OFFICER CONTINUITY AGREEMENT
EXHIBIT 10.1
This Officer Continuity Agreement (the “Agreement”) is made as of
(the “Effective Date”), by and between the individual named on the
signature page hereto (the “Employee”) and Energy Focus, Inc., a Delaware Corporation
(the “Company”).
A. The Board believes that it is in the best interests of the Company and its
shareholders to provide the Employee with an incentive to continue his employment with
the Company, and to do so without the Employee’s concern for the undue hardship that
may arise in the event of an Involuntary Termination (as defined below) without Cause
(defined below) of such employment.
B. Also, it is expected that another company or other entity may from time to time
consider the possibility of acquiring the Company or that a change in control may
otherwise occur, with or without the approval of the Company’s Board of Directors (the
“Board”). The Board recognizes that such consideration can be a distraction to the
Employee and can cause the Employee to consider alternative employment opportunities.
The Board has determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication and
objectivity of the Employee, notwithstanding the possibility, threat or occurrence of
a Change of Control (as defined below) of the Company.
C. The Board believes that it is imperative to provide the Employee with certain
benefits upon an Involuntary Termination of the Employee’s employment without Cause,
which benefits are intended to provide the Employee with financial security and
provide sufficient income and encouragement to the Employee to remain with the Company
notwithstanding the possibility of a Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors has directed
the Company, upon execution of this Agreement by the Employee, to agree to the terms
provided in this Agreement.
In consideration of the mutual covenants herein contained, and in consideration
of the continuing employment of Employee by the Company, the parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
Employee’s employment is and shall continue to be at-will, as defined under applicable
Ohio law.
2. Severance Benefits.
(a) Involuntary Termination. If the Employee’s employment is terminated as a
result of an Involuntary Termination by the Board of Directors that occurs within
three months before or two years following the Closing Date of a Change of Control, or
at any other time, during his employment as Chief Executive Officer, the Employee
shall be entitled to receive severance payments during the period from the date of the
Employee’s termination until the end of the Continuation Period. The Employee’s
severance payments shall be equal to the total cash compensation which the Employee
was receiving immediately prior to the Involuntary Termination and shall be paid
during the Continuation Period in accordance with the Company’s standard payroll
practices, subject to offset by the amount of any severance payments otherwise
required by Federal or state law. In addition, during the Continuation Period, the
Employee shall be entitled to reimbursement of the group health continuation coverage
premiums for the Employee and the Employee’s eligible dependents under Title X of the
Consolidated Budget Reconciliation Act of 1985, as amended (“COBRA”), provided that
the Employee will be solely responsible for electing such coverage within the required
time period. For the purposes of this Section 2(a), “total cash compensation” shall
mean, on a monthly basis, the total monthly salary then in effect for the Employee
immediately prior to the date of termination, plus the average monthly commission or
similar contingent compensation (excluding equity compensation) paid to the Employee
during the
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twelve full calendar months ending prior to the date of termination. It is
the intent of the parties that the
severance payments (including COBRA reimbursement) not be subject to Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, any unpaid
installments of the severance payments will be paid no later than the end of the year
in which the Employee terminates employment, or such later date as permitted under
Section 409A, if necessary in the good faith determination of the Company to prevent
the severance payments from being treated as deferred compensation subject to Section
409A. In addition, it is not the intent of the parties that payment under this
Agreement will constitute a “parachute payment” as defined in Section 280G of the
Code. Accordingly, all benefits and payments pursuant to this Agreement shall be
reduced, if necessary, to the largest aggregate amount that will result in no portion
thereof being subject to federal excise tax or being nondeductible to the Company or
its successor for federal income tax purposes under Sections 280G or 4999 of the Code.
(b) Other Termination. If the Employee’s employment with the Company
terminates by reason of death or disability, or under any other circumstances that are
not specifically described in Sections 2(a) or 2(c), then the Employee shall not be
entitled to receive any severance payments or other benefits under this Agreement.
(c) Voluntary Resignation during Window Period. If the Employee
voluntarily resigns within the 7 day period immediately following the twelve (12)
month anniversary date of the Closing Date of a Change of Control, and has not engaged
in conduct constituting a basis for termination for Cause, then the Employee will
receive the same severance payments and benefits described in Section 2(a) for an
Involuntary Termination.
(d) Release. The Employee’s entitlement to the severance payments and
other benefits under this Agreement is conditioned upon the Employee’s execution and
delivery (and non-revocation) of a general release of claims in a form that is
acceptable to the Company upon the Employee’s termination. At the Company’s option,
this release of claims may include non-compete, non-solicitation and/or non-disclosure
obligations during the Continuation Period (see 3 (c) below).
3. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Change of Control. “Change of Control” shall mean the occurrence of
any of the following events:
(i) Ownership. Any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly,
of securities of the Company representing a majority of the total voting power
represented by the Company’s then outstanding voting securities without the approval
of the Board of Directors of the Company; or
(ii) Merger/Sale of Assets. A merger or consolidation of the Company
whether or not approved by the Board of Directors of the Company, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the shareholders of the Company approve a plan of complete
liquidation of the Company, or the closing of a sale or disposition by the Company of
all or substantially all of the Company’s assets.
(iii) Change in Board Composition. A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority of the
directors are Incumbent Directors. “Incumbent Directors” shall mean directors who
either (A) are directors of the Company as of the date of this Agreement, or (B) are
elected, or nominated for election, to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at
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the time of
such election or nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating to the election
of directors to the Company).
(b) Cause. “Cause” shall mean (i) material breach of any material terms
of this Agreement, (ii) conviction of a felony, (iii) fraud, (iv) repeated unexplained
or unjustified absence, (v) willful breach of fiduciary duty under Ohio laws, this
Agreement or Company policies first in effect prior to the occurrence of a Change of
Control or (vi) gross negligence or willful misconduct where such gross negligence or
willful misconduct has resulted or is likely to result in substantial and material
damage to the Company or its subsidiaries.
(c) Continuation Period. “Continuation Period” shall mean the twelve
month period commencing on the date of the Employee’s termination.
(d) Involuntary Termination. “Involuntary Termination” means (1)
termination of the Employee’s employment by the Company without Cause, as defined
above in paragraph (b) or (2) the Employee’s voluntary termination, upon thirty (30)
days prior written notice to the Company, within thirty (30) days following (i) a
material reduction in job responsibilities inconsistent with the Employee’s position
with the Company and the Employee’s prior responsibilities or (ii) relocation to a
facility or location more than 50 miles from the Company’s current location, in either
case without the Employee’s written consent; provided that the Employee has not
engaged in conduct constituting a basis for termination for Cause.
(e) Closing Date of a Change of Control. “Closing Date” of a Change of
Control shall mean that date in which either of the events described in paragraph 3(a)
i, ii or iii become effective.
4. Retirement Benefit. If the Employee is employed by the Company on or
after his or her sixty-second (62nd) birthday, is not subject to an Involuntary
Termination, and is not subject to a voluntary resignation during a window period
pursuant to Section 2(c), and voluntarily terminates his or her employment, then the
Employee shall be entitled to a payment equal to one (1) month of salary for every
year of service with the Company, not to exceed twelve (12) years of service, which
amount shall be payable in a lump sum.
5. Successors. The Company shall require any (whether direct or indirect
purchaser, whether by lease, merger, consolidation, liquidation or otherwise) to all
or substantially all of the Company’s business and/or assets to assume the obligations
under this Agreement and agree expressly to perform the obligations under this
Agreement in the same manner and to the same extent as the Company would be required
to perform such obligations in the absence of a succession. The terms of this
Agreement and all of the Employees rights hereunder shall inure to the benefit of, and
be enforceable by, the Employee’s personal or legal representatives, executors,
administrator, successors, heirs, distributees, devisees and legatees.
6. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to the Employee shall be
addressed to the Employee at the home address, which the Employee most recently
communicated to the Company in writing. In the case of the Company, mailed notices
shall be addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.
7. Term of Agreement. Except for Section 4 which shall survive, the
terms of this Agreement shall terminate upon the earlier of (i) the date that all
obligations of the parties hereunder have been have satisfied or (ii) 3 years from the
Effective Date of this Agreement. A termination of the terms of this Agreement
pursuant to the preceding sentence shall be effective for all purposes, except that
such termination shall not affect the payment or provision of compensation or benefits
on account of a termination of employment occurring prior to the termination of the
terms of this Agreement.
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8. Miscellaneous Provisions.
(a) No duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that the Employee may
receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing and
signed by the Employee and by an authorized officer of the Company (other than the
Employee). No waiver by either party of any breach of, or of compliance with, any
condition or provision of this Agreement by the other party shall be considered a
waiver of any other condition or provision or of the same condition or provision at
another time.
(c) Entire Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly set
forth in this Agreement have been made or entered into by either party with respect to
the subject matter hereof. This Agreement supersedes any agreement concerning similar
subject matter dated prior to the date of this Agreement, including the existing
Management and Continuity Agreement, and by execution of this Agreement both parties
agree that any such predecessor agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of Ohio
without reference to conflict of laws rules. Each of the parties irrevocably submits
to the exclusive jurisdiction of the Cuyahoga County Court of Common Pleas, State of
Ohio, for the purposes of any suit, action, or other proceeding arising out of this
agreement.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any extent,
be invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without invalidating
or rendering unenforceable the remaining terms and provisions of this Agreement or the
application of such terms and provisions to circumstances other than those as to which
it is held invalid or unenforceable, and a suitable and equitable term or provision
shall be substituted therefor to carry out, insofar as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled at the option of either party by binding
arbitration in Cuyahoga County, in accordance with the rules of the American
Arbitration Association then in effect. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with this Agreement.
(h) No Assignment of Benefits. The rights of any person to payment or
benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor’s process,
and any action in violation of this subsection (h) shall be void.
(i) Employment Taxes. All payments made pursuant to this Agreement will
be subject to withholding of applicable income and employment taxes.
(j) Assignment by Company. The Company may not assign its rights or
obligations under this Agreement.
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(k) Section 409A. This Agreement is intended to comply with the requirements
of Section 409A of the Code (to the extent applicable). Benefits under this Agreement
otherwise payable upon termination of
employment may be subject to Section 409A which, if applicable, could require a delay
in the payment of such benefits for a period of at least six (6) months following
separation from service. Should the Company in good faith determine that any such
benefits to be provided to the Employee pursuant to this Agreement are subject to
Section 409A, the Company may delay the payment of such benefits for at least six (6)
months (or such other period as may be applicable), after first notifying the Employee
of its intention to do so.
(l) Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
(signatures appear on following page)
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Each of the parties has executed this Agreement, in the case of the Company by
its duly authorized officer, as of the day and year first above written.
| ENERGY FOCUS, INC. | Employee: | |||||||||
By: |
||||||||||
| Signature | ||||||||||
| Title: | ||||||||||
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