EMPLOYMENT AND CHANGE IN CONTROL AGREEMENT
Exhibit 10.3
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENT
This Employment and Change in Control Agreement (“Agreement”) is made effective as of April
11, 2005, by and between Restore Medical Inc., a Minnesota corporation (the “Company”), and J.
Xxxxxx Xxxxxxx, an individual resident of Minnesota (the “Employee”).
WHEREAS, the Company desires to employ Employee as its President and Chief Executive Officer
(“CEO”) and designate Employee as a Director of the Company, and Employee desires to accept such
employment and designation, both subject to the terms and conditions of this Agreement;
WHEREAS, the parties have decided it is in their mutual best interests to memorialize in
writing certain terms and conditions of the employment relationship between them; and
WHEREAS, Employee understands that nothing in this Agreement creates any guarantee of
continuous employment with the Company, and that Employee’s employment may be terminated by either
the Company or Employee at any time, upon such notice as may be required in this Agreement;
NOW, THEREFORE, in consideration of Employee’s employment with the Company and the foregoing
premises, the mutual covenants set forth below, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Company and Employee agree as follows.
1. Term of Agreement. As set forth herein, the parties respective obligations under
this Agreement shall commence on April 11, 2005, and shall extend indefinitely until this Agreement
is terminated by either party according to Section 4 below (the “Term”), provided, however, that
any provision in this Agreement that by its terms survives expiration of this Agreement shall so
survive and Employee shall continue to be bound by the terms of each such provision for the time
period set forth therein. The Employee shall be employed on an at-will basis. This Agreement is
not, and shall not be construed as, an employment contract affecting in any way the duration of the
Employee’s employment or any terms and conditions thereof except those set forth herein. As set
forth below, the Employee and the Company may terminate their employment relationship at any time,
for any reason or for no reason, with cause or without cause.
2. Position and Duties. During the Term, the Employee agrees to serve as President
and CEO and Director, subject and reporting to the Board of Directors. The Employee agrees to
perform such reasonable duties and responsibilities as are customary for the Employee’s position
and such other duties and responsibilities that may be assigned by the Board of Directors from time
to time. During the Term, the Employee agrees to serve Company faithfully and to the best of the
Employee’s ability and to devote the Employee’s full business time, attention and efforts to the
business and affairs of Company (exclusive of any period of vacation, sick, disability, or other
leave to which Employee is entitled) during normal business hours. The principal place of employment and the location of Employee’s principal office and normal place of work shall be
within the Minneapolis-St. Xxxx Metropolitan Area. Employee
1
will be expected to travel to other
locations, as necessary, in the performance of Employee’s duties during the term of this Agreement.
3. Compensation and Benefits.
(a) Base Salary. During the Term, the Company shall pay the Employee a “Base
Salary” of $10,416.66 semi-monthly, which equates to an annualized Base Salary of
$250,000.00, paid in accordance with the Company’s regular payroll procedures, policies, and
practices and subject to all required deductions, withholdings, and reporting obligations.
Employee’s Base Salary may be reviewed by the Company from time to time for potential
increases on the basis of the Employee’s performance and the financial standing of the
Company.
(b) Additional Performance Incentive. In addition to Base Salary, the Employee
will be eligible to receive an additional performance incentive pursuant to a Management
Incentive Plan expected to be adopted by the Board of Directors seasonably after the
commencement of Employee’s employment, as such plan may be amended from time to time. The
details of Employee’s eligibility for and receipt of this additional performance incentive
shall be governed by the terms and conditions of the Management Incentive Plan; however,
Employee will be eligible to receive annually an additional performance incentive not to
exceed 30% of Base Salary, based on the level of attainment of corporate and individual
performance goals established and approved by the Board of Directors initially within 60
days from the date of this Agreement and reestablished at the start of each new calendar
year thereafter. If paid, the value of the additional performance incentive will be paid to
Employee in some combination of cash and stock option grants, with any such amounts received
by the Employee subject to all required withholdings, deductions, and tax reporting
requirements.
(c) Equity Participation.
(i) The Board of Directors has approved a stock option grant to Employee to
purchase up to 817,000 shares of the Company’s common stock at an exercise price of
$0.55 per share, with such stock option grant vesting 25% on the first anniversary
of the Employee’s employment under this Agreement and the remaining 75% vesting in
equal, monthly installments over the next 36 months.
(ii) In the event of a “Change in Control” (as defined in Section 5(a) below)
occurring during the Term of this Agreement, 50% of the remaining unvested portion
of this stock option grant shall vest upon the closing of the last transaction
necessary to effect the Change in Control. In the further event that the Employee’s
employment is terminated at any time following a Change in Control, either by the
Company without “Cause” (as defined in Section 5(c) below) or as the result of a “Constructive Termination” (as defined in Section 5(c) below),
any remaining unvested portion of this stock option grant shall thereupon vest.
(iii) In the event of a voluntary termination by the Employee or a termination
by the Company with Cause at any time or without Cause prior to a
Change in Control,
the Employee’s rights to any remaining unvested portion of this stock option grant
shall be extinguished.
(iv) This stock option grant is made under the Company’s 1999 Omnibus Stock
Plan, as amended from time to time (the “Plan”). In no event shall the Plan be
amended in a manner that prohibits the exercise of Employee’s stock options as set
forth in this Agreement.
(d) Other Employee Benefits. During the Employee’s employment with the
Company, the Employee shall be entitled to participate in the retirement and health and
welfare benefits offered generally by the Company to its employees, including medical,
dental, flexible spending account, group life, group disability, and 401(k), to the extent
that the Employee’s position, tenure, salary, health, and other qualifications make the
Employee eligible to participate. The Employee’s participation in such benefits shall be
subject to the terms of the applicable plans, as the same may be amended from time to time.
The Company does not guarantee the adoption or continuance of any particular employee
benefit during the Employee’s employment, and nothing in this Agreement is intended to, or
shall in any way restrict the right of the Company, to amend, modify or terminate any of its
benefits during the Term of this Agreement. The Employee also will be eligible for the
benefits described in the Company’s Executive Compensation Plan, subject to the terms of
such Plan, as the same may be amended from time to time. The value of any such benefits the
Employee receives shall be imputed and reported to the Employee as income, as required.
(e) Special Transaction Bonus. In the event of a Change in Control occurring
during the Term, provided that there are shares of preferred stock that remain outstanding
and provided that the holders of the Company’s outstanding shares of preferred stock
receive, after payment of the special transaction bonus provided herein, proceeds in the
aggregate equal to at least one times their original purchase price for their shares of
preferred stock in the Change in Control transaction, Employee shall be entitled to receive
from the aggregate proceeds payable to all stockholders of the Company in the Change in
Control transaction a special transaction cash bonus, which, when added to the amount to be
received by Employee in such transaction for all outstanding shares of capital stock of the
Company and any vested options and/or warrants to acquire shares of capital stock of the
Company (“Employee’s Equity”), will result in Employee receiving total proceeds equal to
four percent (4%) of the net proceeds payable to the Company’s stockholders and holders of
outstanding options and/or warrants in such Change in Control transaction. Examples of the
transaction bonus calculation are attached as Exhibit A.
4.
Termination of Employment.
(a) By the Company, at Any Time, with Cause. At any time during the Term, the
Company may terminate the Employee’s employment for Cause. In the event of a termination
with Cause, the Company’s obligations to the Employee hereunder shall terminate, except as
to amounts already vested or earned by but unpaid to the Employee as of the date of
termination.
(b) By the Company, at Any Time Prior to a Change in Control, Without Cause.
The Company may terminate the Employee’s employment at any time without Cause. In the event
such a termination without Cause occurs at any time prior to a Change in Control occurring
during the Term, in addition to amounts already vested or earned by but unpaid to the
Employee as of the date of termination, the Employee shall be entitled to receive 6 months
Base Salary continuation, paid according to the Company’s normal payroll schedule and
subject to all required withholdings and reporting obligations. The Company shall also
provide the Employee and his current family members with continued group health coverage,
including medical and dental coverage, as otherwise required under applicable stated
continuation law and the Consolidated Omnibus Budget Reconciliation Act of 1986, 29 U.S.C.
§§ 1161-1168; 26 U.S.C. § 4980B(f), as amended, and all applicable regulations (referred to
collectively as “COBRA”). Provided that Employee makes the necessary COBRA elections, the
Company will pay the total applicable premium cost for such medical and dental COBRA
continuation coverage for Employee and his family for a period of up to 6 months commencing
on the date of termination of employment; provided, however, that the Company’s obligation
to pay for such premiums shall terminate if (i) Employee or his wife becomes covered under
another company’s like benefit plan; (ii) Employee is eligible (whether or not covered)
under Medicare; or (iii) Employee dies. Such COBRA premiums paid on Employee’s behalf will
be imputed to Employee as income, as required by law. After expiration of the 6 month
period in which the Company pays the above-described premiums, if necessary, Employee will
be responsible for payment of such premiums for as long a period as is allowable under
applicable law.
(c) By the Company, at Any Time Following a Change in Control, Without Cause.
In the event that a termination without Cause occurs following the closing date of the last
transaction necessary to effect a Change in Control occurring during the Term, in addition
to amounts already vested or earned by but unpaid to the Employee as of the date of
termination, the Employee shall be entitled to receive 12 months Base Salary continuation,
paid according to the Company’s normal payroll schedule and subject to all required
withholdings and reporting obligations. The Company shall also provide the Employee and his
current family members with continued group health coverage, including medical and dental
coverage, as otherwise required under applicable stated continuation law and the
Consolidated Omnibus Budget Reconciliation Act of 1986, 29 U.S.C. §§ 1161-1168; 26 U.S.C. §
4980B(f), as amended, and all applicable regulations (referred to collectively as “COBRA”).
Provided that Employee makes the necessary COBRA elections, the Company will pay the total applicable premium cost for such medical and dental COBRA continuation coverage for
Employee and his family for a period of up to 12 months commencing on the date of
termination of employment; provided, however, that the Company’s obligation to pay for such
premiums shall terminate if (i) Employee or his wife becomes covered under another company’s
like benefit plan; (ii) Employee is eligible (whether or not covered) under Medicare; or
(iii) Employee dies. Such COBRA premiums paid on Employee’s behalf will be imputed to
Employee as income, as required by law. After expiration of the 12 month period in which
the Company pays the above-described premiums, if necessary, Employee will be responsible
for payment of such premiums for as long a period as is allowable under applicable law.
(d) By the Employee, at Any Time Following a Change in Control, as the Result of a
Constructive Termination. In the event that a Constructive Termination occurs at any
time during the Term and following the closing date of the last transaction necessary to
effect a Change in Control occurring during the Term, in addition to amounts already vested
or earned by but unpaid to the Employee as of the date of termination, the Employee shall be
entitled to receive 12 months Base Salary continuation, paid according to the Company’s
normal payroll schedule and subject to all required withholdings and reporting obligations.
The Company shall also provide the Employee and his current family members with continued
group health coverage, including medical and dental coverage, as otherwise required under
applicable stated continuation law and the Consolidated Omnibus Budget Reconciliation Act of
1986, 29 U.S.C. §§ 1161-1168; 26 U.S.C. § 4980B(f), as amended, and all applicable
regulations (referred to collectively as “COBRA”). Provided that Employee makes the
necessary COBRA elections, the Company will pay the total applicable premium cost for such
medical and dental COBRA continuation coverage for Employee and his family for a period of
up to 12 months commencing on the date of termination of employment; provided, however, that
the Company’s obligation to pay for such premiums shall terminate if (i) Employee or his
wife becomes covered under another company’s like benefit plan; (ii) Employee is eligible
(whether or not covered) under Medicare; or (iii) Employee dies. Such COBRA premiums paid
on Employee’s behalf will be imputed to Employee as income, as required by law. After
expiration of the 12 month period in which the Company pays the above-described premiums, if
necessary, Employee will be responsible for payment of such premiums for as long a period as
is allowable under applicable law.
(e) Due to Employee’s Death or Disability. This Agreement shall terminate
immediately upon the Employee’s death or upon a finding by the Company’s Board of Directors,
in its sole discretion and subject to applicable law, that the Employee is unable to carry
out the Employee’s essential job functions to any substantial degree by reason of Disability
(as defined in Section 5(d) below). In either such case, the Company’s obligations to the
Employee hereunder shall terminate, except as to amounts already vested or earned by but
unpaid to Employee as of that date.
5.
Definitions.
(a) A “Change in Control” shall be deemed to have occurred if:
(i) Any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) who did not own shares of the capital stock of the Company on the date of grant of the Option shall,
together with his, her or its “Affiliates” and “Associates” (as such terms are
defined in Rule 12b-2 promulgated under the Exchange Act), become the “Beneficial
Owner” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company’s then outstanding securities (any such person
being hereinafter referred to as an “Acquiring Person”);
(ii) The “Continuing Directors” (as hereinafter defined) shall cease to
constitute a majority of the Company’s Board of Directors;
(iii) There should occur (A) any consolidation or merger involving the Company
and the Company shall not be the continuing or surviving corporation or the shares
of the Company’s capital stock shall be converted into cash, securities or other
property; provided, however, that this subclause (A) shall not apply
to a merger or consolidation in which (i) the Company is the surviving corporation
and (ii) the shareholders of the Company immediately prior to the transaction have
the same proportionate ownership of the capital stock of the surviving corporation
immediately after the transaction; (B) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially all
of the assets of the Company; or (C) any liquidation or dissolution of the Company;
or
(iv) The majority of the Continuing Directors determine, in their sole and
absolute discretion, that there has been a Change in Control.
(b) “Constructive Termination” shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the termination or
reassignment of the Employee’s employment by the Company for Cause or due to the Employee’s
death or disability or otherwise approved by the Employee in writing:
(i) A material diminution in the Employee’s job responsibilities or duties as
they existed immediately prior to a Change in Control;
(ii) A reduction by the Company in the Employee’s Base Salary as in effect
immediately prior to a Change in Control;
(iii) Relocation, following a Change in Control, of the Company’s principal
office more than 40 miles from its current location;
(iv) Any other material breach of this Agreement by the Company, following a
Change in Control, which is not cured within 30 days after written notice thereof
from the Employee;
(c) “Cause” shall mean termination by the Company of the Employee’s employment based
upon:
(i) Repeated violations by the Employee of any of his duties or his repeated
failures or omissions to carry out lawful and reasonable orders which, in the
reasonable judgment of the Company, are willful and deliberate and which are not
cured within a reasonable period after the Employee’s receipt of written notice
thereof from the Company;
(ii) Any act or acts of personal dishonesty by the Employee and intended to
result in the personal enrichment of the Employee at the expense of the Company;
(iii) Any willful and deliberate misconduct that is materially and demonstrably
injurious to the Company; or
(iv) Any criminal indictment, presentment, or conviction for a felony, whether
or not the Company is the victim of such offense.
(d) “Disability” shall mean any physical or mental condition which causes the Employee
to fail to perform the Employee’s essential job functions on behalf of the Company over a
period of 90 days during any 180 day period. The existence or nonexistence of the
Employee’s disability will be determined in good faith and subject to applicable law by the
Board of Directors, after giving notice in writing to the Employee at least 30 days prior to
such determination. During such 30 day period, the Employee shall be permitted to make a
presentation to the Board of Directors for its consideration.
(e) “Continuing Director” shall mean any person who is a member of the Board of
Directors of the Company, while such person is a member of the Board of Directors, who is
not an Acquiring Person, or a representative of an Acquiring Person or any such Affiliate or
Associate, and who:
(i) was a member of the Board of Directors on the date of this Agreement as
first written above; or
(ii) subsequently becomes a member of the Board of Directors, if such person’s
initial nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. For purposes of
this Section 5(e), “Affiliate” and “Associate” shall have the respective meanings
described to such terms in Rule 12-b-2 promulgated under the Exchange Act.
6.
Successors and Binding Agreement.
(a) This Agreement may be transferred, in whole or in part, by the Company to its
successors and assigns, and the Employee will remain bound to fulfill the Employee’s
obligations hereunder. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or substantially all of the
business or assets of the Company expressly 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 it if
no such succession had taken place. Failure to obtain such assumption and agreement prior
to the effective date of any such succession shall be a breach of this Agreement and shall
entitled Employee to the rights and benefits from the Company in the same amount and on the
same terms as if Employee’s employment had been terminated by the Company, within 12 months
following a Change in Control, without Cause.
(b) The Agreement is personal to the Employee, and the Employee may not assign or
transfer any part of his rights or duties hereunder, or any compensation due to him
hereunder, to any other person. Notwithstanding the foregoing, this Agreement shall inure
to the benefit of, and be enforceable by, the Employee’s personal or legal representatives,
executors, administrators, heirs, distributees, devicees, and legatees.
7. Limitation
of Damages. If for any reason the Employee believes the severance
provisions of this Agreement have not been properly adhered to by the Company, and if, pursuant to
Sections 8 and 12 hereof, it is determined that the Company has not, in fact, properly adhered to
the severance provisions of this Agreement, the sole and exclusive remedy to which the Employee is
entitled is the severance payment to which the Employee is entitled under the provisions of this
Agreement, which, in the case of stock options, means the right to exercise such options according
to the original terms of the grant but not a monetary payment in lieu of such stock options.
8. Dispute
Resolution. Except as provided in Subsection 8(d) hereof, any controversy,
claim, or dispute arising out of or relating to the making, performance, breach, termination,
expiration, application, or meaning of this Agreement shall be resolved exclusively by arbitration
before the American Arbitration Association in Minneapolis, Minnesota, pursuant to the American
Arbitration Association’s rules then in effect. In the event that Employee terminates employment
claiming Constructive Termination, which claim is disputed by the Company, or the Company
terminates Employee’s employment for Cause, which claim is disputed by Employee, Employee shall
receive severance benefits at 50% of the specified rate until the dispute is resolved in
arbitration or for 12 months, whichever comes first. If Employee prevails in such a dispute, the
Company shall pay full severance benefits to Employee, less any partial severance benefits already
paid. If the Company prevails, the Company’s obligation to pay Employee severance benefits
immediately shall cease and Employee shall repay any severance benefits already paid and agree to a lien on any shares held by Employee in the Company to secure this repayment obligation,
with the exact number of shares subject to the lien determined based on the most recent fair market
value determination done by or on behalf of the Board. In either case, the duration of any of the
applicable restrictive covenants described in Section 8(d) below shall run from the original date
of termination.
(a) The decision of the arbitrator(s) shall be final and binding on both parties.
Judgment on the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. In the event of submission of any dispute to arbitration, each party
shall, not later than 30 days prior to the date set for hearing, provide to the other party
and to the arbitrator(s) a copy of all exhibits upon which the party intends to rely at the
hearing and a list of all persons whom the party intends to call as witnesses at the
hearing.
(b) The arbitrator(s) shall strictly adhere to the sole and exclusive remedy set forth
in Section 7 hereof and may not award or assess punitive damages against either party. The
arbitrator shall, however, have the authority to award the prevailing party its reasonable
attorneys’ fees incurred in the arbitration.
(c) Each party shall bear its own costs and expenses of the arbitration and one-half
(1/2) of the fees and costs of the arbitrator(s).
(d) This Section 8 shall have no application to claims by the Company asserting
violation of or seeking to enforce, by injunction or otherwise, the terms of the February
18, 2005, Nondisclosure and Noncompetition Agreement (“Nondisclosure Agreement”) between the
parties, which Nondisclosure Agreement, to the extent not inconsistent with any of the
provisions in this Agreement, is hereby incorporated by reference and made a part of this
Agreement. Such claims may be maintained by the Company in a lawsuit in a court of
competent jurisdiction.
9. Modification; Waiver. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in a writing signed by the
Employee and such officer as may be specifically designated by the Board of Directors of the
Company. No waiver by either party hereto at any time of any breach by the other party hereto 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.
10. Notice. All notices, requests, demands, and all other communications required or
permitted by either party to the other party by this Agreement (including, without limitation, any
notice of termination of employment) shall be in writing and shall be deemed to have been duly
given when delivered personally or received by certified or registered mail, return receipt
requested, postage prepaid, at the address of the other party as first written above {directed to
the attention of the Board of Directors in the case of the Company). Either party hereto may
change its address for purposes of this Section 10 by giving 15 days’ prior written notice to the other
party hereto.
11. Severability. If any term or provision of this Agreement or the application
hereof to any person or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Agreement or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable shall not be
effected thereby, and each term and provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
12. Governing Law. This Agreement has been executed and delivered in the State of
Minnesota and shall in all respects be governed by, and construed and enforced in accordance with,
the laws of the State of Minnesota, including all matters of construction, validity, and
performance.
13. Effect of Agreement; Entire Agreement. The Company and the Employee understand
and agree that this Agreement is intended to reflect their agreement only with respect to the
subject matter hereof and is not intended to create any obligation on the part of either party to
continue employment. This Agreement supersedes any and all other oral or written agreements or
policies made relating to the subject matter hereof and constitutes the entire agreement of the
parties relating to the subject matter hereof, provided that this Agreement shall not supersede or
limit in any way the Employee’s rights under any benefit plan, program, or arrangements in
accordance with their terms. Nor shall this Agreement supersede or limit in any way the Employee’s
obligations and the Company’s rights under the parties’ prior Nondisclosure Agreement, as
incorporated by reference in Section 8(d) above.
IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the date
first written above.
Restore Medical Inc.
By:
|
/s/ Xxxx X. Xxxxxxx | /s/ J. Xxxxxx Xxxxxxx, Xx. | ||||
| Name: Xxxx X. Xxxxxxx, Ph.D. | J. Xxxxxx Xxxxxxx, Xx. | |||||
| Title: Executive Chairman | ||||||
Exhibit A
TRANSACTION BONUS
CALCULATION EXAMPLE
Transaction Bonus |
||||||||||||||||
Calculation Examples |
||||||||||||||||
Restore Sale Price |
$ | 60,000,000 | $ | 80,000,000 | $ | 100,000,000 | $ | 120,000,000 | ||||||||
1X Preference |
$ | (40,895,905 | ) | $ | (40,895,905 | ) | $ | 40,895,905 | ) | $ | (40,895,905 | ) | ||||
Net Transaction Bonus
Amount (NTBA) |
$ | 19,104,095 | $ | 39,104,095 | $ | 59,104,095 | $ | 79,104,095 | ||||||||
Bonus Calculation
(4% X NTBA) |
$ | 764,164 | $ | 1,564,164 | $ | 2,364,164 | $ | 3,164,164 | ||||||||
| $60 Million | $80 Million | $100 Million | $120 Million | |||||||||||||
Bonus Amount |
$ | 764,164 | $ | 1,564,164 | $ | 2,364,164 | $ | 3,164,164 | ||||||||
Net stock option proceeds |
$ | — | $ | — | $ | 1,198,991 | $ | 1,959,553 | ||||||||
Total |
$ | 764,164 | $ | 1,564,164 | $ | 3,563,155 | $ | 5,123,717 | ||||||||
Percent of Total Proceeds |
1.27 | % | 1.96 | % | 3.56 | % | 4.27 | % | ||||||||
4 percent |
$ | 2,400,000 | 3,200,000 | 4,000,000 | 4,800,000 | |||||||||||
