EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of November 22, 2005 (the "Effective Date") by and between Xxxxxx Medical
Technology, Inc., a Delaware corporation (the "Company"), and Xxxx X. Xxxxxxxx
(the "Employee").
Introduction. The Employee is an employee of the Company. The Company
and the Employee desire to set forth the terms and conditions of the Employee's
employment with the Company. Based on the foregoing, and for and in
consideration of the mutual covenants contained herein, the parties, intending
to be legally bound, hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions herein set
forth.
2. Duties. The Employee is the Executive Vice President and Chief
Financial Officer of the Company and hereby promises to perform and discharge
well and faithfully the duties which may be assigned to him from time to time by
the President of the Company or the Board of Directors of the Company (the
"Board") in connection with the conduct of the Company's business.
3. Extent of Services. The Employee shall devote his entire time,
attention, and energies to the business of the Company and shall not, without
the written approval of the Company, during the term of this Agreement be
engaged in any other business activity, regardless of whether such activity is
pursued for gain, profit or other pecuniary advantage; provided, however, that
this requirement shall not be construed as preventing the Employee from (a)
investing his personal assets in businesses which do not compete with the
Company in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor, or (b) purchasing securities in any corporation engaged in a business
competitive to that of the Company whose securities are regularly traded on the
Nasdaq Stock Market, a national or regional stock exchange, or the
over-the-counter market, provided that such purchase shall not result in his
collectively owning beneficially at any one time one percent (1%) or more of the
equity securities of such corporation. Nothing in this paragraph 3 shall prevent
the Employee from serving on the board of directors of any other company, so
long as the Board has provided written approval of each directorship held by the
Employee.
4. Compensation Matters.
(a) Base Salary. For services rendered under this Agreement,
the Company shall pay the Employee a base salary of $235,000 per year (the "Base
Salary"), which shall be payable (after deduction of applicable payroll taxes)
in accordance with the Company's customary payroll practices in effect from time
to time.
(b) Incentive Bonus. During the Employee's employment
hereunder, in addition to the Base Salary, the Employee shall be eligible to
receive an annual performance incentive bonus (an "Incentive Bonus") in
accordance with the terms and subject to the
conditions of the Company's Executive Performance Incentive Plan, as the same
may be amended from time to time (the "Incentive Plan"). The Employee's
entitlement to receive an Incentive Bonus for any calendar year will depend on
whether, and to what extent, certain performance goals established for such year
by the Compensation Committee of the Board (the "Committee") have been achieved.
The Incentive Bonus, if any, payable to the Employee for any calendar year shall
not exceed two (2) times the Base Salary earned by the Employee in such year.
The Committee shall determine in good faith the Employee's entitlement to an
Incentive Bonus based on the achievement of such performance goals as soon as
reasonably practicable after the end of each calendar year. The Company shall
pay the Incentive Bonus, if any, to the Employee within ten (10) days after the
Committee makes such determination and in any event not later than March 15 of
the year following the calendar year in which the services upon which the
Incentive Bonus is based were performed.
(c) Equity Incentive Plan Awards. The Employee shall be
eligible to receive stock options and other awards granted by the Committee from
time to time under the Company's 1999 Equity Incentive Plan, as the same may be
amended from time to time (the "Equity Plan"). Any such grant of stock options
or other awards under the Equity Plan shall be made in accordance with and
subject to the terms of the Equity Plan and any agreement pursuant to which such
stock options or other awards are granted.
(d) Fringe Benefits. The Employee shall be eligible to
receive, and to participate in programs for, such fringe benefits (including,
without limitation, medical insurance and retirement benefits) as the Company
may make available generally to its executive officers from time to time during
the term of this Agreement. The Employee shall be responsible for making any
generally applicable employee contributions required under such fringe benefit
programs.
(e) Automobile Allowance. The Company shall provide the
Employee with a monthly allowance of $700 to cover expenses relating to the use
of his personal automobile.
(f) Annual Compensation Review. The Committee shall review the
Employee's compensation at least once per year and shall make any increase to
the Base Salary or award any bonus to the Employee that the Committee, in its
sole and absolute discretion, determines is merited based upon the Employee's
performance and is consistent with the Company's compensation policies. The
Company shall pay any bonus to the Employee not later than March 15 of the year
following the year in which the services upon which the bonus in based were
performed.
5. Sick Leave and Vacation. During the term of this Agreement, the
Employee shall be entitled to annual vacation of at least four (4) weeks, or
such greater time period if permitted by Company policy, to be taken at his
discretion in a manner consistent with his obligations to the Company under this
Agreement. The actual dates of such vacation periods shall be agreed upon
through mutual discussions between the Company and the Employee; provided,
however, that the Company shall have the ultimate decision with respect to the
actual vacation dates to be taken by the Employee, which decision shall not be
unreasonable. The Employee also shall be entitled to sick leave consistent with
Company policy.
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6. Expenses. During the term of this Agreement, the Company shall
reimburse the Employee for all reasonable out-of-pocket expenses incurred by the
Employee in connection with the business of the Company and in performance of
his duties under this Agreement upon the Employee's presentation to the Company
of an itemized accounting of such expenses with reasonable supporting data.
7. Term; Termination; Certain Effects of Termination.
(a) The Employee's employment by the Company under this
Agreement shall commence on the Effective Date and shall expire on March 31,
2007 (the "Expiration Date"). Notwithstanding the foregoing but subject to
paragraph 7(b), the Company, in its sole and absolute discretion, may terminate
the Employee's employment and the Company's obligations hereunder as follows:
(i) upon 30 days' notice if the Employee becomes
Disabled (as defined herein);
(ii) for Cause (as defined herein) upon notice of
such termination to the Employee; or
(iii) without Cause upon 30 days' notice of such
termination to the Employee.
(b) (i) If the Employee's employment by the Company is
terminated due to his becoming Disabled pursuant to paragraph 7(a)(i), the
Company, subject to paragraph 11(c), shall provide to the Employee with respect
to a period of twelve (12) months beginning immediately after the date of
termination (A) (1) the Base Salary for such period at the Base Salary on the
date of termination, minus (2) the amount or amounts (if any) that the Employee
receives during such period under any disability insurance policy or plan
maintained by the Company or the Employee or under Social Security or similar
laws, which net amount shall be payable (after deduction of applicable payroll
taxes) in accordance with the Company's customary payroll practices in effect
from time to time, and (B) continued coverage for such period under the
Company's then existing health benefit and life insurance programs on the same
terms that were applicable to the Employee on the date of termination.
(ii) If the Employee's employment by the Company is
terminated for Cause pursuant to paragraph 7(a)(ii), or if the Employee resigns
from his employment with the Company, the Company, subject to paragraph 11(c),
may, but shall not be obligated to, provide to the Employee, for and in
consideration of the Employee's compliance with the covenants set forth in
paragraph 11, with respect to a period of up to twenty-four (24) months
beginning immediately after the date of termination or resignation, as
determined by the Company in its sole and absolute discretion, the Base Salary
for such period at the Base Salary on the date of termination or resignation,
which amount shall be payable (after deduction of applicable payroll taxes) in
accordance with the Company's customary payroll practices in effect from time to
time
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and with a final payment due not later than March 15 of the year following the
year in which the termination or resignation occurred.
(iii) If the Employee's employment by the Company is
terminated without Cause pursuant to paragraph 7(a)(iii), or if after the
occurrence of a Change in Control (as defined herein) the term of this Agreement
expires as set forth in the first sentence of paragraph 7(a) and the Employee's
employment by the Company is terminated without Cause within twelve (12) months
after such expiration, the Company, subject to paragraph 11(c), shall provide to
the Employee, for and in consideration of the Employee's compliance with the
covenants set forth in paragraph 11, with respect to a period of not less than
twelve (12) months and not more than twenty-four (24) months beginning
immediately after the date of termination, as determined by the Company in its
sole and absolute discretion, (A) the Base Salary for such period at the greater
of (I) the Base Salary on the Expiration Date, if applicable, or (II) the Base
Salary on the date of termination, which amount shall be payable (after
deduction of applicable payroll taxes) in accordance with the Company's
customary payroll practices in effect from time to time and with a final payment
due not later than March 15 of the year following the year in which the
termination occurred, and (B) continued coverage for such period under the
Company's then existing health benefit and life insurance programs on the same
terms that were applicable to the Employee on the date of termination.
(c) The Employee shall be under no obligation to mitigate any
of the costs incurred by the Company in providing post-employment pay and
benefits to the Employee under paragraph 7(b).
(d) For the purposes of this Agreement:
The term "Cause" means the occurrence on or after the
Effective Date of any of the following:
(i) the determination by the Board that the Employee
has ceased to perform his duties as an employee of the Company (other than as a
result of becoming Disabled), which failure amounts to an intentional and
extended neglect of his duties hereunder;
(ii) the death of the Employee;
(iii) the determination by the Board that the
Employee has engaged or is about to engage in conduct materially injurious to
the Company;
(iv) the Employee having been convicted of a felony;
or
(v) the Employee's participation in activities
proscribed by the provisions of paragraphs 9 or 11 or his material breach of any
of the other covenants herein.
The term "Change in Control" means the first to occur
on or after the Effective Date of any of the following:
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(i) the acquisition by any person or persons acting
as a group ("Person") of capital stock of Xxxxxx Medical Group, Inc., a Delaware
corporation and the sole stockholder of the Company ("WMG"), which, when added
to any capital stock of WMG already owned by the Person, constitutes more than
fifty percent (50%) of either (A) the total fair market value of the outstanding
capital stock of WMG, or (B) the total voting power of the outstanding capital
stock of WMG; provided, however, that a Change in Control will not be deemed to
have occurred when any Person who owns more than fifty percent (50%) of the
total fair market value or the total voting power of the outstanding capital
stock of WMG as of the date of this Agreement acquires any additional capital
stock of WMG; and provided further, that an increase in the percentage of the
outstanding capital stock of WMG owned by a Person as a result of a transaction
in which WMG acquires its capital stock in exchange for property will be treated
as an acquisition of such capital stock by such Person; or
(ii) the acquisition by a Person, in a single
transaction or a series of transactions within a twelve (12) month period, of
capital stock of WMG representing not less than thirty-five percent (35%) of the
total voting power of the outstanding capital stock of WMG; or
(iii) the acquisition by a Person, in a single
transaction or a series of transactions within a twelve (12) month period, of
consolidated assets of WMG which have a total gross fair market value of not
less than forty percent (40%) of the total gross fair market value of all of the
consolidated assets of WMG immediately prior to such acquisition(s), in each
case without regard to any liabilities associated with such assets; provided,
however, that a Change in Control will not be deemed to have occurred when such
assets are acquired by:
(A) an entity of which WMG owns, directly or
indirectly, fifty percent (50%) or more of the total fair market value or the
total voting power of the outstanding capital stock;
(B) a Person which owns, directly or
indirectly, fifty percent (50%) or more of the total fair market value or the
total voting power of the outstanding capital stock of WMG;
(C) an entity of which a Person described in
clause (B) owns, directly or indirectly, fifty percent (50%) or more of the
total fair market value or the total voting power of the outstanding capital
stock;
(D) an entity which is controlled by the
stockholders of WMG immediately after the transfer; or
(E) a stockholder of WMG in exchange for or
with respect to capital stock of WMG; or
(iv) a majority of the members of the Board is
replaced in any twelve (12) month period by directors whose appointment or
election is not endorsed by a majority of the members of the Board prior to the
date of the appointment or election.
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The term "Disabled" means that as a result of any
medically determinable physical or mental impairment which occurs on or after
the Effective Date and can be expected to result in death or can be expected to
last for a continuous period of at least twelve (12) months, the Employee either
(i) is unable to engage in any substantial gainful activity or (ii) receives
income replacement benefits for a period of at least three (3) months under an
accident and health plan covering employees of the Company.
8. Representations. The Employee hereby represents to the Company that
(a) he is legally entitled to enter into this Agreement and to perform his
obligations hereunder, and (b) he has the full right, power and authority,
subject to no rights of third parties, to grant to the Company the rights
contemplated by paragraph 10.
9. Disclosure of Information. The Employee recognizes and acknowledges
that the Company's and its predecessors' trade secrets, know-how and proprietary
processes as they may exist from time to time are valuable, special and unique
assets of the Company's businesses, access to and knowledge of which are
essential to the performance of the Employee's duties hereunder. The Employee
shall not, during or after his employment by the Company, in whole or in part,
disclose such trade secrets, know-how or proprietary processes to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, nor shall the Employee make use of any such property for his own
purposes or for the benefit of any person, firm, corporation, association or
other entity (except the Company) under any circumstances during or after his
employment by the Company, provided that after the Employee's employment by the
Company ceases these restrictions shall not apply to such trade secrets,
know-how and proprietary processes, if any, which are then in the public domain,
and provided further that the Employee was not responsible, directly or
indirectly, for such trade secrets, know-how or proprietary processes entering
the public domain without the Company's consent.
10. Inventions. The Employee hereby sells, transfers and assigns to the
Company or to any person or entity designated by the Company all of the right,
title and interest of the Employee in and to all inventions, ideas, disclosures
and improvements, whether patented or unpatented, and copyrightable material,
made or conceived by the Employee, solely or jointly, during his employment by
the Company or any of its predecessors which relate to methods, apparatus,
designs, products, processes or devices sold, leased, used or under
consideration or development by the Company or any of its predecessors, or which
otherwise relate to or pertain to the business, functions or operations of the
Company or any of its predecessors, or which arise from the efforts of the
Employee during his employment by the Company or any of its predecessors. The
Employee shall, during and after his employment by the Company, communicate
promptly and disclose to the Company, in such form as the Company requests, all
information, details and data pertaining to the aforementioned inventions,
ideas, disclosures and improvements. The Employee shall, during and after his
employment by the Company, execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be
necessary or required of the Employee to permit the Company or any person or
entity designated by the Company to file and prosecute the patent applications
and, as to copyrightable material, to obtain copyright thereof. Any invention
relating to the business of the Company and disclosed by the Employee within one
year after his employment by the
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Company ceases shall be deemed to fall within the provisions of this paragraph
10 unless proved to have been first conceived and made following such
termination or expiration.
11. Covenants Not To Compete or Interfere.
(a) During his employment by the Company and any period
beginning immediately after such employment ceases with respect to which the
Company provides to the Employee the post-employment pay and benefits provided
for in paragraph 7(b), the Employee shall not, directly or indirectly (whether
as an officer, director, owner, employee, partner or other participant), engage
in any Competitive Business (as defined herein) in the United States of America
and any other country where the Company or any of its subsidiaries conducts
business operations over which the Employee has management responsibility. For
the purposes of this Agreement, the term "Competitive Business" means the
manufacturing, supplying, producing, selling, distributing, marketing, or
providing for sale of any orthopaedic product, device or instrument manufactured
or sold by the Company or any of its subsidiaries or in clinical development
sponsored by the Company or any of its subsidiaries, in each case as of the date
on which the Employee's employment by the Company ceases.
(b) During his employment by the Company and any period
beginning immediately after such employment ceases with respect to which the
Company provides to the Employee the post-employment pay and benefits provided
for in paragraph 7(b), the Employee shall not interfere with, disrupt or attempt
to interfere with or disrupt the relationships, contractual and otherwise,
between the Company and its subsidiaries and the suppliers, employees, sales
representatives, distributors, customers, contractors, lessors and lessees of
the Company and its subsidiaries.
(c) Without limiting the rights and remedies available to the
Company, in the event of any breach by the Employee of any of the covenants set
forth in this paragraph 11:
(i) the Company's obligation to make any payment or
provide any benefits to the Employee under paragraphs 7(b) and 13 shall cease
immediately and permanently, which shall not have any impact whatsoever on the
Employee's continuing obligation to comply with paragraphs 11(a) and 11(b);
(ii) the Employee shall repay to the Company, within
ten (10) days after he receives written demand therefor, an amount equal to (A)
ninety percent (90%) of the payments and benefits previously received by the
Employee under paragraphs 7(b) and 13 of this Agreement, plus (B) interest on
such amount at an annual rate equal to the lesser of ten percent (10%) or the
maximum non-usurious rate under applicable law, from the dates on which such
payments and benefits were received to the date of repayment to the Company; and
(iii) the Employee shall pay to the Company from time
to time, within ten (10) days after he receives written demand therefor, an
amount or amounts equal to the reasonable costs and expenses (including
reasonable attorneys' fees and expenses) incurred by or on behalf of the Company
in enforcing this paragraph 11(c) from and after the date on which the Company
delivers notice of such breach to the Employee.
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(d) It is the desire and intent of the parties that the
provisions of this paragraph 11 be enforced to the fullest extent permissible
under the applicable laws in each jurisdiction in which enforcement is sought.
Accordingly, if any portion of this paragraph 11 is adjudicated to be invalid or
unenforceable, this paragraph 11 shall be deemed curtailed, whether as to time
or location, to the minimum extent required for its validity under applicable
law and shall be binding and enforceable with respect to the Employee as so
curtailed, such curtailment to apply only with respect to the operation of this
paragraph 11 in the jurisdiction in which such adjudication is made. If a court
in any jurisdiction, in adjudicating the validity of this paragraph 11, imposes
any additional terms or restrictions with respect to this paragraph 11, this
paragraph 11 shall be deemed amended to incorporate such additional terms or
restrictions.
12. Remedies. The Employee acknowledges and agrees that (a) a monetary
remedy for any breach of any of the covenants set forth in paragraphs 9, 10 and
11 would be inadequate and impracticable, (b) such a breach would cause the
Company irreparable harm, and (c) the Company shall be entitled to specific
performance and to temporary, preliminary and permanent injunctive relief
without the necessity of proving actual damages. Therefore, in addition to any
other right or remedy to which the Company may be entitled at law or in equity
(including, without limitation, the rights and remedies set forth in paragraph
11(c)), the Company shall be entitled to enforce the covenants set forth in
paragraphs 9, 10 and 11 by a decree of specific performance and to temporary,
preliminary and permanent injunctive relief to prevent any breach or threatened
breach of any such covenants, without posting any bond or other undertaking.
13. Gross-Up Payment. If, after the Effective Date, any event occurs or
circumstance exists which results in the Employee being subject to any excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor thereto or any similar tax imposed by any other
federal, state, local or other law, the Company shall cause an independent,
nationally recognized accounting firm or executive compensation consulting firm
selected by the Company (the "Firm") promptly to review, at the Company's sole
expense, the applicability of any such excise or similar tax to the Employee. If
the Firm determines that the Employee is or will be subject to any such excise
or similar tax or any interest thereon or penalty with respect thereto imposed
by the Code or any other federal, state, local or other law (any such excise or
similar tax, interest thereon, and penalty with respect thereto are referred to
as the "Excise Tax"), the Company shall make to the Employee, within ten (10)
days after the Company receives such determination, an additional cash payment
(the "Gross-Up Payment") equal to an amount such that after timely payment by
the Employee of the Gross-Up Payment to the appropriate taxing authority(ies),
the Employee's liability for all taxes (including all interest thereon and
penalties with respect thereto) would be the same as if no Excise Tax applied.
For purposes of the foregoing determination, the Employee's tax rate will be
deemed to be the highest statutory marginal federal and state tax rates
applicable to the Employee (on a combined basis) then in effect. If any taxing
authority finally determines that a greater Excise Tax should be imposed upon
the Employee than is determined by the Firm or is reflected in the Employee's
tax return pursuant to this paragraph 13, the Company shall pay to the Employee,
within ten (10) days after the Employee notifies the Company of such final
determination, the remaining balance of the Gross-Up Payment calculated based on
the amount of Excise Tax finally determined to be payable by the taxing
authority. If any taxing authority determines that a lesser Excise Tax
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should be imposed upon the Employee than is determined by the Firm or is
reflected in the Employee's tax return pursuant to this paragraph 13, the
Employee shall return to the Company, within ten (10) days after receipt by the
Employee of a refund from the taxing authority, the excess of the Gross-Up
Payment made by the Company to the Employee over the Gross-Up Payment required
to satisfy the Excise Tax as determined by the taxing authority.
14. Insurance. The Company may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
the Employee at 0000 Xxxxxx Xxxxx Xxxxx, Xxxxxxxxxxxx, Xxxxxxxxx 00000, or to
the Company at Xxxxxx Medical Technology, Inc., 0000 Xxxxxxx Xxxx, Xxxxxxxxx,
Xxxxxxxxx 00000, Attention: General Counsel, or to such other address as either
party shall notify the other.
16. Waiver of Breach. A waiver by the Company or the Employee of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach of the other party.
17. Governing Law. This Agreement shall be governed by, construed
under, and enforced in accordance with the laws of the State of Tennessee
without regard to conflicts-of-laws principles that would require the
application of any other law.
18. Assignment. This Agreement may be assigned, without the consent of
the Employee, by the Company to any person, partnership, corporation,
association or other entity which has purchased all or substantially all the
assets of the Company, provided that such assignee assumes all the liabilities
of the Company hereunder.
19. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter referred to herein and supersedes
any and all prior negotiations, understandings, arrangements, letters of intent,
and agreements, whether written or oral, between the Employee and the Company,
its subsidiaries, or any of its or their directors, officers, employees or
representatives with respect thereto, including, without limitation, the
Employment Agreement dated as of April 1, 2005, between the Company and the
Employee.
20. Amendment. This Agreement may not be amended, supplemented, or
otherwise modified except by a written agreement executed by all of the parties.
21. Delayed Commencement of Certain Payments. Notwithstanding any
provision of this Agreement to the contrary, the parties intend that this
Agreement be construed and applied in a manner that will conform its provisions
with the requirements for avoidance of additional federal income tax pursuant to
Section 409A of the Code, to the extent that such Section applies to the
payments provided hereunder. Without limiting the foregoing, in the event that
the Employee is a "specified employee" within the contemplation of Section
409A(a)(2)(B) of the Code at the time that any payment otherwise would be made
based upon the Employee's
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separation from service with the Company within the contemplation of Section
409A(a)(2)(A)(i) of the Code, then in no event shall such payment or the
commencement thereof be made before the six-month anniversary of the date of
such separation from service or, if earlier, the date of the Employee's
post-separation death.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the Effective Date.
COMPANY:
XXXXXX MEDICAL TECHNOLOGY, INC.
By: /s/ F. Xxxxx Xxxx
-------------------------------------
F. Xxxxx Xxxx
President and Chief Executive Officer
EMPLOYEE:
/s/ Xxxx X. Xxxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxxx
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