EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 29th day of May, 2002, by and
between OnLine Power Supply, Inc. (the "Company"), and Xxxxx X. Xxxxxxxxx (the
"Chief Executive").
WHEREAS, the Company desires to employ the Chief Executive on the terms and
subject to the conditions set forth herein; and
WHEREAS, the Chief Executive is willing to make his services available to
the Company on the terms and subject to the conditions set forth herein;
In consideration of the mutual covenants and agreements set forth herein,
the parties agree as follows:
1. Employment and Duties. Effective June 1, 2002 (the "Effective Date"),
the Chief Executive shall be employed by the Company as its President and Chief
Executive Officer ("CEO"). The Chief Executive agrees to devote his time and
attention on a full-time basis to the discharge of such duties and
responsibilities as are customary for a person in this position which includes,
but are not limited to, general supervision, direction, and control of the
business and officers of the Company. The Chief Executive shall report directly
and solely to the Company's Board of Directors ("Board"). The Board agrees to
appoint the Chief Executive to the Board immediately and to nominate the Chief
Executive for election to the Board at each annual meeting of stockholders at
which Chief Executive's director class comes up for election so long as the
Chief Executive is employed pursuant to this Agreement. The Chief Executive may
accept any elective or appointed positions or offices with any duly recognized
associations or organizations whose activities or purposes are related to the
business of the Company.
2. Term. The term of this Agreement (the "Term") shall commence at the
Effective Date and shall continue for a period five (5) years unless terminated
or extended as hereinafter provided. At the end of the five year term and any
term extension, this Agreement shall be extended automatically for an additional
two year term unless either party notifies the other in writing at least 180
days prior to the end of the term that the Agreement shall not be extended.
3. Base Salary and Bonus.
(a) Base Salary. The Company shall pay the Chief Executive an annual
base salary of $250,000. Such base salary shall be paid to the Chief Executive
in accordance with established payroll practices of the Company. The Board
agrees to review the Chief Executive's base salary on an annual basis and to
implement changes to such base salary as it may deem appropriate; however, such
base salary shall not be less than $250,000.
(b) Incentive Bonus. Chief Executive shall be entitled to receive an
annual incentive bonus as determined in good faith by the Board that may be
based upon achievement of targeted annual earnings goals for the Company or
other factors deemed relevant by the Board. The target incentive bonus for the
Chief Executive will be 50% of his annual base salary. In exchange for executing
this Agreement, for the fiscal year 2002 Chief Executive will receive a minimum
of 25% of 2002 earned compensation payable within 45
days of the close of the fiscal year. Bonus calculations will subsequently be
based on compensation and performance achieved during the fiscal year.
(c) Incentive Stock Options. The Company shall grant Chief Executive
incentive stock options to purchase 600,000 shares of the Company's common stock
pursuant to the Company's current incentive stock option plan at the "strike"
price equal to the market price of the stock on the Effective Date, pursuant to
the following schedule. Options to purchase 120,000 shares shall vest
immediately upon the Effective Date of this Agreement. Options to purchase an
additional 120,000 shares shall vest on each anniversary date of the Effective
Date for the next four (4) years as follows:
Options to purchase 120,000 shares vesting on June 1, 2003;
Options to purchase 120,000 shares vesting on June 1, 2004;
Options to purchase 120,000 shares vesting on June 1, 2005; and
Options to purchase 120,000 shares vesting on June 1, 2006.
Unless otherwise provided herein, all stock options granted and vested under
this paragraph shall be exercisable through the date of the ten-year anniversary
of the Effective Date of this Agreement or, if the Chief Executive's employment
under this Agreement is terminated sooner, for twelve (12) months after such
date of termination.
(d) Performance-Based Stock Options. Over the life of this Agreement
but in no event later than June 1, 2007, the Company shall grant the Chief
Executive stock options to receive a minimum of an additional 250,000 shares of
the Company's common stock at the exercise price equal to the fair market value
on the date of grant, with vesting occurring within one year of the date of each
grant.
4. Additional Executive Perquisites, Benefits and Other Compensation.
(a) During the term of this Agreement, the Chief Executive shall be
eligible to participate in any plans, programs or forms of compensation or
benefits that the Company provides to the class of employees that includes the
Chief Executive, on a basis not less favorable than that provided to such class
of employees, including, without limitation, group medical, dental, disability
and life insurance, vacation and sick leave, and a retirement plan.
(b) The Chief Executive shall be entitled to four weeks vacation
annually without loss of pay.
(c) During the term of this Agreement, the Company shall provide the
Chief Executive with an automobile as per Company policy not to exceed $1,000
per month.
5. Reimbursement of Expenses.
(a) Relocation. The Company will pay or reimburse Chief Executive for
all expenses reasonably incurred in the relocation of his residence as defined
in the Company's relocation policy not to exceed $75,000.
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(b) Fees Related to Agreement. The Company will pay the reasonable
attorney's fees and costs incurred by Chief Executive relating to the
negotiation and preparation of this Agreement.
6. Termination of Employment.
(a) Death or Incapacity. The Chief Executive's employment under this
Agreement shall terminate automatically upon the Chief Executive's death. In the
event of termination due to the death or "Incapacity" (as later defined) of the
Chief Executive, he, his survivors, designees or estate shall continue to
receive, in addition to all other benefits accruing upon death, full
compensation hereunder for a period of six (6) months following the month in
which his death occurred. If the Company determines that the Incapacity of the
Chief Executive has occurred, it may terminate the Chief Executive's employment
and this Agreement upon thirty (30) days' written notice provided that, within
thirty (30) days after receipt of such notice, the Chief Executive shall not
have returned to full-time performance of his assigned duties. "Incapacity"
shall mean the failure of the Chief Executive to perform his assigned duties
with the Company on a full-time basis as a result of mental or physical illness
or injury as determined by a physician selected by the Company for the greater
of ninety (90) consecutive calendar days or the longest waiting period under any
long term disability insurance contract or program provided to him as an
employee. If the employment is terminated because of Death or Incapacity, any
stock options which were due to vest within 90 days of the date of termination
will vest upon termination and may be exercised immediately. Chief Executive, or
his designate or the Executor of his estate, as applicable, shall have up to one
year after the date of termination to exercise all vested options. If the
employment is terminated because of Chief Executive's death, the Company will
pay for COBRA continuation coverage for the Chief Executive's spouse and other
dependents for a period of eighteen (18) months from the date of death.
(b) Termination by Company With or Without Cause. The Company may
terminate the Chief Executive's employment during the term of this Agreement,
with or without Cause. For purposes of this Agreement, "Cause" shall mean:
(i) continual or deliberate neglect by the Chief Executive in the
performance of his material duties and responsibilities as established from time
to time by the Board, or the Chief Executive's willful failure to follow
reasonable instructions or policies of the Company after being advised in
writing of such failure and being given a reasonable opportunity and period (but
in no event less than 30 days) to remedy such failure;
(ii) conviction of, indictment for (or its procedural
equivalent), entering of a guilty plea or plea of no contest with respect to a
felony, a crime of moral turpitude or any other crime with respect to which
imprisonment is a possible punishment, or the commission of an act of
embezzlement or fraud against the Company or any subsidiary or affiliate
thereof;
(iii) any breach by the Chief Executive of a material term of
this Agreement, or violation in any material respect of any code or standard of
behavior generally applicable to officers of the Company, after being advised in
writing of such breach or violation and being given a reasonable opportunity and
period (but in no event less than 30 days) to remedy such breach or violation;
or
(iv) dishonesty of the Chief Executive with respect to the
Company or any subsidiary or affiliate thereof, or breach of a fiduciary duty
owed to the Company or any subsidiary or affiliate thereof, after being advised
in writing of such breach or violation and being given a reasonable opportunity
and period (but in no event less than 30 days) to remedy such breach or
violation.
(c) Termination by Chief Executive for Good Reason. The Chief
Executive may terminate his employment for Good Reason. For purpose of this
Agreement, "Good Reason" shall mean:
(i) the continued assignment to the Chief Executive of duties
inconsistent with the Chief Executive's position, authority, duties or
responsibilities as contemplated by Section 1 hereof;
(ii) any action taken by the Company which results in a
substantial reduction in the status of the Chief Executive, including a
diminution in his position, authority, title, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and/or inadvertent action
not taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Chief Executive;
(iii) the relocation of the Chief Executive to any other primary
place of employment which might require him to move his residence which, for
this purpose, includes any reassignment to a place of employment located more
than 50 miles from the Chief Executive's initially assigned place of employment,
without the Chief Executive's express written consent to such relocation; or
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(iv) any failure by the Company, or any successor entity
following a Change in Control, to comply substantially with the provisions of
Sections 3, 4 and 5 hereof or to honor any other term or provision of this
Agreement, other than an isolated, insubstantial or inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Chief Executive.
7. Obligations Upon Termination.
(a) Without Cause; Good Reason. Except as set forth in Sections 7(b)
and 7(c) below, if, during the term of this Agreement, the Company shall
terminate the Chief Executive's employment without Cause or the Chief Executive
shall terminate employment for Good Reason, the Company will pay to the Chief
Executive in a lump sum within thirty (30) days after the termination of
employment the sum of the Chief Executive's annual base salary through the date
of termination to the extent not theretofore paid and the balance of the Chief
Executive's annual base salary for a period of twenty-four (24) months from the
date of termination of employment and additional compensation equal to the
average of Chief Executive's bonus payments earned for the two fiscal years
prior to the date of the termination. In addition, the Company shall maintain in
full force and effect for the Chief Executive's continued benefit, until
twenty-four (24) months from the date of termination of employment, all health
and insurance plans and provided that the Chief Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. If the Company reasonably determines that maintaining such health
and insurance plans in full force and effect for the benefit of the Chief
Executive until twenty-four months from the date of termination of employment is
not feasible, the Company shall pay the Chief Executive
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a lump sum equal to the estimated cost of maintaining such plans for the Chief
Executive for twenty-four months. If Chief Executive dies during this 24 month
period, the Chief Executive's spouse and other dependents will continue to be
covered under all applicable plans during the remainder of the 24 month coverage
period. Thereafter, they will be eligible for COBRA continuation coverage. In
addition, any stock options which were due to vest within 90 days of the date of
termination will vest upon termination and may be exercised immediately. Chief
Executive shall have up to one year after the date of termination to exercise
all vested options.
(b) Non-Competition. Notwithstanding the foregoing, all such payments
and benefits under Section 7(a) otherwise continuing for periods after the Chief
Executive's termination of employment shall cease to be paid, and the Company
shall have no further obligation due with respect thereto, in the event the
Chief Executive engages in "Competition" or makes any "Unauthorized Disclosure
of Confidential Information." In addition, in exchange for the payments on
termination as provided herein, other provisions of this Agreement and other
valuable consideration hereby acknowledged, the Chief Executive agrees that he
will not engage in competition for a period of one (1) year after the Chief
Executive's employment with the Company ceases for any reason, including the
expiration or nonrenewal of this Agreement. For purposes hereof:
(i) "Competition" means the Chief Executive's engaging without
the written consent of the Board or a person authorized thereby, in an activity
as an officer, a director, an employee, a partner, a more than one percent
shareholder or other owner, an agent, a consultant, or in any other individual
or representative capacity in North America (unless the Chief Executive's
duties, responsibilities and activities, including supervisory activities, for
or on behalf of such activity, are not related in any way to such competitive
activity) if it involves:
(A) engaging in or entering into the power electronics
industry in which the Company is actively engaged at the time the Chief
Executive's employment ceases, or
(B) soliciting or contacting, either directly or indirectly,
any of the customers or clients of the Company for the purpose of competing with
the products or services provided by the Company.
(ii) "Unauthorized Disclosure of Confidential Information" means
the use or disclosure of information in violation of Section 8 of this
Agreement.
(iii) For purposes of this Agreement, "customers" or "clients" of
the Company means individuals or entities to whom the Company has provided power
electronics services at any time from the Effective Date through the date the
Chief Executive's employment with the Company ceases.
(iv) The Company and the Chief Executive acknowledge that the
power electronics industry is conducted on a worldwide basis with many of the
principal companies operating from multiple offices in the United States and
Canada with additional facilities in Mexico, and that a geographical limitation
would not be effective or fair to the Company. Accordingly, the Chief Executive
agrees that the territory within which he cannot engage in competition shall be
North America.
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(c) Death or Incapacity. If the Chief Executive's employment is
terminated by reason of death or incapacity in accordance with Section 6(a)
hereof, this Agreement shall terminate without further obligation to the Chief
Executive or his legal representatives under this Agreement except as otherwise
specified in Section 6(a).
(d) Cause; Other Than for Good Reason. If the Chief Executive's
employment shall be terminated for Cause, this Agreement shall terminate without
further obligation to the Chief Executive other than to pay to the Chief
Executive his annual base salary through the date of termination. If the Chief
Executive terminates his employment other than for Good Reason, this Agreement
shall terminate without further obligation to the Chief Executive.
(e) Remedies. The Chief Executive acknowledges that the restrictions
set forth in paragraph 7(b) of this Agreement are just, reasonable, and
necessary to protect the legitimate business interests of the Company. The Chief
Executive further acknowledges that if he breaches or threatens to breach any
provision of paragraph 7(b), the Company's remedies at law will be inadequate,
and the Company will be irreparably harmed. Accordingly, the Company shall be
entitled to an injunction, both preliminary and permanent, restraining the Chief
Executive from such breach or threatened breach, such injunctive relief not to
preclude the Company from pursuing all available legal and equitable remedies.
8. Confidentiality. The Chief Executive recognizes that as an employee of
the Company he will have access to and may participate in the origination of
non-public, proprietary and confidential information and that he owes a
fiduciary duty to the Company. Confidential information may include, but is not
limited to, trade secrets, customer lists and information, internal corporate
planning, methods of marketing and operation, and other data or information of
or concerning the Company or its customers that is not generally known to the
public or in the power electronics industry. The Chief Executive agrees that he
will never use or disclose to any third party any such confidential information,
either directly or indirectly, except as may be authorized in writing
specifically by the Company.
9. Change of Control.
(a) Notwithstanding any other term or provision of this Agreement, in
the event of a Change of Control as hereinafter defined, the Chief Executive may
choose either of the following two alternatives, if written notice of his choice
is given to the Company within 180 days of such Change of Control:
(i) the term of this Agreement as provided in Section 2 hereof
shall be deemed to have commenced on the occurrence of the Change of Control and
shall continue for two (2) consecutive years (24 months) or the balance of the
term of this Agreement, whichever is greater; or
(ii) the Chief Executive may terminate his employment from the
Company, terminate this Agreement, and receive the compensation and other
matters set forth in Section 7(a) for a termination for Good Reason. In such a
circumstance, any stock options which were due to vest within 90 days of the
date of termination will vest upon
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termination and may be exercised immediately. Chief Executive shall have up to
one year after the date of termination to exercise all vested options.
10. Change of Control Defined. For purposes of this Agreement, a "Change of
Control" shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act') of beneficial ownership (within the meaning of
Rule I 3d-3 under the Exchange Act), of securities of the Company representing
30% or more of the combined voting power of the then outstanding securities;
provided, however, that the following acquisitions shall not constitute a Change
of Control:
(i) acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege);
(ii) any acquisition by the Company;
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company; or
(iv) any acquisition pursuant to a reorganization, merger or
consolidation by any corporation owned or proposed to be owned, directly or
indirectly, by shareholders of the Company if the shareholders' ownership of
securities of the corporation resulting from such transaction constitutes a
majority of the ownership of securities of the resulting entity and at least a
majority of the members of the board of directors of the corporation resulting
from such transaction were members of the incumbent board as defined in this
Agreement at the time of the execution of the initial agreement providing for
such reorganization, merger or consolidation; or
(b) where individuals who, as of the Effective Date constitute the
Board of Directors of the Company (the "incumbent Board") cease for any reason
to constitute at least a majority of such board of directors; provided, however,
that any individual becoming a director subsequent to the effective date of this
Agreement whose election, or nomination for election by the shareholders was
approved by a vote of at least a majority of the directors then comprising the
Incumbent board shall be considered as though such individual were a member of
the incumbent board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-l 1 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than a
member of the board of directors; or
(c) the shareholders of the Company approve, or the Company otherwise
consummates,
(i) a merger, statutory share exchange, or consolidation of the
Company with any other corporation, except as provided in subparagraph a(iv) of
this section; provided however, that the approval by shareholders of the Company
or any of its predecessors of an agreement entered into on or before January 1,
2002 shall not constitute a Change of Control herein, or
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(ii) the sale or other disposition of all or substantially all of
the assets of the Company.
If a Change of Control occurs under this section (c), all stock options
previously granted but not yet vested will vest upon the Change of Control and
may be exercised immediately. Chief Executive shall have up to one year after
the Change of Control to exercise all vested options.
11. Gross-Up Payment. In the event any payment or distribution by the
Company to or for the benefit of the Chief 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 Section 11) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986 (the "Code") or any
interest or penalties are incurred by the Chief Executive with respect to such
excise tax (collectively, the "Excise Tax"), then the Chief Executive will be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Chief Executive of all taxes (including any
income taxes and interest or penalties imposed with respect to such taxes) and
the Excise Tax imposed on the Gross-Up Payment, the Chief Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payments.
All determinations required to be made under this Section, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment,
will be made by the independent accounting firm of the Company immediately prior
to the Chief Executive's termination of employment (the "Accounting Firm"). All
fees and expenses of the Accounting Firm will be borne solely by the Company,
and any determination by the Accounting Firm will be binding upon the Company
and the Chief Executive. Any Gross-Up Payment, as determined pursuant to this
Section, will be paid by the Company to the Chief Executive within 30 days of
the receipt of the Accounting Firm's determination.
(i) If the Accounting Firm determines that no Excise Tax is
payable by the Chief Executive, it shall so indicate to the Chief Executive in
writing.
(ii) In the event there is an under-payment of the Gross-Up
Payment due to the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm and the Chief
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm will determine the amount of any such under-payment that has
occurred and such amount will be promptly paid by the Company to or for the
benefit of the Chief Executive.
12. Fees and Expenses; Mitigation; Noncompetition.
(a) The Company will promptly pay or reimburse the Chief Executive for
all costs and expenses, including without limitation court costs and reasonable
attorneys' fees, incurred by the Chief Executive (i) in contesting or disputing
any termination of the Chief Executive's employment or (ii) in seeking to obtain
or enforce any right or benefit provided by this Agreement, in each case
regardless of whether or not the Chief Executive's claim is upheld by a court of
competent jurisdiction; provided, however, the Chief Executive will be required
to repay any such amounts to the Company to the extent that a court issues a
final and non-appealable order setting forth the determination that the position
taken by the Chief Executive was frivolous or advanced by him in bad faith.
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(b) The Chief Executive shall not be required to mitigate the amount
of any payment the Company becomes obligated to make to the Chief Executive in
connection with this Agreement, by seeking other employment or otherwise.
13. Documents. All documents, records, tapes and other media of any kind or
description relating to the business of the Company (the "Documents"), whether
or not prepared by the Chief Executive, shall be the sole and exclusive property
of the Company. The Documents shall be returned to the Company upon the Chief
Executive's termination of employment for any reason or at such earlier time or
times as the Board or its designee may specify.
14. Severability. If any provision of this Agreement, or part thereof, is
determined to be unenforceable for any reason whatsoever, it shall be severable
from the remainder of this Agreement and shall not invalidate or affect the
other provisions of this Agreement, which shall remain in full force and effect
and shall be enforceable according to their terms. No covenant shall be
dependent upon any other covenant or provision herein, each of which stands
independently.
15. Modification. The parties expressly agree that should a court find any
provision of this Agreement, or part thereof, to be unenforceable or
unreasonable, the court may modify the provision, or part thereof, in a manner
which renders that provision reasonable, enforceable, and in conformity with the
public policy of Colorado.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Colorado.
17. Notices. All written notices required by this Agreement shall be deemed
given when delivered personally or sent by registered or certified mail, return
receipt requested, to the parties at their addresses set forth below:
OnLine Power Supply, Inc.
0000 Xxxxx Xxxxx, # 000
Xxxxxxxxx, XX 00000
Attention: _______________
Xxxxx X. Xxxxxxxxx
0000 Xxxxxxx Xxxxxxx Xxxxx
Xxxxxxx, XX 00000
Each party may, from time to time, designate a different address to which
notices should be sent.
18. Amendment. This Agreement may not be varied, altered, modified or in
any way amended except by an instrument in writing executed by the parties
hereto or their legal representatives.
19. Binding Effect. This Agreement shall be binding on the Effective Date.
The Company will require any successor to all or substantially all of the
business and/or assets of the Company to assume expressly 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.
20. No Construction Against Any Party. This Agreement is the product of
informed negotiations between the Chief Executive and the Company. If any part
of this Agreement is deemed to be unclear or ambiguous, it shall be construed as
if it were drafted jointly by all parties. The Chief Executive and the Company
agree that neither party was in a superior bargaining position regarding the
substantive terms of this Agreement.
21. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the matters addressed herein and it supersedes all
other prior agreements and understandings, both written and oral, express or
implied, with respect to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written herein.
ONLINE POWER SUPPLY, INC.
By: /s/ Xxxx Xxxxxxxx
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Its: CEO
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XXXXX X. XXXXXXXXX
/s/ Xxxxx X. Xxxxxxxxx
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