SM&A Executive Retention Agreement
EXHIBIT 10.6
SM&A
THIS EXECUTIVE RETENTION AGREEMENT (this “Agreement”) by and between SM&A, a Delaware
corporation (the “Company”), and Xxxxxx Xxxx (the
“Executive”) is made as of August 25, 2008 (the
“Effective Date”).
WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the
possibility of a change in control of the Company exists and that such possibility, and the
uncertainty and questions which it may raise among key personnel, may result in the departure or
distraction of key personnel to the detriment of the Company and its stockholders;
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that appropriate
steps should be taken to reinforce and encourage the continued employment and dedication of the
Company’s key personnel without distraction from the possibility of a change in control of the
Company and related events and circumstances; and
WHEREAS, the Executive entered into that certain Proprietary Information and Invention
Assignment Agreement dated, February 22, 2004 (“Proprietary Information Agreement”), which shall
continue in full force and effect.
NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its
employ, the Company agrees that the Executive shall receive the severance benefits set forth in
this Agreement in the event the Executive’s employment with the Company is terminated under the
circumstances described below.
1. Term of Agreement. This Agreement, and all rights and obligations of the parties
hereunder, shall take effect upon the Effective Date and shall expire upon: (a) the date
twenty-four (24) months after the Change in Control Date (as such term is defined below), if the
Executive is still employed by the Company after such later date, (b) the fulfillment by the
Company of all of its obligations under this Agreement if the Executive’s employment with the
Company terminates within twenty-four (24) months after the Change in Control Date, or (c) the
termination of the Executive’s employment with the Company if a Change in Control (as such term is
defined below) did not occur prior to the date of such termination (the “Term”).
2. Benefits to the Executive.
2.1 The effect of a Change in Control (as defined below) on any of the Executive’s stock
options, restricted stock awards or other equity awards shall be determined in accordance with the
terms of such options or awards and shall not be affected by this Agreement.
2.2 If a Change in Control occurs and if the Executive’s employment with the Company
terminates within twenty-four (24) months after the Change in Control Date, then the Executive
shall be entitled to the following benefits:
(a) Termination Without Cause Or For Good Reason. The Executive’s employment with the
Company may be terminated at any time by the Company without Cause (as defined below) by giving the
Executive thirty (30) days’ advance written notice of such termination, or by the Executive for
Good Reason (as defined below) by giving the Company thirty (30) days’ advance written notice of
such termination; provided, however, that no condition shall constitute Good Reason unless the
Executive provides notice of such condition to the Company within ninety (90) days of its initial
existence, and the Company fails to remedy the condition within thirty (30) days of its receipt of
such notice; and provided, further, that the Executive terminates employment with the Company
within two (2) years following the initial existence of the Good Reason condition. In the event of
a termination pursuant to this Section 2.2(a), the Company shall pay to the Executive the following
amounts:
(1) On the effective date of the Executive’s termination (the “Date of Termination”), the sum
of (A) the Executive’s base salary through the Date of Termination, (B) any earned but unpaid bonus
amounts with respect to periods ending prior to the Date of Termination to which the Executive is
entitled, and (C) any accrued but unused paid time off through the Date of Termination (the
“Accrued Obligations”); and
(2) on a monthly basis, in accordance with the Company’s standard practice prior to the Date
of Termination, for a period of twelve (12) months following the Date of Termination, an amount
equal to the sum of (A) one-twelfth of the Executive’s highest average annual base salary with the
Company during the three-year period prior to the Change in Control Date and (B) one-twelfth of the
Executive’s highest annual target bonus amount with the Company during the three-year period prior
to the Change in Control Date;
(3) provided the Executive is eligible to make, and makes, a timely election for continuation
coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”)
under any group health plan of the Company, continuation of coverage in effect for the Executive at
the Date of Termination shall be provided under such plans of the Company, without a premium charge
or cost to the Executive for the twelve (12) month period commencing after the Date of Termination,
or, if earlier, until the date the Executive is no longer eligible for COBRA (whether because the
Executive is covered by a new employer’s group health plan or otherwise). After the expiration of
the period set forth in the prior sentence concludes, the Executive shall be responsible for the
payment of all further premiums attributable to COBRA continuation coverage at the same rate as the
Company charges all COBRA beneficiaries. The Executive agrees to notify the Company immediately if
the Executive becomes covered by another group health plan.
(4) The Executive shall only be entitled to the severance and the COBRA payments (if
applicable) under Section 2.2(a)(2)-(3) of this Agreement if (A) the Executive executes (and then
the Executive does not rescind, as may be permitted by law) a general release of all claims against
the Company and its affiliates in the form required by the
Company and (B) the Executive continues to comply with the Executive’s continuing obligations
under the Proprietary Information Agreement. The Company shall pay the Executive the severance
payments and commence payments of the reimbursements described in Sections 2.2(a)(2)-(3) on the
first regular payroll period following the effective date of the general release as set forth in
the general release.
(b) Termination for Cause. The Company may terminate Executive’s employment for Cause
at any time effective immediately upon written notice. Except for the payment of the Accrued
Obligations (or as otherwise required by law), upon termination for Cause the Company shall have no
further obligation to the Executive under this Agreement by way of compensation or otherwise.
(c) Resignation without Good Reason. The Executive may terminate [his/her] employment
without Good Reason at any time by giving the Company thirty (30) days’ advance written notice of
such termination. Except for the payment of the Accrued Obligations (or as otherwise required by
law), upon such termination without Good Reason the Company shall have no further obligation to the
Executive under this Agreement by way of compensation or otherwise.
(d) Death. The Executive’s employment will terminate immediately upon the Executive’s
death. Except for payment of the Accrued Obligations (or as otherwise required by law), upon
termination for death, the Company shall have no further obligation to the Executive’s heirs,
legatees or estate under this Agreement by way of compensation or otherwise.
(e) Disability. The Company may terminate the Executive’s employment at any time upon
the Executive’s Disability (as defined below) by giving the Executive thirty (30) days’ advance
written notice of such termination. Except for payment of the Accrued Obligations (or as otherwise
required by law), upon termination for Disability the Company shall have no further obligation to
the Executive under this Agreement by way of compensation or otherwise.
(f) Continuing Obligations. Upon the Executive’s termination for any reason set forth
in this Section 2 (except death), the Executive shall continue to be bound by the Executive’s
continuing obligations set forth in the Proprietary Information Agreement, which agreement shall
continue in full force and effect.
(g) Mitigation. The Executive shall not be required to mitigate the amount of any
payment or benefits provided for in this Section 2 by seeking other employment or otherwise. The
amount of any payment or benefits provided for in this Section 2 shall not be reduced by any
compensation earned by the Executive as a result of employment by another employer or self
employment, by retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
3. Key Definitions.
As used herein, the following terms shall have the following respective meanings:
3.1 “Cause” means:
(a) repeated refusal or repeated failure to carry out any reasonable direction from the
Company or its Board;
(b) a material breach of the terms or conditions of the Executive’s employment;
(c) demonstrated gross negligence or misconduct in the execution of the Executive’s assigned
duties;
(d) habitual non-performance or incompetent performance of the Executive’s duties and
responsibilities;
(e) a conviction for a felony or other serious crime involving moral turpitude;
(f) engaging in fraud, embezzlement or other illegal conduct;
(g) a violation of the Executive’s Proprietary Information Agreement; or
(h) a material violation of any written policy or procedure of the Company, including ethics
guidelines adopted from time to time by the Board.
3.2 “Change in Control” means an event or occurrence set forth in any one or more of
subsections (a) through (c) below (including an event or occurrence that constitutes a Change in
Control under one of such subsections but is specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”)
of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more
of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company
Common Stock”) or (ii) the combined voting power of the then-outstanding securities of the Company
entitled to vote generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (w) any acquisition directly from the
Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for common stock or voting securities of the
Company, unless the Person exercising, converting or exchanging such security acquired such
security directly from the Company or an underwriter or agent of the Company); (x) any acquisition
by the Company in which all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such acquisition beneficially own, directly or indirectly, more than 50% of
the
then-outstanding shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such acquisition (which shall include, without limitation, a
corporation which as a result of such transaction owns the Company or substantially all of the
Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the “Acquiring Corporation”) in substantially the same
proportions as their ownership, immediately prior to such acquisition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, respectively; (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or (z) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i) and (ii) of subsection (c) of this Section 3.2; or
(b) the consummation of a merger, consolidation, reorganization, recapitalization or share
exchange involving the Company or a sale or other disposition of all or substantially all of the
assets of the Company in one or a series of transactions (a “Business Combination”), unless,
immediately following such Business Combination, each of the following two conditions is satisfied:
(i) all or substantially all of the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than 50% of the
then-outstanding shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include, without limitation, a
corporation which as a result of such transaction owns the Company or substantially all of the
Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the “Acquiring Corporation”) in substantially the same
proportions as their ownership, immediately prior to such Business Combination, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or
sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or
indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors (except to the extent that such ownership
existed prior to the Business Combination); or
(c) approval by the stockholders of the Company of a complete liquidation or dissolution of
the Company.
3.3 “Change in Control Date” means the first date during the Term on which a Change in
Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in
Control occurs, (b) the Executive’s employment with the Company is terminated prior to the date on
which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who had then taken steps
reasonably calculated to effect a future Change in Control or (ii) otherwise arose in connection
with or in anticipation of a future Change in Control, then for all purposes of this
Agreement, the “Change in Control Date” shall mean the date immediately prior to the date of
such termination of employment.
3.4 “Disability” means the Executive’s inability to perform the essential functions of
[his/her] job duties or responsibilities, either with or without reasonable accommodation, due to
sickness, physical or mental impairment or injury for a period of six (6) consecutive months or for
nine (9) months in any consecutive twelve (12) month period, subject to applicable law. In the
event the Executive disputes the Company’s determination that the Executive suffers from a
Disability, the Executive shall give written notice of such dispute to the Company during the
thirty (30) day notice period prior to the proposed effective date of such termination, and the
Executive and the Company shall thereupon each select, within thirty (30) days of such notice from
the Executive, a physician to evaluate whether the Executive suffers from a Disability. Such
physicians shall complete their evaluation and report to the Board within thirty (30) days. If
such physicians do not agree as to whether the Executive suffers from a Disability, they shall
promptly select a third physician to further evaluate the Executive, whose conclusion on such
matter shall be rendered within ten (10) days of their selection, and shall be final and binding on
the Executive and the Company.
3.5 “Good Reason” shall mean any of the following conditions:
(a) a material diminution in the Executive’s base salary;
(b) a material diminution in the Executive’s authority, duties, or responsibilities;
(c) a material diminution in the authority, duties, or responsibilities of the supervisor to
whom the Executive is required to report, including a requirement that the Executive report to a
corporate officer or employee instead of reporting directly to the Board; or
(d) a material change in the geographic location at which the Executive must perform the
services.
4. Taxes.
4.1 Notwithstanding any other provision of this Agreement, except as set forth in Section 4.3,
in the event the Company determines, based upon the advice of the independent public accountants
for the Company, that any payment or benefit to the Executive or for the Executive’s other benefit
paid or payable or distributed or distributable pursuant to the terms of this Agreement or
otherwise would individually or together with any other such payment or benefit constitute
“parachute payments” under Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
“Code”), then the Company shall not be obligated to provide to the Executive a portion of any
parachute payments provided under this Agreement that constitute “excess parachute payments” under
Section 280G(b)(1) of the Code otherwise payable to the Executive. For purposes of this Section 4,
any “excess parachute payments” so eliminated shall be referred to as the “Eliminated Payments” and
the aggregate amount of such “Eliminated Payments” shall be referred to as the “Eliminated Amount.”
4.2 Notwithstanding any other provision of this Agreement, no such reduction in “excess
parachute payments” shall be made if the Eliminated Amount (computed without regard to this
sentence) exceeds 110% of the aggregate present value (determined in accordance with Section 280G
of the Code and the applicable regulations thereunder) of the amount of any additional taxes that
would be incurred by the Executive if the Eliminated Payments (determined without regard to this
sentence) were paid to [him/ her] (including, state and federal income taxes on the Eliminated
Payments, the excise tax imposed by Section 4999 of the Code payable with respect to all of the
“parachute payments” in excess of the Executive’s “base amount” (within the meaning of Section
280G(b)(3) of the Code), and any withholding taxes). The override of such reduction in “excess
parachute payments” pursuant to this Section 4.2 shall be referred to as a “Section 4.2 Override.”
For purpose of this Section, if any federal or state income taxes would be attributable to the
receipt of any Eliminated Payment, the amount of such taxes shall be computed by multiplying the
amount of the Eliminated Payment by the maximum combined federal and state income tax rate provided
by law.
4.3 As soon as reasonably practicable after the date on which the Executive first becomes
entitled under this Agreement to receive (whether or not then due) a “parachute payment” as a
result of a termination of employment after a Change in Control Date, the Company shall determine
and notify the Executive (with reasonable detail regarding the basis for its determinations) (a)
which “parachute payments” constitute “excess parachute payments” within the meaning of Section
280G of the Code, (b) the Eliminated Amount, and (c) whether the Section 4.2 Override is
applicable. If there is an Eliminated Amount, the independent public accountants for the Company
shall determine which consideration, compensation or benefits shall be eliminated or reduced in
accordance with this Section 4.3 and to what extent they shall be so eliminated or reduced, in such
manner that the Executive shall retain, after such elimination or reduction, the maximum after-tax
benefit.
4.4 409A.
(a) The Company and the Executive intend that this Agreement will be administered in
accordance with Section 409A of the Code, and the rules and regulations promulgated thereunder
(“Section 409A”).
(b) The Executive hereby acknowledges that he has been advised to seek and has sought the
advice of a tax advisor with respect to the tax consequences to the Executive for all payments
pursuant to this Agreement, including any adverse tax consequences or penalty taxes under Section
409A and applicable State tax law. The Executive hereby agrees to bear the entire risk of any such
adverse federal and State tax consequences and penalty taxes in the event any payment pursuant to
this Agreement is deemed to be subject to Section 409A, and that no representations have been make
to the Executive relating to the tax treatment of any payment pursuant to this Agreement under
Section 409A and the corresponding provisions of any applicable State income tax laws (including,
without limitation, California income tax laws).
(c) The Company and the Executive agree that, for purposes of applying Section 409A, the
Executive’s right to each severance payment in accordance with the Company’s then current payroll
practices and to the Company’s payment of monthly premium
payments for COBRA continuation coverage premiums to or on behalf of the Executive under this
Agreement shall be treated as a right to a series of separate payments.
(d) If the Executive is a “specified employee” in accordance with Section 409A, as determined
by the Compensation Committee of the Board in its sole discretion, as of the date of the
Executive’s “separation from service,” as defined in Section 409A, and if any payments or
entitlements provided for in this Agreement on account of the Executive’s separation from service
constitute a “deferral of compensation” within the meaning of Section 409A and cannot be paid or
provided in the manner provided herein without subjecting the Executive to additional tax, interest
or penalties under Section 409A, then no such payment or benefit shall be paid or provided to the
Executive prior to the first business day of the seventh calendar month immediately following the
month in which the Executive’s separation from service occurs or, if earlier, the Executive’s
death, at which time all such deferred payments shall be paid in a lump sum, without interest.
(e) Notwithstanding anything in this Section 4.4 to the contrary, the six (6) month delay of
payments shall not apply to (i) any severance or other payments or benefits that become due and
payable during the period commencing with the Date of Termination and ending on March 15 of the
succeeding calendar year and which qualify as “short-term deferral payments” under Section 409A,
and (ii) any remaining severance or other payments or benefits provided after the Executive’s
separation from service to the extent (A) that the dollar amount of such payments does not exceed
two (2) times the lesser of (x) the Executive’s annualized compensation (based on his or her annual
rate of pay for the calendar year preceding the calendar year in which the separation from service
occurred, adjusted to reflect any increase during such calendar year which was expected to continue
indefinitely had the Executive’s separation from service not occurred) or (y) the maximum amount of
compensation that may be taken into account under a qualified plan pursuant to Section 401(a)(17)
of the Code for the calendar year in which the separation from service occurred, and (B) such
severance or other payments are made to the Executive no later than the last day of the second
calendar year following the calendar year in which the separation from service of the Executive
occurs.
5. Miscellaneous Provisions.
5.1 Severability. In the event that any of the provisions of this Agreement shall be
held to be invalid or unenforceable, then all other provisions shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable parts had not been included in this
Agreement. In the event that any provision relating to the time period of any restriction imposed
by this Agreement shall be declared by a court of competent jurisdiction to exceed the maximum time
period which such court deems reasonable and enforceable, then the time period of restriction
deemed reasonable and enforceable by the court shall become and shall thereafter be the maximum
time period.
5.2 Binding Agreement. This Agreement shall be binding upon the Executive and
[his/her] successors-in-interest, and the Company. The Company shall undertake commercially
reasonable efforts to require any successor or assign to all or substantially all of
the business and/or assets of the Company (whether direct or indirect, by purchase, merger,
consolidation or otherwise), to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform this Agreement if no such
succession or assignment had taken place. In any such event, the term “the Company” as used in
this Agreement shall mean any such successor or assign.
5.3 Governing Law. This Agreement shall be construed and enforced according to the
laws of the State of California, excluding its choice of law rules.
5.4 Entire Agreement. This Agreement (which incorporates by reference the Proprietary
Information Agreement) supersedes all previous promises, representations, and agreements, written
or oral, between the Company and the Executive relating to the subject matter herein. This
Agreement cannot be modified or amended except by a writing signed by the Executive and a duly
authorized officer of the Company.
5.5 Notices. All notices, demands, requests, consents, approvals or other
communications (collectively “Notices”) required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally served or
deposited in the United States mail, registered or certified, return receipt requested, postage
prepaid, addressed as set forth below, or such other address as such party shall have specified
most recently by written notice. Notices shall be deemed given on the date of service if
personally served. Notices mailed as provided herein shall be deemed given on the third business
day following the date so mailed:
| To the Company: | SM&A | |||||
| 0000 XxxXxxxxx Xxxxx, Xxxxx 000 | ||||||
| Xxxxxxx Xxxxx, XX 00000 | ||||||
| Attention: Chief Executive Officer | ||||||
| To the Executive: | ||||||
5.6 Employment by Subsidiary. For purposes of this Agreement, the Executive’s
employment with the Company shall not be deemed to have terminated solely as a result of the
Executive continuing to be employed by a subsidiary of the Company.
5.7 Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original but both of which together shall constitute one and the same
instrument.
5.8 Tax Withholding. Any payments except for payments of reimbursements provided for
hereunder shall be paid net of any applicable tax withholding required under federal, state or
local law.
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6. Arbitration. The Executive and the Company agree that all claims arising out of or
relating to this Agreement shall be resolved by binding arbitration. The dispute will be
arbitrated in accordance with the rules of the American Arbitration Association and its Employment
Arbitration Rules and Mediation Procedures, as amended. The parties agree to file any demand for
arbitration within the time limit established by the applicable statute of limitations for the
asserted claims or within one (1) year of the conduct that forms the basis of the claim if no
statutory limitation is applicable. Failure to demand arbitration within the prescribed time
period shall result in waiver of said claims. This Agreement expressly does not prohibit either
party from seeking provisional relief including, without limitation, injunctive or similar relief,
from any court of competent jurisdiction as may be necessary to protect their respective rights and
interests pending arbitration, particularly if necessary to avoid irreparable harm, including
pursuant to California Code of Civil Procedure Section 1281.8.
This pre-dispute resolution agreement will cover all matters directly or indirectly related to
the interpretation and enforcement of this Agreement including the termination of the Executive’s
employment, but excluding any claims which are not subject to arbitration by law. THE PARTIES
UNDERSTAND AND AGREE THAT THEY ARE WAIVING THEIR RIGHTS TO BRING SUCH CLAIMS TO COURT, INCLUDING
THE RIGHT TO A JURY TRIAL.
7. Acknowledgment by the Executive. The Executive has carefully read and considered
the provisions of this Agreement and agrees that all of the above-stated restrictions, obligations
and promises are fair and reasonable and reasonably required for the protection of the interests of
the Company. The Executive acknowledges that [he/she] has been advised to consult with a counsel
of [his/her] choice regarding this Agreement. The Executive further acknowledges that the goodwill
and value of the Company is enhanced by these provisions and that said enhancement is desired by
the Executive. The Executive indicates [his/her] acceptance of this Agreement by signing and
returning the enclosed copy of this Agreement where indicated below.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first set forth above.
| SM&A | ||||||
| By: | /s/ Xxxxx X. XxXxxxxx | |||||
| Its Chief Executive Officer | ||||||
| EXECUTIVE | ||||||
| /s/ Xxxxxx Xxxx |
||||||
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