non-Excise Tax issue raised by the
Internal Revenue Service or any other taxing authority, so long as such action
does not have a material adverse effect on an Excise Tax contest being pursued
by and under the control of the Company.
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7.3 Refunds. If, after the Executive's receipt of an amount advanced by
the Company pursuant to this Article 7 for payment of Excise Taxes, the
Executive files an Excise Tax refund claim and receives any refund with respect
to such claim, the Executive shall (subject to the Company's complying with the
requirements of this Article 7) except as provided below, promptly pay to the
Company the amount of any such refund of Excise Tax (together with any interest
paid or credited thereon, but after any and all taxes applicable thereto), plus
the amount (after any and all taxes applicable thereto) of the refund (if any is
applied for and received) of any income tax paid by Executive with respect to
and as a result of his prior receipt of any previously pai Gross-Up Payment
indemnifying Executive with respect to any such Excise Tax later so refunded. In
the event Executive files for a refund of the Excise Tax and such request would,
if successful, require Executive to refund any amount to the Company pursuant to
this provision, then Executive shall be required to seek a refund of the Income
Tax portion of any corresponding Gross-Up Payment so long as such refund request
would not have a material adverse effect on Executive (which determination shall
be made by independent tax counsel selected by Executive after good faith
consultation with the Company and subject to approval of the Company, which
approval shall not be unreasonably withheld). Notwithstanding the above,
Executive shall have no obligation to pay any portion of any such tax refund(s)
to the Company if and to the extent that the Excise Tax to which such refund
relates was not eligible for a Gross-Up Payment by reason of the $5 million
limit in Section 7.1(a) above. For this purpose, if the total Excise Tax paid
with respect to Executive exceeds the maximum amount eligible for Gross-Up
Payment coverage by reason of the $5 million limit in Section 7.1 (a) above, any
subsequent Excise Tax refunds shall first be applied against the portion of any
Excise Tax payments that are not covered by the Gross-Up Payments provided under
this Article 7. If, after the Executive's receipt of an amount advanced by the
Company pursuant to this Article 7, a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
the Gross-Up Payment required to be paid.
ARTICLE 8
NO MITIGATION OR OFFSET; INSURANCE
8.1 No Mitigation or Offset. The Executive shall not be required to
seek other employment or to reduce any severance benefit payable to him under
Article 6 hereof, and no severance benefit shall be reduced on account of any
compensation received by the Executive from other employment. The Company's
obligation to pay severance benefits under this Agreement shall not be reduced
by any amount owed by the Executive to the Company.
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8.2 Indemnification; Insurance.
(a) If the Executive is a party or is threatened to be made a
party to any threatened, pending or completed claim, action, suit or
proceeding, or appeal therefrom, whether civil, criminal,
administrative, investigative or otherwise, because he is or was an
officer of the Company, or at the express request of the Company is or
was serving, for purposes reasonably understood by him to be for the
Company, as a director, officer, partner, employee, agent or trustee
(or in any other capacity of an association, corporation, general or
limited partnership, joint venture, trust or other entity), the Company
shall indemnify the Executive against any reasonable expenses
(including attorneys' fees and disbursements), and any judgments, fines
and amounts paid in settlement incurred by him in connection with such
claim, action, suit, proceeding or appeal therefrom to the extent such
expenses, judgments, fines and amounts paid in settlement were not
advanced by the Company on his behalf pursuant to subsection (b) below,
to the fullest extent permitted under Delaware law. The Company shall
provide Executive with D&O insurance coverage at least as favorable to
Executive as what the Company maintains as of the date hereof or such
greater coverage as the Company may maintain from time to time.
(b) Upon the written request of the Executive specifying the
amount of a requested advance and the intended use thereof, the Company
shall indemnify Executive for his expenses (including attorneys' fees
and disbursements), judgments, fines and amounts paid in settlement
incurred by him in connection with such claim, action, suit, proceeding
or appeal whether civil, criminal, administrative, investigative or
otherwise, in advance of the final disposition of any such claim,
action, suit, proceeding or appeal therefrom to the fullest extent
permitted under Delaware law.
ARTICLE 9
RESTRICTIVE COVENANTS
9.1 Covenant Not to Disclose Confidential Information. During the Term
and following termination of this Agreement, the Executive agrees that, without
the Company's prior written consent, he will not use or disclose to any person,
firm, association, partnership, entity or corporation, any confidential
information concerning: (i) the business operations or internal structure of the
Company; (ii) the customers of the Company; (iii) the financial condition of the
Company; and (iv) other confidential information pertaining to the Company,
including without limitation, trade secrets, technical data, marketing analyses
and studies, operating procedures, customer and/or inventor lists, or the
existence or nature of any of the Company's agreements (other than this
Agreement and any other option or compensation related agreements involving the
Executive); provided, however, that the Executive shall be entitled to disclose
such information: (i) to the extent the same shall have otherwise become
publicly available (unless made publicly available by the Executive); (ii)
during the course of or in connection with any actual or potential litigation,
arbitration, or other proceeding based upon or in connection with the subject
matter of this Agreement; (iii) as may be necessary or appropriate to conduct
his duties hereunder, provided the Executive is acting in good faith and in the
best interest of the Company; or (iv) as may be required by law or judicial
process.
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9.2 Covenant Not to Compete. The Executive acknowledges that he has
established and will continue to establish favorable relations with the
customers, clients and accounts of the Company and will have access to trade
secrets of the Company. Therefore, in consideration of such relations and to
further protect trade secrets, directly or indirectly, of the Company, the
Executive agrees that during the Term and for a period of one (1) year from the
date of termination of the Executive, the Executive will not, directly or
indirectly, without the express written consent of the Board:
(i) own or have any interest in or act as an officer,
director, partner, principal, employee, agent, representative,
consultant or independent contractor of, or in any way assist in, any
business which is engaged, directly or indirectly, in any business
competitive with the Company in those automotive markets and/or
automotive products lines in which the Company competes within the
United States at any time during the Term, or become associated with or
render services to any person, firm, corporation or other entity so
engaged ("Competitive Businesses"); provided, however; that the
Executive may own without the express written consent of the Company
not more than two (2) percent of the issued an outstanding securities
of any company or enterprise whose securities are listed on a national
securities exchange or actively traded in the over the counter market;
(ii) solicit clients, customers or accounts of the Company
for, on behalf of or otherwise related to any such Competitive
Businesses or any products related thereto; or
(iii) solicit any person who is or shall be in the employ or
service of the Company to leave such employ or service for employment
with the Executive or an affiliate of the Executive.
Notwithstanding the foregoing, if any court determines that the covenant not to
compete, or any part thereof, is unenforceable because of the duration of such
provision or the geographic area or scope covered thereby, such court shall have
the power to reduce the duration, area or scope of such provision to the extent
necessary to make the provision enforceable and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
9.3 Specific Performance. Recognizing the irreparable damage will
result to the Company in the event of the breach or threatened breach of any of
the foregoing covenants and assurances by the Executive contained in Sections
9.1 and 9.2 hereof, and that the Company's remedies at law for any such breach
or threatened breach may be inadequate, the Company and its successors and
assigns, in addition to such other remedies which may be available to them,
shall be entitled to an injunction to be issued by any court of competent
jurisdiction ordering compliance with this Agreement or enjoining and
restraining the Executive, and each and every person, firm or company acting in
concert or participation with him, from the continuation of such breach. The
obligations of the Executive and rights of the Company pursuant to this Article
9 shall survive the termination of this Agreement. The covenants and obligations
of the Executive set forth in this Article 9 are in addition to and not in lieu
of or exclusive of any other obligations and duties the Executive owes to the
Company, whether expresses or implied in fact or law.
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ARTICLE 10
GENERAL PROVISIONS
10.1 This Agreement and attached schedules (which are incorporated
herein and shall be treated as part of hereof) are intended to be the final,
complete and exclusive agreement between the parties relating to the employment
of the Executive by the Company with respect to the Term and all prior or
contemporaneous understandings, representations and statements, oral or written,
are merged herein. Notwithstanding anything to the contrary, the terms and
conditions of any stock option agreements signed by the Executive prior to the
date hereof shall remain in effect. No modification waiver, amendment, discharge
or change of this Agreement shall be valid unless the same is in writing and
signed by the party against which the enforcement thereof is or may be sought.
10.2 No waiver, by conduct or otherwise, by any party of any term,
provision, or condition of this Agreement, shall be deemed or construed as a
further or continuing waiver of any such term, provision, or condition nor as a
waiver of a similar or dissimilar condition or provision at the same time or at
any prior or subsequent time.
10.3 The rights under this Agreement, or by law or equity, shall be
cumulative and may be exercised at any time and from time to time. No failure by
any party to exercise, and no delay in exercising, any rights shall be construed
or deemed to be a waiver thereof, nor shall any single or partial exercise by
any party preclude any other or future exercise thereof or the exercise of any
other right.
10.4 Except as otherwise provided in this Agreement, any notice,
approval, consent, waiver or other communication required or permitted to be
given or to be served upon any person in connection with this Agreement shall be
in writing. Such notice shall be personally served, sent by telegram, tested
telex, fax or cable, or sent prepaid by either registered or certified mail with
return receipt requested or Federal Express and shall be deemed given (i) if
personally served or by Federal Express, when delivered to the person to whom
such notice is addressed, (ii) if given by telegram, telex, fax or cable, when
sent, or (ii) if given by mail, two (2) business days following deposit in the
United States mail. Any notice given by telegram, telex, fax or cable shall be
confirmed in writing by overnight mail or Federal Express within forty-eight
(48) hours after being sent. Such notices shall be addressed to the party to
whom such notice is to be given at the party's address set forth below or as
such party shall otherwise direct.
If to the Company: xxxxxxxxx.xxx,inc.
00000 XxxXxxxxx Xxxx., Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xx. Xxxxx X. Xxxxx, Esq.
If to the Executive: Xxxx X. Xxxxxxx
0000 Xxxxx Xxxxx
Xxx Xxxxxxxx, Xxxxxxxxxx 00000
With a copy to: [to be added]
10.5 The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
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10.6 This Agreement shall be construed and enforced in accordance with
the laws of the State of California, without giving effect to the principles of
conflict of laws thereof, except that the indemnification provisions of Section
8.2 shall be governed by Delaware law without regard to conflict of laws
principles.
10.7 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which shall constitute one
instrument.
10.8 The provisions of this Agreement are agreed to be severable, and
if any provision, or application thereof, is held invalid or unenforceable, then
such holding shall not effect any other provision or application.
10.9 As used herein, and as the circumstances require, the plural term
shall include the singular, the singular shall include the plural, the neuter
term shall include the masculine and feminine genders, and the feminine term
shall include the neuter and the masculine genders.
10.10 Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Irvine, California, in accordance with the rules then in effect of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof. Each party hereto shall pay its or their own
expenses incident to the negotiation, preparation and resolution of any
controversy or claim arising out of, or related to, this Agreement, or the
breach thereof, provided, however, the Company shall pay and be solely
responsible for any attorneys' fees and expenses and court or arbitration costs
incurred by the Executive as a result of a claim that the Company has breached
or otherwise failed to perform this Agreement or any provision hereof to be
performed by the Company if the Executive prevails in the contest in whole or in
part.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
xxxxxxxxx.xxx,inc.
By /s/ Xxxxxxx X. Xxxxx
-------------------------------
Name: Xxxxxxx X. Xxxxx
Its: Chairman of the Board
/s/ Xxxx X. Xxxxxxx
----------------------------------------
Xxxx X. Xxxxxxx
[Remainder of page intentionally left blank]
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SCHEDULE A
As further consideration for the services rendered by the Executive
during the Term, the Executive shall be granted Options on the terms and
conditions set forth below, effective as of December 17, 1998. Each such Option
shall be effective upon such grant effective date.
1. Regular 1998 Options. The Executive shall be granted Options to
purchase two hundred thousand (200,000) shares of the Company's common stock
(the "Regular 1998 Options") under the Company's 1998 Stock Incentive Plan. The
Regular 1998 Options shall have a ten (10) year term (the " Regular 1998 Option
Term") of exercise and, except as otherwise provided herein, shall remain
exercisable following vesting for the full term. The exercise price of an Option
granted as a Regular 1998 Option shall be equal to the fair market value per
share of the Company's common stock (as determined by the Company) as of the
date such Option is granted.
(a) Vesting. The Regular 1998 Options shall vest based on the continued
employment of the Executive (which shall include the Executive's membership on
the Board) in equal installments of fifty (50) percent of the number of subject
shares on each of June 1, 1999 and June 1, 2000.
(b) Payment Upon Exercise. Payment for the shares subject to any
Regular 1998 Option may be tendered in cash or by certified, bank cashier's or
teller's check or by shares of the Company's common stock (valued at fair market
value (as determined by the Company) as of the date of tender) already owned by
the Executive, or some combination of the foregoing or such other form of
consideration which has been approved by the Board, including any approved
cashless exercise mechanism or a promissory note given by the Executive.
(c) Termination for Cause. As of the date of the Executive's
termination for Cause under Section 6.1 of this Agreement, any unvested or
unexercised portion of the Regular 1998 Options shall terminate immediately and
shall be of no further force or effect.
(d) Termination Without Cause or for Good Reason. As of the date of the
Executive's termination by the Company without Cause or by the Executive for
Good Reason under Section 6.2 of this Agreement, any unvested portion of the
Regular 1998 Options shall become immediately and fully vested and exercisable
from such termination of employment until the date that is two (2) years
following the termination date.
(e) Termination due to Death or Disability. As of the date of the
Executive's termination due to death or Disability under Section 6.3 of this
Agreement, any unvested portion of the Regular 1998 Options shall become
immediately and fully vested and exercisable. Any previously vested but
unexercised Regular 1998 Options shall remain exercisable from the date of such
termination of employment until the end of the Regular 1998 Option Term or, if
earlier, the date that is two (2) years following the termination date.
(f) Termination Without Good Reason. As of the date of any voluntary
termination of employment with the Company by the Executive other than due to
death or Disability, and other than for Good Reason, any unvested portion of the
Regular 1998 Options shall terminate immediately and shall be of no further
force or effect. Any previously vested but unexercised Regular 1998 Options
shall remain exercisable from the date of such termination of employment until
the end of the Regular 1998 Option Term or, if earlier, the date that is one (1)
year following the termination date.
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(g) Termination Prior to or Following a Change of Control. In the event
of a Change of Control while the Executive is employed by the Company, or the
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason within six (6) months prior to a Change of Control
during the Term, any unvested installment of the Regular 1998 Options shall
immediately vest and become exercisable from the date of such Change of Control,
or if earlier the date of termination, until the date that is two (2) years
following (i) the Change of Control date, or (ii) if earlier the date of
termination.
2. 1998 Performance Options. The Executive also shall be granted
Options to purchase five hundred thousand (500,000) shares of the Company's
common stock (the "1998 Performance Options") under the Company's 1998 Stock
Incentive Plan. The 1998 Performance Options shall be granted in six (6)
installments with eighty thousand (80,000) shares subject to each of the first
and second installment grants and eighty-five thousand (85,000) shares subject
to each of the third, fourth, fifth and sixth installment grants. The 1998
Performance Options shall have a ten (10) year term (the "1998 Performance
Option Term") of exercise and, except as otherwise provided herein shall remain
exercisable following vesting for the full term. The exercise price of an Option
granted as a 1998 Performance Option shall be equal to the fair market value (as
determined by the Company) per share of the Company's common stock as of the
date such Option is granted (the "Exercise Price").
(a) Vesting. Each installment grant of 1998 Performance Options shall
vest based on the continued employment of the Executive through the seventh
anniversary of the date the installment of 1998 Performance Options was granted;
provided, however, that following an effective initial public offering by the
Company (the "IPO") and based on the continued employment of the Executive the
vesting of the 1998 Performance Options shall accelerate as follows:
(i) the first installment grant will vest immediately and
fully upon the first six (6) month anniversary of the date of grant, or
any six month anniversary of such date thereafter, following the IPO if
the average trading price (as determined by averaging either the
closing price or bid-ask midpoint) of the Company's common stock for
the ten trading days (the "Average Trading Price") preceding any such
anniversary date exceeds the Exercise Price by at least Six Dollars and
Sixty Cents ($6.60) ;
(ii) the second installment grant will vest immediately and
fully upon the first one (1) year anniversary of the date of grant, or
any six month anniversary of such date thereafter, following the IPO if
the Average Trading Price preceding any such anniversary date exceeds
the Exercise Price by at least Thirteen Dollars and Twenty Cents
($13.20);
(iii) the third installment grant will vest immediately and
fully upon the first eighteen (18) month anniversary of the date of
grant, or any six month anniversary of such date thereafter, following
the IPO if the Average Trading Price preceding any such anniversary
date exceeds the Exercise Price by at least Nineteen Dollars and Eighty
Cents ($19.80);
(iv) the fourth installment grant will vest immediately and
fully upon the first two (2) year anniversary of the date of grant, or
any six month anniversary of such date thereafter, following the IPO if
the Average Trading Price preceding any such anniversary date exceeds
the Exercise Price by at least Twenty-Six Dollars and Forty Cents
($26.40);
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(v) the fifth installment grant will vest immediately and
fully upon the first two and half year anniversary of the date of
grant, or any six month anniversary of such date thereafter, following
the IPO if the Average Trading Price preceding any such anniversary
date exceeds the Exercise Price by at least Thirty-three Dollars
($33.00); and
(vi) the sixth installment grant will vest immediately and
fully upon the first three (3) year anniversary of the date of grant,
or any six month anniversary of such date thereafter, following the IPO
if the Average Trading Price preceding any such anniversary date
exceeds the Exercise Price by at least Thirty-nine Dollars and Sixty
Cents ($39.60).
(b) Payment Upon Exercise. Payment for the shares subject to any 1998
Performance Option may be tendered in cash or by certified, bank cashier's or
teller's check or by shares of the Company's common stock (valued at fair market
value (as determined by the Company) as of the date of tender) already owned by
the Executive, or some combination of the foregoing or such other form of
consideration which has been approved by the Board, including any approved
cashless exercise mechanism or a promissory note given by the Executive.
(c) Termination for Cause. As of the date of the Executive's
termination for Cause under Section 6.1 of this Agreement, any unvested or
unexercised portion of the 1998 Performance Options shall terminate immediately
and shall be of no further force or effect.
(d) Termination Without Cause or for Good Reason. If the Company has
not effected an IPO as of the date of the Executive's termination by the Company
without Cause or by the Executive for Good Reason under Section 6.2 of this
Agreement, any unvested portion of the 1998 Performance Options shall become
immediately and fully vested and exercisable as of the date of such termination.
Any shares subject to the 1998 Performance Options that become vested and
exercisable in accordance with the foregoing and any previously vested but
unexercised 1998 Performance Options shall remain exercisable from the date of
such termination of employment until the date that is one (1) year following the
termination date. If the Company has effected an IPO as of the date of the
Executive's termination by the Company without Cause or by the Executive for
Good Reason under Section 6.2 of this Agreement, any unvested portion of the
1998 Performance Options shall become immediately and fully vested and
exercisable to the extent the stock price targets in Paragraph 2.(a)(i)-(vi)
above are met on the termination date or as of the immediately preceding six (6)
month anniversary of the date of grant, or as of the six (6) month anniversary
of the grant date following such termination. Any shares subject to the 1998
Performance Options that become vested and exercisable in accordance with the
foregoing and any previously vested but unexercised 1998 Performance Options
shall remain exercisable from the date of such termination of employment until
the date that is one (1) year following the termination date, provided, however,
that if the Average Trading Price as of the date of termination exceeds the
Company's IPO initial offering price by at least thirty (30) percent, the vested
and unexercised 1998 Performance Options shall remain exercisable until the date
that is two (2) years following the termination date.
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(e) Due to Death or Disability. If the Company has not effected an IPO
as of the date of the Executive's termination due to death or Disability under
Section 6.3 of this Agreement, as of the date of such termination of the
Executive any unvested portion of the 1998 Performance Options shall become
immediately and fully vested and exercisable. If the Company has effected an IPO
as of such termination date, any unvested portion of the 1998 Performance
Options shall become vested and exercisable to the extent the stock price
targets in Paragraph 2.(a)(i)-(vi) above are met on the termination date or as
of the immediately preceding six (6) month anniversary of the date of grant, or
as of the six (6) month anniversary of the grant date following such
termination. Any shares subject to the 1998 Performance Options that become
vested and exercisable in accordance with the foregoing and any previously
vested but unexercised 1998 Performance Options shall remain exercisable from
the date of such termination of employment until the date that is one (1) year
following the termination date, provided, however, that if the Average Trading
Price as of the date of termination exceeds the Company's IPO initial offering
price by at least thirty (30) percent, the vested and unexercised 1998
Performance Options shall remain exercisable until the date that is two (2)
years following the termination date.
(f) Termination Without Good Reason. Regardless of whether the Company
has or has not effected an IPO as of the date of any voluntary termination of
employment with the Company by the Executive other than due to death or
Disability and other than for Good Reason, as of the date of such termination by
the Executive any unvested portion of the 1998 Performance Options shall
terminate immediately and shall be of no further force or effect. Any previously
vested but unexercised 1998 Performance Options shall remain exercisable from
the date of such termination of employment until the date that is one (1) year
following the termination date, provided, however, that if the Average Trading
Price as of the date of termination exceeds the Company's IPO initial offering
price by at least thirty (30) percent, the vested and unexercised 1998
Performance Options shall remain exercisable until the date that is two (2)
years following the termination date.
(g) Change of Control. In the event of a Change of Control while the
Executive is employed by the Company, or the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason
within six (6) months prior to a Change of Control during the Term, any
otherwise unvested installment of the 1998 Performance Options shall immediately
vest and become exercisable to the extent (i) the installment meets the
applicable stock price targets in Paragraph 2.(a)(i)-(vi) above based on the
Average Trading Price at the time of or within six (6) months of the Change of
Control but without regard to any anniversary of the installment's grant date if
the Company has effected an IPO as of the date of the Change of Control; or (ii)
the fair market value (as determined by an independent appraiser designated by
the Company) per share of the Company's common stock exceeds the Exercise Price
of the installment by an amount equal to or greater than the applicable dollar
amount for the installment as set forth in 2.(a)(i)-(vi) above if the Company
has not effected an IPO as of the date of the Change of Control. Any shares
subject to the 1998 Performance Options that become vested and exercisable in
accordance with the foregoing and any previously vested but unexercised 1998
Performance Options shall be at the Executive's option either cashed out based
on a value per share determined in accordance with (i) or (ii) of this clause
(g), as applicable, or remain exercisable from the date of such Change of
Control until the date that is one (1) year following the Change of Control
date, provided, however, that if the Average Trading Price as of the date of the
Change of Control exceeds the Company's IPO initial offering price by at least
thirty (30) percent, the vested and unexercised 1998 Performance Options shall
remain exercisable until the date that is two (2) years following the Change of
Control date.
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