Exhibit 10.31
Change of Control Termination Agreement
This Change of Control Termination Agreement (the "Agreement") is entered into
on September 14, 1998, between PARADIGM MEDICAL INDUSTRIES, INC. a Delaware
corporation, with its principal place of business located at 0000 Xxxx 0000
Xxxxx, Xxxx Xxxx Xxxx, Xxxx referred to as the Corporation, and Xxxxxx X.
Xxxxxx.
Recitals
A. The Corporation considers it essential to the best interests of its
stockholders to xxxxxx the continuous employment of key management personnel. In
this connection, the Board of Directors of the Corporation (the "Board")
recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control may exist. This possibility, and the
uncertainty and questions that it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the
Corporation and its stockholders.
B. The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Corporation's management, including yourself, to the assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Corporation.
C. To induce you to remain in the employ of the Corporation, a member of the
Executive Committee, and in consideration of your agreement set forth below, the
Corporation agrees that you shall receive the severance benefits set forth in
this Agreement in the event your employment with the Corporation is terminated
subsequent to a '.change in control of the Corporation" (as defined in Section 2
below) under the circumstances described below. This Agreement is meant to
supersede any other specific written agreements that may have been entered into
between yourself and the Corporation concerning termination of employment.
Therefore, in consideration of your continued employment and the parties'
agreement to be bound by the terms contained in this Agreement, the parties
agree as follows:
1. Term of Agreement. This Agreement shall commence on January 1, 1998 and
shall continue in effect through December 31, 2002. However, commencing on
December 31, 2002 , and each December 31 afterwards, the term of this Agreement
shall automatically be extended for 1 additional year unless, no later than the
preceding November 1, the Corporation shall have given notice that it does not
wish to extend this Agreement. If a change in control of the Corporation shall
have occurred during the original or any extended term of this Agreement, this
Agreement shall continue in effect for a period of 12 months beyond the month in
which the change in control occurred. Notwithstanding the foregoing, and
provided no change of control shall have occurred, this Agreement shall
automatically terminate on the earlier to occur of (i) your termination of
employment with the Corporation, or (ii) the Corporation's furnishing you with
notice of termination, irrespective of the effective date of the termination.
2. Change in Control. No benefits shall be payable under this Agreement unless
there shall have been a change in control of the Corporation, as set forth
below. For purposes of this Agreement, a "change in control of the Corporation"
shall mean a change of control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
the Corporation is in fact required to comply with that regulation, provided
that, without limitation, such a change in control shall be deemed to have
occurred if (A) any "person" (as that term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or a corporation owned,
directly or indirectly, by the stockholders of the Corporation in substantially
the same proportions as their ownership of stock of the Corporation, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing
thirty percent (30%) or more of the combined voting power of the Corporation's
then out-standing securities; or (B) during any period of 2 consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of the period constitute the Board and any new director
(other than a director designated by a person who has entered into an agreement
with the Corporation to effect a transaction described in clauses (A) or (D) of
this Section) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority; (C) the Corporation enters into
an agreement, the consummation of which would result in the occurrence of a
change in control of the Corporation; (D) the Board eliminates or otherwise
reduces the authority, duties and/or responsibilities of the Executive Committee
which is ultimately responsible for operation of the company on a day to day
basis; or (E) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a merger
or consolidation that would result in the voting securities of the Corporation
outstanding immediately prior to it continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least thirty percent (30%) of the combined voting power of the voting
securities of the Corporation or such surviving entity outstanding immediately
after the merger or consolidation, or the stockholders of the Corporation
approve a plan of complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation of all or substantially all of the
Corporation's assets.
3. Termination Following Change in Control. If any of the events described
in Section 2 above constituting a change in control of the Corporation shall
have occurred, you shall be entitled to the benefits provided in Subsection
4(iii) below on the subsequent termination of your employment during the term
of this Agreement, unless the termination is (A) because of your death,
Disability or Retirement, (B) by the Corporation for Cause, or (C) by you
other than for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due physical
or mental illness, you shall have been absent from the full-time performance
of your duties with the Corporation for 6 consecutive months, and within
thirty (30) days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability"' Termination by the Corporation or you of your
employment based on "Retirement" shall mean termination in accordance with the
Corporation's retirement policy, including early retirement, generally
applicable to its salaried employees or in accordance with any retirement
arrangement established with your consent with respect to you.
(ii) Cause. Termination by the Corporation of your employment for "Cause"
shall mean termination on (A) the willful and continued failure by you to
substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness or
any such actual or anticipated failure after the issuance by you of a Notice
of Termination for Good Reason as defined in Subsections 3(iv) and 3(iii),
respectively) after a written demand for substantial performance is delivered
to you by the Board, which demand specifically identifies the manner in which
the Board believes that you have not substantially performed your duties; or
(B) the willful engaging by you in conduct that is demonstrably and materially
injurious to the Corporation, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith and without a
reasonable belief that your action or omission was in the best interest of the
Corporation. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less
than three-quarters of the entire membership of the Board at a meeting of the
Board called and hold for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
conduct set forth above in clauses (A) or (B) of the first sentence of this
Subsection and specifying the particulars in detail.
(iii) Good Reason. You shall be entitled to terminate your employment for
Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without
your express written consent, the occurrence after a change in control of the
Corporation of any of the following circumstances unless, in the case of
paragraphs (A), (E), (F), (G), or (H), the circumstances are fully corrected
prior to the Date of Termination specified in the Notice of Termination, as
defined in Subsections 3(v) and 3(iv), respectively, given in respect of them:
(A),the assignment to you of any duties inconsistent with your status and
position as it exists immediately prior to the change in control of the
Corporation or a substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the change in control
of the Corporation;
(B) a reduction by the Corporation in your annual base salary as in effect on
this date or as the same may be increased from time to time except for
across-the-board salary reductions similarly affecting all key employees of the
Corporation and all key employees of any person in control of the Corporation;
(C) your relocation to a location not within twenty-five [25] miles of your
present office or job location, except for required travel on the Corporation's
business to an extent substantially consistent with your present business travel
obligations;
(D) the failure by the Corporation, without your consent, to pay to you any
part of your current compensation, or to pay to you any part of an installment
of deferred compensation under any deferred compensation program of the
Corporation, within seven [7] days of the date the compensation is due;
(E) the failure by the Corporation to continue in effect any bonus to which
you were entitled, or any compensation plan in which you participate immediately
prior to the change in control of the Corporation that is material to your total
compensation, including but not limited to the Corporation's 1995 Stock Option
Plans, 401 (K) Pre-Tax Retirement Savings Plan, and Flexible Benefit Plan, or
any substitute plans adopted prior to the change of control in the Corporation,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to the plan, or the failure by the
Corporation to continue your participation in it (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the ' level of your participation relative to
other participants, as existed at the time of the change in control;
(F) the failure by the Corporation to continue to provide you with benefits
substantially similar to those enjoyed by you under any of the Corporation's
life insurance, medical, health and accident, or disability plans in which you
were participating at the time of the change in control of the Corporation, the
failure to continue to provide you with a Corporation automobile or allowance in
lieu of it, if you were provided with such an automobile or an allowance in lieu
of it at the time of the change of control of the Corporation, the taking of any
action by the Corporation that would directly or indirectly materially reduce
any of such benefits or deprive you of any material fringe benefit enjoyed by
you at the time of the change in control of the Corporation, or the failure by
the Corporation to provide you with the number of paid vacation days to which
you are entitled on the basis of years of service with the Corporation in
accordance with the Corporation's normal vacation policy in effect at the time
of the change in control of the Corporation;
(G) the failure of the Corporation to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as contemplated in
Section 5 of this Agreement; or
(H) any purported termination of your employment that is not effected pursuant
to a Notice of Termination satisfying the requirements of Subsection (iv) below
(and, if applicable, the requirements of Subsection (II) above); for purposes of
this Agreement, no such purported termination shall be effective.
Your rights to terminate your employment pursuant to this Subsection shall
not be affected by your incapacity due to physical or mental illness. Your
continued employment shall not constitute consent to, or a waiver of rights
with, respect to, any circumstance constituting Good Reason under this
Agreement. In the event you deliver Notice of Termination based on circumstances
set forth in Paragraphs (A), (E), (F), (G), or (H) above, which are fully
corrected prior to the Date of Termination set forth in your Notice of
Termination, the Notice of Termination shall be deemed withdrawn and of no
further force or effect.
(iv) Notice of Termination. Any purported termination of your employment by
the Corporation or by you shall be communicated by written Notice of
Termination to the other party to this Agreement in accordance with Section 6 of
this Agreement. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision in this
Agreement relied on, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your
employment is terminated for Disability, thirty [30] days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such thirty [30]-day period), and (B) if your
employment is terminated pursuant to Subsection (ii) or (iii) 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 (ii)
above shall not be less than thirty [30] days, and in the case of a termination
pursuant to Subsection (iii) above shall not be less than fifteen [15] nor more
than sixty [60] days, respectively, from the date the Notice of Termination is
given). However, if within fifteen [I 5] days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as determined without
regard to this provision), the party receiving the Notice of Termination
notifies the other party that a dispute exists concerning the termination, then
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order, or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal has expired and no appeal has been perfected). The Date of
Termination shall be extended by a notice of dispute only if the notice is given
in good faith and the party giving the notice pursues the resolution of the
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Corporation will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit, and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement except to the
extent otherwise provided in subsection 4(iv).
4. Compensation on Termination or During Disability. Following a change in
control of the Corporation, as defined by Section 2, on termination of your
employment or during a period of disability you shall be entitled to the
following benefits:
(i) During any period that you fail to perform your full-time duties with the
Corporation as a result of incapacity due to physical or mental illness, you
shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all amounts payable to you under
any compensation plan of the Corporation during the period, until this Agreement
is terminated pursuant to Section 3(i) above. Thereafter, or in the event your
employment shall be terminated by the Corporation or by you for Retirement, or
by reason of your death, your benefits shall be determined under the
Corporation's retirement, insurance, and other compensation programs then in
effect in accordance with the terms of those programs.
(ii) If your employment shall be terminated by the Corporation for Cause or by
you other than for Good Reason, Disability, death, or Retirement, the
Corporation shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which you are entitled under any compensation plan of
the Corporation at the time the payments are due. The Corporation shall have no
obligations to you under this Agreement.
(iii) If your employment by the Corporation shall be terminated (a) by the
Corporation other than for Cause, Retirement or Disability, or (b) by you for
Good Reason, then you shall be entitled to the benefits provided below:
(A) The Corporation shall pay you your full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
plus all other amounts and benefits to which you are entitled under any
compensation plan of the Corporation, at the time the payments are due, except
as otherwise provided below.
(B) In lieu of any further salary payments to you for periods subsequent to
the Date of Termination, the Corporation shall pay as severance pay to you a
lump sum severance payment together with the payments provided in paragraphs C
and D, below, the "Severance Payments") equal to 2.99 times the sum of your
annual base salary in effect immediately prior to the occurrence of the
circumstance giving rise to the Notice of Termination given in respect of them.
(C) The Corporation shall pay to you any deferred compensation, including, but
not limited to deferred bonuses, allocated or credited to you or your account as
of the Date of Termination.
(D) In lieu of shares of common stock of the Corporation (the "Corporation's
Shares") issuable on the exercise of outstanding options ("Options"), if any,
granted to you under the Corporation's Stock Option Plans (which Options shall
be canceled on the making of the payment referred to below), you shall receive
an amount in cash equal to the product of (i) the excess of the closing price of
the Corporation's Shares as reported on the NASDAQ-NMS Automatic Quotation
System on or nearest the Date of Termination (or, if not so reported, on the
basis of the average of the lowest asked and highest bid prices on or nearest
the Date of Termination), over the per share exercise price of each Option held
by you (whether or not then fully exercisable) plus the amount of any applicable
cash appreciation rights, times (ii) the number of the Corporation's Shares
covered by each such Option.
(E) The Corporation shall also pay to you all legal fees and expenses incurred
by you as a result of the termination (including all such fees and expenses
incurred by you as a result of the termination (including all such fees and
expenses, if any, incurred in contesting or disputing any termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement or
in connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") to any payment or benefit provided under this Agreement)).
(F) The payments provided for in Paragraphs (B), (C), and (D) above, shall be
made no later than the fifth day following the Date of Termination. However, if
the amounts of the payments cannot be finally determined on or before that day,
the Corporation shall pay to you on that day an estimate, as determined in good
faith by the Corporation, of the minimum amount of such payments and shall pay
the remainder of those payments (together with interest at the rate provided in
Section 12747(b)(2)(B) of the Code) as soon as the amount can be determined but
in no event later than the thirtieth [30th] day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, the excess shall constitute a loan by
the Corporation to you payable on the fifth [5thl day after demand by the
Corporation (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(iv) In the event that you are a "disqualified individual" within the meaning
of Section 28OG of the Code, the parties expressly agree that the payments
described in this Section 4 and all other payments to you under any other
agreements or arrangements with any persons that constitute "parachute payments"
within the meaning of Section 28OG of the Code are collectively subject to an
overall maximum limit. The maximum limit shall be [One] Dollar ($1 .00) less
than the aggregate amount that would otherwise cause any such payments to be
considered a "parachute payment" within the meaning of Section 28OG of the Code,
as determined by the Corporation. Accordingly, to the extent that the payments
would be considered a "parachute payment" with respect to you, then the portions
of such payments shall be reduced or eliminated in the following order until the
remaining change of control termination payments with respect to you is within
the maximum described in this Subsection (iv):
(A) First, any cash payment to you;
(B) Second, any change of control termination payments not described in this
Agreement; and
(C) Third, any forgiveness of indebtedness of yours to the Corporation.
You expressly and irrevocably waive any and all rights to receive any change
of control termination payments that exceed the maximum limit described in this
Subsection (iv).
(v) You 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 you as the result of employment by another employer,
by retirement benefits, by offset against any amount claimed to be owed by you
to the Corporation, or otherwise except as specifically provided in this Section
4.
(vi) In addition to all other amounts payable to you under this Section 4, you
shall be entitled to receive all benefits payable to you under the Corporation's
401 (K) Pre-Tax Retirement Savings Plan and any other plan or agreement relating
to retirement benefits.
5. Successors; Binding Agreement. (i) The Corporation 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
Corporation to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. Failure of the Corporation to obtain
the assumption and agreement prior to the effectiveness of any succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Corporation in the same amount and on the same terms as you would have been
entitled to under this Agreement if you had terminated your employment for Good
Reason following a change in control of the Corporation, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Corporation" shall mean the Corporation as defined above and any
successor to its business and/or assets that assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, heirs,
distributees, and legatees. If you should die while any amount would still be
payable to you if you had continued to live, all such amounts, unless otherwise
provided in this Agreement, shall be paid in accordance with the terms of this
Agreement to your legatee or other designee or, if there is no such designee, to
your estate.
6. Notice. For the purpose of this Agreement, all notices and 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 prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Corporation shall be directed to the
attention of the Board with a copy to the Secretary of the Corporation, or to
such other address as either party may have furnished to the other in writing in
accordance this Agreement, except that notice of a change of address shall be
effective only on receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party to this Agreement at any time of any breach by
the other party 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
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this Agreement have been made by
either party that are not expressly set forth in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of Utah. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for shall be paid net of any applicable
withholding or deduction required under federal, state, or local law. The
obligations of the Corporation under Section 4 shall survive the expiration of
the term of this Agreement.
8. Validity. The invalidity or enforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Salt Lake
City, Utah in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. However, you shall be entitled to seek specific performance
of your right to be paid until the Date of Termination during the pendency of
any dispute or controversy arising under or in connection this Agreement.
11. Entire Agreement. This Agreement sets forth the entire understanding of the
parties with respect to its subject matter and supersedes all prior written or
oral agreements or understandings with respect to the subject matter.
In witness whereof, the parties have executed this agreement at Salt Lake City,
Utah the day and year first above written.
EMPLOYEE:
Xxxxxx X. Xxxxxx
_______________________
Xxxxxx X. Xxxxxx
THE COMPANY:
PARADIGM MEDICAL INDUSTRIES, INC.
Delaware corporation
Xxxxxxx X. Xxxxxxx
_______________________
by: Xxxxxxx X. Xxxxxxx
Title: Vice President of Operations,
Secretary, and Chief Operations Officer
