Exhibit 10.31
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT made as of the 15th day of July, 2000, by and between
SpectraScience, Inc., a Minnesota corporation with its principal offices at
00000 00xx Xxxxxx X, Xxxxx 000, Xxxxxxxxxxx, XX 00000 (the "Company") and Xxxxx
X. Xxxxxxxx, residing at 0000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, XX 00000 (the
"Executive").
WHEREAS, the Company considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the best
interests of the Company and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to
Executive's intimate knowledge of the business and affairs of the Company, its
policies, methods, personnel and problems, a significant contribution to the
profitability, growth and financial strength of the Company; and
WHEREAS, the Company, as a publicly held corporation, recognizes that
the possibility of a Change in Control may exist and that such possibility, and
the uncertainty and questions that it may raise among management may result in
the departure or distraction of the Executive in the performance of the
Executive's duties to the detriment of the Company and its shareholders; and
WHEREAS, Executive is willing to remain in the employ of the Company
upon the understanding that the Company will provide income security if the
Executive's employment is terminated under certain terms and conditions; and
WHEREAS, it is in the best interests of the Company and its
shareholders to reinforce and encourage the continued attention and dedication
of management personnel, including Executive, to their assigned duties without
distraction and to ensure the continued availability to the Company of the
Executive in the event of a Change in Control.
NOW, THEREFORE, in consideration of the foregoing and other respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until such time as the Company notifies the
Executive of termination of the Agreement. Notwithstanding the preceding
sentence, if a Change in Control occurs, this Agreement shall continue in effect
for a period of 36 months from the date of the occurrence of a Change in
Control.
2. Change in Control. No benefits shall be payable hereunder unless
there shall have been a Change in Control. For purposes of this Agreement, a
"Change in Control" of the Company shall mean a change in control which would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement including, without limitation, if:
(a) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 40% or more of the combined
voting power of the Company's then outstanding securities;
(b) There ceases to be a majority of the Board of Directors
comprised of individuals described in 2(c) below:
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(c) For purposes of this Section 2 "Board of Directors" shall
mean: (A) individuals who on the date hereof constituted the Board of
the Company, and (B) any new director who subsequently was elected or
nominated for election by a majority of the directors who held such
office immediately prior to a Change in Control.
(d) Approval by shareholders of the Company if required, or if
not required, the approval by the Board of Directors, of:
(i) a merger, consolidation, or reorganization
involving the Company where the company is not the surviving
company;
(ii) a complete liquidation or dissolution of the
Company;
(iii) an Agreement for the sale or other disposition
of all or substantially all of the assets of the Company to
any other party (other than a transfer to a subsidiary of the
Company);
in any such cases, which transaction is actually consummated.
(e) Notwithstanding anything contained in this Agreement to
the contrary, if the Executive's employment is terminated prior to a
Change in Control and the Executive reasonably demonstrates that such
termination (i) was at the request of a third party who has indicated
an intention or taken steps reasonably calculated to effect a Change in
Control and who effectuates a Change in Control (a "Third Party") or
(ii) otherwise occurred in connection with, or in anticipation of, a
Change in Control, a Change in Control with respect to the Executive
shall mean the date immediately prior to the date of such termination
of the Executive's employment.
3. Termination Following Change in Control. If a Change in Control
shall have occurred during the term of this Agreement, Executive shall be
entitled to the benefits provided in subsection 4(d) unless such termination is
(A) because of Executive's death or Retirement; (B) by the Company for Cause or
Disability; or (C) by Executive other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due
to physical or mental illness, the Executive shall have been absent
from the full-time performance of Executive's duties with the Company
for six consecutive months, and within 30 calendar days after written
Notice of Termination is given the Executive shall not have returned to
the full-time performance of the Executive's duties, the Company may
terminate Executive's employment for "Disability". Any question as to
the existence of Executive's Disability upon which Executive and the
Company cannot agree shall be determined by a qualified independent
physician selected by Executive (or, if the Executive is unable to make
such selection, it shall be made by any adult member of the Executive's
immediate family), and approved by the Company. The determination of
such physician made in writing to the Company and to Executive shall be
final and conclusive for all purposes of this Agreement. Termination by
the Company or Executive of Executive's employment based on
"Retirement" shall mean termination with a normal retirement pension in
accordance with the SpectraScience, Inc. Savings and Retirement Plan.
(b) Cause. Termination by the Company of Executive's
employment for "Cause" shall mean termination upon the conviction of
the Executive by a court of competent jurisdiction for felony criminal
conduct.
(c) Good Reason. Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without Executive's express written consent, any of
the following:
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(i) the assignment to Executive of any duties
inconsistent with Executive's status or position with the
Company, or a substantial alteration in the nature or status
of Executive's responsibilities from those in effect at any
time within 6 months preceding the Change in Control or at
anytime thereafter;
(ii) a reduction by the Company in Executive's annual
compensation in effect at any time within 6 months preceding a
Change in Control or at anytime thereafter;
(iii) the relocation of the Company's principal
executive offices to a location more than fifty miles from
Minneapolis, Minnesota or the Company requiring Executive to
be based anywhere other than the Company's principal executive
offices except for required travel on the Company's business
to an extent substantially consistent with Executive's prior
business travel obligation;
(iv) the failure by the Company to continue to
provide Executive with benefits at least as favorable to those
enjoyed by Executive under any of the Company's pension, life
insurance, medical, health and accident, disability, deferred
compensation, incentive awards, stock options, or savings
plans in which Executive was participating at any time within
6 months preceding the Change in Control, the taking of any
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Executive of
any material fringe benefit enjoyed at the time of the Change
in Control, or the failure by the Company to provide Executive
with the number of paid vacation days to which Executive is
entitled at the time of the Change in Control; provided,
however, that the Company may amend any such plan or programs
as long as such amendments do not reduce any benefits to which
Executive would be entitled upon termination;
(v) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement, as contemplated in Section 6;
(vi) any purported termination of Executive's
employment which is not made pursuant to Notice of Termination
satisfying the requirements of subsection (e) below; for
purposes of this Agreement, no such purported termination
shall be effective;
(vii) any material breach by the Company of any
provision of this Agreement;
(viii) the insolvency or the filing (by any party
including the Company) of a petition for bankruptcy of the
Company, which petition is not dismissed within 60 days;
(ix) any event or condition described in this Section
3(c) (i) through (viii) that occurs prior to a Change in
Control but which the Executive reasonably demonstrates either
was at the request of a Third Party or otherwise arose in
connection with, or in anticipation of, a Change in Control
that actually occurs, shall constitute Good Reason for
purposes of this Agreement notwithstanding that it occurred
prior to the Change in Control.
(d) Voluntary Termination Deemed Good Reason. Not withstanding
anything herein to the contrary, if the Change in Control arises from a
transaction or series of transactions which are not authorized,
recommended or approved by formal action taken by the Board of
Directors as defined in Section 2(c) of this Agreement, Executive may
voluntarily terminate his employment for any reason following a Change
in Control, and such termination shall be deemed "Good Reason" for all
purposes of this Agreement.
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(e) Notice of Termination. Any purported termination of
Executive's employment by the Company or by Executive shall be
communicated by written Notice of Termination to the other party hereto
in accordance with Section 8. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth
the facts and circumstances claimed to provide a basis for termination
of Executive's employment.
(f) Date of Termination. For purposes of this Agreement, "Date
of Termination" shall mean:
(i) if Executive's employment is terminated for
Disability, 30 calendar days after Notice of Termination is
given (provided that the Executive shall not have returned to
the full-time performance of the Executive's duties during
such 30 day period); and
(ii) if Executive's employment is terminated pursuant
to subsections 3(b), 3(c) or 3(d) above or for any other
reason (other than Disability), the date specified in the
Notice of Termination (which, in the case of a termination
pursuant to subsection 3(b) above shall not be less than 10
business days, and in the case of a termination pursuant to
subsection 3(c) or 3(d) above shall not be less than 10
business nor more than 30 calendar days, respectively, from
the date such Notice of Termination is given).
(g) Dispute of Termination. If, within 10 business days after
any Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of
the parties, or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal
therefrom having expired and no appeal having been perfected);
provided, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving
such notice pursues the resolution of such dispute with reasonable
diligence.
4. Compensation Upon Termination or During Disability. Following a
Change in Control of the Company, as defined in subsection 2(a), upon
termination of Executive's employment or during a period of Disability,
Executive shall be entitled to the following benefits:
(a) During any period that Executive fails to perform
full-time duties with the Company as a result of a Disability, the
Company shall pay Executive the full compensation of the Executive in
effect at the commencement of any such period, until such time as the
Executive is determined to be eligible for long term disability
benefits in accordance with the Company's insurance programs then in
effect.
(b) If Executive's employment shall be terminated by the
Company for Cause or by Executive other than for Good Reason,
Disability or Retirement, the Company shall pay to Executive his full
base salary through the Date of Termination at the Rate in effect at
the time Notice of Termination is given and the Company shall have no
further obligation to Executive under this Agreement.
(c) If Executive's employment shall be terminated by the
Company or by Executive for Disability or Retirement, or by reason of
death, the Company shall immediately commence payment to the Executive
(or Executive's designated beneficiaries or estate, if no beneficiary
is designated) of any and all benefits to which the Executive is
entitled under the Company's retirement and insurance programs then in
effect.
(d) If Executive's employment shall be terminated (A) by the
Company other than for Cause, Retirement, or Disability; or (B) by
Executive for Good Reason; then Executive shall be entitled to the
benefits provided below:
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(i) The Company shall pay Executive the Executive's
full compensation through the Date of Termination at the rate
in effect at the time the Notice of Termination is given.
(ii) In lieu of any further salary payments for
periods subsequent to the Date of Termination, the Company
shall pay a severance payment (the "Severance Payment") equal
to one year of the Executive's full compensation as defined
below. For purposes of this Section 4, compensation shall mean
and include (A) every type and form of compensation paid to
Executive by the Company (or any corporation ("Affiliate")
affiliated with the Company within the meaning of section 1504
of the Internal Revenue Code of 1986, as may be amended from
time to time (the "Code")); (B) such compensation is
includible in Executive's gross income for federal income tax
purposes, but excluding compensation income recognized as a
result of the grant of restricted stock or other share grants,
or the exercise of stock options or sale of the stock so
acquired and (C) the highest rate of compensation in effect at
any time within six months prior to the Change in Control or
within six months prior to the Date of Termination. The
Severance Payment shall be made in a single lump sum within 30
calendar days after the Date of Termination.
(iii) For a period of 18 months after the Date of
Termination, the Company shall arrange to provide at its sole
expense Executive with life, accident and health and dental
insurance benefits substantially similar to those which the
Executive is receiving or entitled to receive immediately
prior to the Notice of Termination. The cost of providing such
benefits shall be in addition to (and shall not reduce) the
Severance Payment. Benefits otherwise receivable by Executive
pursuant to this paragraph (iii) shall be reduced to the
extent comparable benefits are actually received by Executive
during such period, and any such benefits actually received by
Executive shall be reported to the Company.
(iv) For a period ending on the earlier of twelve
months from the Executive's Date of Termination and the date
on which the Executive obtains subsequent full time
employment, the Company shall make available to the Executive
such outplacement services that are generally consistent with
the Executive's status or position.
(v) The Company shall ensure that the Executive
continues to have complete coverage for fiduciary, liability
insurance, and directors and officers insurance for a period
of six years after a Change in Control; and will indemnify the
Executive of any losses that might result from actions taken
in good faith before the Date of Termination.
(vi) Except to the extent such payment would
constitute a "parachute payment" within the meaning of Section
280G(b) (2) of the Code as determined under paragraph (v)
below, the Company shall also pay to Executive all legal fees
and expenses incurred by Executive as a result of such
termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by
this Agreement).
(vii) The Severance Payment shall be reduced and
offset by the amount of any payment received or to be received
by Executive in connection with the termination of employment
pursuant to the provisions of any Company policy on severance
or any successor to such policy. If, in the opinion of tax
counsel selected by the Company and acceptable to Executive,
the Severance Payment (in its full amount or as partially
reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the
meaning of Section 280G(b) (2) of the Code exceeds the amount
that is deductible by the Company by reason of Section 280G,
and in the opinion of such tax counsel, the Severance Payment
(in its full amount or as partially reduced, as the case may
be) plus all other payments or benefits which constitute
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"parachute payments" within the meaning of Section 280G(b) (3)
of the Code are not reasonable compensation for services
actually rendered or to be rendered, within the meaning of
Section 280G(b) (4) of the Code, the Severance Payment shall
be reduced by the excess of the aggregate "parachute payments"
to be paid to or for the Executive over the aggregate
"parachute payments" that would be paid to or for the
Executive without any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code. The
value of any non-cash benefit or any deferred cash payment
shall be determined by the Company in accordance with the
principles of Sections 280G(d) (3) and (4) of the Code.
(viii) If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding that, notwithstanding the good faith of Executive
and the Company in applying the terms of this subsection 4(d),
the aggregate "parachute payments" paid to or for Executive's
benefit are in an amount that would result in any portion of
such "parachute payments" not being deductible by the Company
or its Affiliates by reason of Section 280G of the Code, then
Executive shall have an obligation to pay the Company upon
demand an amount equal to the sum of (A) the excess of the
aggregate "parachute payments" paid to or for the Executive's
benefit over the aggregate "parachute payments" that would
have been paid to or for the Executive's benefit without any
portion of such "parachute payments" not being deductible by
reason of Section 280G of the Code; and (B) interest on the
amount set forth in clause (A) of this sentence at the
applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of Executive's receipt of such excess
until the date of such payment.
(e) Executive shall not be required to mitigate the amount of
any payment provided for in this Section 4 by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by
Executive as the result of employment by another employer or by
retirement benefits after the Date of Termination, or otherwise except
as specifically provided in this Section 4.
(f) Executive shall be entitled to receive all benefits
payable to the Executive under the SpectraScience, Inc. Savings and
Retirement Plan, or any successor of such Plan and any other plan or
agreement relating to retirement benefits, which shall be in addition
to, and not reduced by, any other amounts payable to Executive under
this Section 4.
(g) Executive shall be entitled to exercise all rights and to
receive all benefits accruing to Executive under any and all Company
stock purchase, restricted stock grant and stock option plans or
programs, or any successor to any such plans or programs, which shall
be in addition to, and not reduced by, any other amounts payable to
Executive under this Section 4. In addition, all of Executive's
outstanding but unvested options shall vest immediately prior to a
Change in Control.
5. Funding of Payments. In order to assure the performance of the
Company or its successor of its obligations under this Agreement, the Company
may deposit in trust an amount equal to the maximum payment that will be due the
Executive under the terms hereof. Under a written trust instrument, the Trustee
shall be instructed to pay to the Executive (or the Executive's legal
representative, as the case may be) the amount to which the Executive shall be
entitled under the terms hereof, and the balance, if any, of the trust not so
paid or reserved for payment shall be repaid to the Company. If the Company
deposits funds in trust, payment shall be made no later than the occurrence of a
Change in Control. If and to the extent there are not amounts in trust
sufficient to pay Executive under this Agreement, the Company shall remain
liable for any and all payments due to Executive. In accordance with the terms
of such trust, at all times during the term of this Agreement, Executive shall
have no rights, other than as an unsecured general creditor of the Company, to
any amounts held in trust and all trust assets shall be general assets of the
Company and subject to the claims of creditors of the Company. Failure of the
Company to establish or fully fund such trust shall not be deemed a revocation
or termination of this Agreement by the Company.
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6. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Company in the same amount and on
the same terms as he would be entitled hereunder if he terminated his
employment for Good Reason following a Change in Control, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representative,
successors, heirs, and designated beneficiaries. If Executive should
die while any amount would still be payable to Executive hereunder if
the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's designated beneficiaries, or, if there is
no such designated beneficiary, to the Executive's estate.
7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Executive or in the case of
the Company, to its principal office to the attention of each of the then
directors of the Company with a copy to its Secretary, or to such other address
as either party may have furnished the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the parties. No waiver by either party hereto at any
time of any breach by the other party to this Agreement of, or compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Minnesota.
9. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
SPECTRASCIENCE, Inc. AGREED TO AND ACCEPTED:
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Xxxxxxx X. Xxxxxxx, Xx. Xxxxx X. Xxxxxxxx
President and Chief Executive Officer Vice President Marketing and Sales
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