Exhibit 10.5
SUPPLEMENT TO EMPLOYMENT AGREEMENT
This Supplement to Employment Agreement (this "Supplement"), dated as
of August 27, 2003, is intended to supplement and amend any prior employment
agreement by and between EXECUTIVE ("Executive") and Xxxxxx.xxx, Inc., a
Delaware corporation (the "Company) (as so amended, the "Agreement"). This
Agreement supercedes and voids any less beneficial severance or change in
control agreements or arrangements that previously existed between the Company
and Executive. Certain capitalized terms used herein are defined throughout this
Supplement, and certain other capitalized terms used herein are defined in
Section 6 hereof and in the Agreement.
1. SEVERANCE BENEFITS.
a. If Executive's employment is terminated by the Company,
other than a Termination for Cause or Executive voluntarily terminates
his employment for "good cause" as defined in Section 6 on or before
the second (2nd) anniversary of a Change of Control of the Company,
Executive shall receive:
i. Payment of all earned and unpaid Annual Salary and
bonus, as well as payment for accrued and unused vacation, if
any;
ii. Payment of an amount equal to three (3) full
years of Executive's Annual Salary, calculated at the rate in
effect as of the date of such termination;
iii. Health insurance benefits under COBRA paid in
full by the Company as of the date of such termination for a
period of one (1) year following the date of such termination;
iv. The right to exercise all vested and unexercised
stock options granted under the Company Stock Option Plans in
accordance with their terms within three months of the
effective date of such termination;
v. Immediate vesting of all unvested stock options
granted under the Company Stock Option Plan and the right to
exercise same within three months of the effective date of
such termination; and
vi. A payment to Executive to compensate for any
excise penalty or other associated taxes resulting from
severance payments exceeding the cap imposed by Internal
Revenue Code Section 280(G);
b. In the event that the Company undergoes a Change-of-Control
and Executive remains with the Company for 12 months following the
effective date of the Change-of-Control, Executive will be given a
30-day "window period" in which to elect to voluntarily terminate
Executive's employment for reasons other than good cause. Should
Executive choose to terminate Executive's employment within the 30-day
"window period," then Executive shall be entitled to the following
compensation:
i. Two (2) full years of Executive's Annual Salary,
calculated at the rate in effect as of the date of such
termination;
ii. The right to exercise all vested and unexercised
stock options granted under the Company Stock Option Plans in
accordance with their terms within three months of the
effective date of such termination;
c. If Executive's employment is terminated by the Company
other than a Termination for Cause under any other circumstance,
Executive shall receive
i. Payment of all earned and unpaid Annual Salary and
bonus, as well as payment for accrued and unused vacation, if
any;
ii. Payment of an amount equal to one (1) full year
of Executive's Annual Salary, calculated at the rate in effect
as of the date of such termination;
iii. The right to exercise all vested and unexercised
stock options granted under the Company Stock Option Plans in
accordance with their terms within three months of the
effective date of such termination;
iv. Immediate vesting of all unvested stock options
granted under the Company Stock Option Plan and the right to
exercise same within three months of the effective date of
such termination; and
v. Health insurance benefits under COBRA paid in full
by the Company as of the date of such termination for a period
of one (1) year following the date of such termination.
d. All payments due to Executive pursuant to this Section
shall be paid in a lump sum within fifteen (15) days following such
termination.
2. RETENTION PAYMENTS. In the event of a Change of Control of the
Company, Executive shall receive, on the first business day of each of the eight
(8) consecutive quarters immediately following the date of such Change of
Control, a quarterly retention payment equal to fifty percent (50%) of
Executive's Annual Salary as of the date of such Change of Control.
3. BONUS PROTECTION PAYMENTS. If, at any time on or before the second
(2nd) anniversary of a Change of Control of the Company, any of the Company's
bonus plans or bonus structures in effect or applicable to Executive on the date
of such Change of Control are terminated, discontinued or modified to reduce or
restrict Executive's ability or likelihood to obtain benefits thereunder,
Executive shall receive the maximum amount of cash bonus and other compensation
that Executive could have received under such plan(s) or structure(s) for the
calendar year in which the Change of Control occurred, as if such plan(s) or
structure(s) had not been so terminated, discontinued or modified. Payments to
Executive pursuant to this Section shall be paid in a lump sum within fifteen
(15) days following the effective date of the termination, discontinuation or
modification of the applicable plan(s) or structure(s).
4. Certain Additional Payments by the Company may be due as follows:
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(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that
any payment or distribution by the Company or its affiliates to or for
the benefit of the Employee (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 4), (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Employee with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall
be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Employee of all taxes
(including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Employee retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 4, if it shall
be determined that the Employee is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount (the
"Reduced Amount") that could be paid to the Employee such that the
receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Employee and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 4(c), all
determinations required to be made under this Section 4, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Company's then existing accounting
firm or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Employee
within 15 business days of the receipt of notice from the Employee that
there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of
Control, the Employee shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 4, shall be paid by the Company to the Employee within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company
and the Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant
to Section 4(c) and the Employee thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Employee.
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(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
ten business days after the Employee is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Employee shall
not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Employee in
writing prior to the expiration of such period that it desires to
contest such claim, the Employee shall:
(i) Give the Company any information reasonably
requested by the Company relating to such claim;
(ii) Take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) Cooperate with the Company in good faith. in
order effectively to contest such claim; and
(iv) Permit the Company to participate in any
proceedings relating to such claim;
Provided, however, that the Company shall bear and
pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify, and hold the Employee harmless,
on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing
provisions of this Section 4(c), the Company shall control all
proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Employee to pay the tax claimed and
xxx for a refund or contest the claim in any permissible
manner, and the Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Employee to pay such claim and xxx for a
refund, the Company shall advance the amount of such payment
to the Employee, on an interest-free basis and shall indemnify
and hold the Employee harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to the such advance
or with respect to any imputed income with respect to such
advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Employee with respect to which such
contested amount is claimed to be due is limited solely to
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such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Employee
shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any
other taxing authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 4(c), the Employee becomes
entitled to receive any refund with respect to such claim, the Employee
shall (subject to the Company's complying with the requirements of
Section 4) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 4(c), a determination is
made that the Employee shall not be entitled to any refund with respect
to such claim and the Company does not notify the Employee in writing
of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
5. BENEFITS SUBJECT TO EXECUTION OF RELEASE. Prior to receiving any
payments or benefits pursuant to this Agreement, Executive agrees to execute a
release agreement, releasing the Company and its officers, directors, employees
and agents from any and all damages, claims, demands, causes of action,
obligations and liabilities, known or unknown, arising out of or relating to the
Agreement or this Supplement.
6. DEFINITIONS. For purposes of this Supplement, the following terms
shall have the meanings set forth below:
a. "Annual Salary" shall have the meaning ascribed to such
term in the Agreement.
b. "Beneficial Ownership" shall have the meaning ascribed to
such term in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended.
c. "Change of Control" shall mean any of the following:
i. The acquisition or possession by any Person of
Beneficial Ownership, directly or indirectly, of shares of the
Company's capital stock having the power to cast more than
thirty percent (30%) of the votes in the election of the Board
of Directors of the Company or to otherwise, designate a
majority of the members of the Board of Directors of the
Company;
ii. the sale or other disposition of all or
substantially all of the business and assets of the Company
and its Subsidiaries (on a consolidated basis) outside the
ordinary course of business in a single transaction or series
of related transactions; or
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iii. any merger or consolidation of the Company with
another entity in which the Company is not the surviving
entity and in which either: (a) the surviving entity does not
succeed to the rights and obligations of the Company with
respect to the Agreement and this Supplement or (b) after
giving effect to the merger or consolidation, a "Change of
Control" under subparagraph (i) or (ii) above would have
occurred as defined therein were the surviving entity deemed
to be the Company for purposes of subparagraphs (i) and (ii)
(with appropriate adjustments in the references therein to
"capital stock" and "the Board of Directors" to properly
reflect the voting securities and governing body of the
surviving entity if it is not a corporation).
d. Good Cause. As used in this Agreement "good cause" for
Executive to terminate his employment shall be deemed to exist if
Executive voluntarily terminates employment within 24 months of a
Change of Control for any of the following reasons:
i. Without Executive's express prior written consent,
Executive is assigned duties materially inconsistent with
Executive's position, duties, responsibilities, or status with
the Company which substantially varies from that which existed
immediately prior to such change of ownership or control;
ii. Without Executive's express prior written
consent, Executive experiences a change in his reporting
level, titles, or business location (or more than 50 miles
from his current business location or residence whichever is
closer to the new business location) which substantially
varies from that which existed immediately prior to the Change
of Control.
iii. Without Executive's express prior written
consent, Executive is removed from any position held
immediately prior to the change of ownership or control, or if
Executive fails to obtain reelection to any position held
immediately prior to the change of ownership or control, which
removal or failure to reelect is not directly related to
Executive's incapacity or disability, habitual neglect, gross
misconduct or death;
iv. Without Executive's express prior written
consent, Executive experiences a reduction in salary of more
than 10 percent below that which existed immediately prior to
the change of ownership or control.
v. Without Executive's express prior written consent,
Executive experiences an elimination or reduction of any
employee benefit, business expense reimbursement or allotment,
incentive bonus program, or any other manner or form of
compensation available to Executive immediately prior to the
Change of Control and such change is not otherwise applied to
others in the Company with Executive's equivalent position or
title; or
vi. The Company fails to obtain from any successor,
before the succession takes place, a written commitment
obligating the successor to perform this Agreement in
accordance with all of its terms and conditions.
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e. "Person" means any individual, sole proprietorship,
partnership, limited partnership, joint venture, estate, trust,
unincorporated association, organization, labor union, limited
liability company, corporation, entity or governmental body, and also
includes, for purposes of determining Beneficial Ownership, any group
of Persons acting in concert to acquire or possess such Beneficial
Ownership.
f. "Subsidiary" of the Company means any Person as to which
the Company, or another subsidiary of the Company, owns more than fifty
percent (50%) of the equity interest or has the power to elect or
otherwise designate a majority of the members of its board of directors
or similar governing body.
7. Term. The term of this Supplement herein shall commence as of the
date hereof and end one year hence unless sooner terminated pursuant to the
terms herein.
8. Non-Disclosure. The terms and conditions of this Agreement and the
existence of this Agreement shall be kept completely confidential and shall not
be disclosed by Executive or any of Executive's agents, except Executive may
disclose the substance of this Agreement to the extent necessary as follows: a)
to Executive's professional advisors, attorneys, accountants, who have a
reasonable need to know; b) regulatory or taxing authorities; c) pursuant to
court order issued by a court of competent jurisdiction; or d) to enforce this
Agreement.
9. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its National Rules for the
Resolution of Employment Disputes, and judgment upon the award rendered by the
arbitrator(s) may be entered by any court having jurisdiction thereof. The
arbitrators shall award to the prevailing party, if any, as determined by the
arbitrators, all of its costs and fees. "Costs and fees" mean all reasonable
pre-award expenses of the arbitration, including the arbitrators' fees,
administrative fees, travel expenses, out-of-pocket expenses such as copying and
telephone, court costs, witness fees, and attorneys' fees.
IN WITNESS WHEREOF, the parties have each executed and delivered this
Supplement as of the date first written above.
"Company"
XXXXXX.XXX, INC.,
a Delaware corporation
By:
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Its:
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Print Name:
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"Executive"
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Print Name:
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