DEFERRED EQUITY INCENTIVE AGREEMENT
Exhibit 10.17
DEFERRED EQUITY
INCENTIVE AGREEMENT
INCENTIVE AGREEMENT
THIS AGREEMENT is entered into on June 5, 2006, but is effective as of January 1, 2006 (the
“Effective Date”), between HYPERTENSION DIAGNOSTICS, INC., a Minnesota corporation (“Employer”);
and XXXX X. XXXXXXXX, a resident of the State of California (“Executive”).
INTRODUCTION
A. Purpose of Agreement. Executive is the Chief Executive Officer of Employer.
Employer desires to promote its long term growth and success by motivating and retaining Executive
in its employment; and to promote a greater identity of interest between Executive and its
shareholders, by providing him with certain additional benefits described below. Executive desires
to obtain additional security for himself and his family.
B. Deferred Equity Incentive. In consideration of the valuable services performed by
Executive in the past, and those to be performed by Executive hereafter, Employer desires to
provide Executive with an additional share in the value of Employer, in some ways similar to
ownership of its voting common stock. To accomplish this purpose, Employer intends to award to
Executive certain equity incentive compensation units (“Units”) that would: (1) have a current
value related to the net value of the voting common stock of Employer; (2) increase or decrease
with any future changes in the value of that stock and (3) be payable in cash only upon certain
events as described below.
C. Code Section 409A. This Plan is subject to Section 409A of the Code (as defined in
Section 2); and may be required to be amended to comply with Code Section 409A when proposed
regulations under Code Section 409A are issued.
AGREEMENT
1. Employment. Employer shall continue to employ Executive; and Executive shall
continue his current employment with Employer on an “at-will” basis, subject to the terms and
conditions of any other written agreement between them with respect to his employment. This
Agreement is not intended to change any such other agreement or any of Executive’s compensation or
benefits not expressly described in this Agreement.
2. General Definitions. The following terms, and others defined in this Agreement,
shall apply for all purposes of this Agreement:
(a) “Account” means Executive’s Unit Account, his Distribution Account, or either or
both of them, as the context requires.
(b) “Board” shall mean the Board of Directors of Employer; or any committee of the
Board authorized to determine Employee’s compensation from Employer.
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(c) “Cause” means: (i) Executive’s conviction of a felony or other crime involving
moral turpitude; (ii) Executive’s act or acts of personal dishonesty or willful misconduct
adversely affecting the Employer or any of its customers or employees; or (iii) Executive’s
material neglect of the Employer’s business, unless such neglect is caused by Executive’s
physical or mental disability; provided, however, that the term “Cause” shall not include
ordinary negligence or failure to act, whether due to an error in judgment or otherwise, if
Executive has exercised substantial efforts in good faith to perform the duties reasonably
assigned or appropriate to his position with the Employer.
(d) “Code” means the Internal Revenue Code of 1986, as amended.
(e) “Change in Control” shall have the meaning set forth in Section 6(d).
(f) “Deferred Incentive Benefit” means the net sum (not less than zero) of the amounts
standing in Executive’s Account or Accounts. Any Deferred Incentive Benefit due Executive
or his beneficiaries shall be payable as deferred compensation for services rendered by
Executive before such payment. The Deferred Incentive Benefit shall not be deemed to be
Employer Stock or any other equity interest in Employer; and shall not entitle Executive to
any of the rights of a shareholder in Employer.
(g) “Distribution Account” means a deferred compensation account established and
maintained solely for accounting purposes by Employer as the record of the net sum (not less
than zero) transferred by Employer from Executive’s Unit Account for distribution to
Executive pursuant to Section 7, plus interest credited on the remaining balance of that sum
pursuant to Section 7, less payments from the Distribution Account to Executive. Whenever
the balance of the Distribution Account is deposited into the Distribution Trust, the
Distribution Account shall continue to be maintained.
(h) “Distribution Date” shall mean the applicable date determined under Section 7 (or
elected by Executive under Section 9) and following the Distribution Event, as of which
payment of the Deferred Incentive Benefit will commence in the manner specified in Section 7
(or elected by Executive under Section 9) for that Distribution Event.
(i) “Distribution Event” shall mean the earliest of the following events:
(i) Executive’s Termination of Employment,
(ii) Executive’s death while employed by the Employer Group,
(iii) the closing of a Change in Control, or
(iv) Executive remains employed by the Employer Group through December 31,
2011.
(j) “Distribution Trust” shall mean the trust fund established pursuant to Section 8
for the benefit of Executive and the other general creditors of Employer.
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(k) “Effective Date” means January 1, 2006.
(l) “Employer Group” shall mean, collectively, Employer and all other business entities
that are directly or indirectly owned by Employer or related to Employer through any form of
common ownership.
(m) “Fair Market Value” of a share of Employer Stock on a specified Valuation
Date shall be, unless otherwise expressly provided in this Agreement, that amount which the
Board determines in good faith to be 100% of the fair market value of such a share as of
that Valuation Date; provided, however, that, if such shares are listed on a U.S. securities
exchange, quoted on the Nasdaq National Market or Nasdaq Capital Market, or reported on
another nationally-recognized trading system (including without limitation on the
Over-the-Counter Bulletin Board), then Fair Market Value shall be determined by reference to
the average of the closing prices of a share of Employer Stock, as so quoted or reported
during the last 10 trading days preceding that Valuation Date. If the Board determines Fair
Market Value in the absence of any such trading price, it may do so with or without the
assistance of an expert appraiser; and such determination shall be final, conclusive and
binding on all parties for purposes of this Agreement.
(n) “Employer Stock” means voting common stock of Employer.
(o) “Grant Date” shall mean each date as of which any Units are credited to Executive’s
Unit Account under Section 3.
(p) “Sale Transaction” shall mean a Change in Control consisting of a change in the
ownership of Employer or substantially all of its assets, as those transactions are
described in the definition of Change in Control hereunder.
(q) “ Termination of Employment” means Executive’s separation from service with
the Employer Group for any reason, voluntary or involuntary, other than his death; provided,
however, that:
(i) Executive’s employment shall be treated as continuing while he is on
military leave, sick leave or other bona fide leave of absence, if the period of
such leave does not exceed six months or, if longer, any period during which
Executive’s right to return to active service with the Employer Group is provided
either by statute or by contract. If any such leave exceeds six months and
Executive has no statutory or contract right to return to active service, he will be
deemed to have separated from service on the day after such six-month period. The
employment of Executive shall also be deemed to be terminated during the approved
period of any leave of absence granted to Executive by the Employer, if Executive or
the Employer notifies the other of a Termination of Employment before the end of
that period.
(ii) Executive’s employment shall be treated as continuing while he continues
to provide services in any capacity other than as an employee, at an annual rate at
least 50% of the annual rate of services rendered, on average, during the
immediately preceding three full calendar years of employment (or any lesser period
of employment); and the annual compensation for such continuing services is at least
50% of the annual compensation earned during such preceding period. The annual rate
of providing services shall be based on the measurement used to determine
Executive’s base compensation, such as time to earn salary, hourly pay or payments
for specific projects.
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(iii) Executive shall be treated as separated from service with the
Employer Group if any agreement or arrangement for continuing services indicates
that the parties do not intend that Executive provide more than insignificant
services. Executive shall not be treated as separated from service if Executive
continues to provide services as an employee, at an annual rate at least 20% of the
annual rate of services rendered (measured in the manner provided by the preceding
paragraph), on average, during the immediately preceding three full calendar years
of employment (or any lesser period of employment); and the annual compensation for
such continuing services is at least 20% of the annual compensation earned during
such preceding period.
(r) “Unit” means a unit of deferred incentive compensation credited by Employer to
Executive’s Unit Account under Section 3; and measured by the value of a share of Employer
Stock, as determined under Section 4, as of any date on which the Unit remains in
Executive’s Unit Account.
(s) “Unit Account” means a deferred compensation account established and maintained
solely for accounting purposes by Employer as the record of the number and value of Units
credited to Executive by Employer and valued under Section 4, less any amounts transferred
to a Distribution Account pursuant to Section 7 upon the occurrence of a Distribution Event.
(t) “Valuation Date,” with respect to the valuation of Units, shall mean (i) each Grant
Date, (ii) the last day of each calendar year ending after the Effective Date and before the
Distribution Event, and (iii) the date of the Distribution Event.
(a) Grant of Units for 2006. As of the last day of each month of 2006 on which
Executive remains an employee of any member of the Employer Group (a “Grant Date”), Employer
shall grant to Executive One Hundred Seventy-five Thousand (175,000) Units, which shall be
credited to his Unit Account.
(b) Process for Any Future Unit Grants. The Board may, in its sole
discretion, determine whether and how many additional Units will be granted to Executive
under this Agreement for any calendar year after 2006. If any additional Units will be
granted hereunder to Executive for a calendar year: (i) Employer shall provide Executive
with written notice of such grant, any conditions that must be satisfied by Executive before
such grant or any portion thereof would become earned and vested, and the Grant Date or
Grant Dates on which such additional Units would be credited to Executive’s Unit Account;
and (ii) any such additional Units shall be subject to all of the other terms and conditions
of this Agreement, including, without limitation, any Distribution Date or payment method
elections that may previously or subsequently be made by Executive under Section 9.
(c) Unit Account. The Unit Account maintained by Employer for Executive shall
be the record of Units granted to him by Employer under this Agreement, but shall be created
solely for accounting purposes and shall not require a segregation of any Employer assets,
nor the creation of any trust.
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(d) Adjustment of Units for Corporate Transactions. In the event of any change
in the outstanding shares of Employer Stock by reason of an issuance of additional shares
without fair consideration or a recapitalization, reclassification, reorganization, stock
split, reverse stock split, combination of shares, stock dividend or similar transaction,
the Board shall proportionately adjust, in an equitable manner, the total number of Units
issued by Employer and still held by Executive under this Agreement. The foregoing
adjustment shall be made in a manner that will cause the economic relationship between (i)
the value of a share of Employer Stock (as determined under Section 4), and (ii) the value
of each Unit determined with respect to a share of Employer Stock, to remain unchanged as a
result of the applicable transaction.
(e) Unit Account Statements. Employer shall provide to Executive, not less
frequently than annually, a written statement reflecting the number of Units and the dollar
amount credited to Executive’s Unit Account as of the latest Valuation Date.
4. Valuation of Units. As of each Valuation Date, the value of each Unit in
Executive’s Unit Account shall be equal to the estimated value of one share of Employer Stock,
determined as follows:
(a) Fair Market Value. If the Valuation Date is not the closing date of a Sale
Transaction, such value shall be the Fair Market Value of a share of Employer Stock.
(b) Sale Transaction. If the Valuation Date is the closing date of a Sale
Transaction, such value shall be the Net Proceeds of the Sale Transaction, divided by the
number of shares of Employer Stock affected by the Sale Transaction. For this purpose, “Net
Proceeds” means the total amount realized by shareholders of Employer, net of selling
expenses, in cash, securities and/or other property in connection with a Sale Transaction.
If a Sale Transaction results from the sale or exchange of all of the Employer Stock or
substantially all assets of Employer, the gross dollar amount of such Net Proceeds shall be
based on the total amount realized (net of selling expenses) in cash, securities and other
property (at fair market value) to be received by shareholders of Employer for all of their
shares of Stock either (i) sold or exchanged in the Sale Transaction, or (ii) to be canceled
upon dissolution of Employer following the Sale Transaction. If a Sale Transaction results
from a sale or exchange of less than all of the Employer Stock, the gross dollar amount of
such Net Proceeds shall be based on the value of all of the Employer Stock, whether or not
sold or exchanged, as indicated by the value of the consideration received for the Employer
Stock actually sold or exchanged. For purposes of this Agreement, the Board, in its sole
discretion, shall determine the fair market value of any property (other than cash) to be
received by shareholders of Employer in connection with a Sale Transaction.
5. Crediting of Units with Dividend Equivalents. If Units exist in Executive’s Stock
Unit Account on a dividend record date for Employer Stock, the Stock Unit Account shall be
credited, on the dividend payment date related to such dividend record date, with an additional
number of Units equal to (a) the cash dividend paid on one share of Employer Stock, multiplied by
(b) the number of Units in the Stock Unit Account as of the dividend record date, divided by (c)
the Fair Market Value of one share of Employer Stock as of the dividend payment date.
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6. Definitions Relating to a Change in Control. For purposes of this Section
6, the following terms shall have the meanings set forth below, which shall be interpreted by
reference to the regulations issued under Code Section 409A, unless the context clearly requires
otherwise:
(a) “Acquiring Group” shall mean “persons acting as a group,” as that phrase is defined
in the regulations issued under Code Section 409A, which does not include persons who happen
to purchase equity interests of the same entity at the same time, such as in an offering of
equity interests to the public.
(b) “Beneficial Ownership” of an equity interest by a person or Persons Acting as a
Group shall mean their direct ownership, their indirect ownership of such an interest
subject to a vested purchase option, and any other ownership of such an interest attributed
to them under Code Section 318(a); provided, however, that a vested purchase option to
purchase an equity interest that would not be substantially vested, as defined in Section
1.83-3(b) and (j) of the regulations issued under Code Section 83, and would not be
considered part of the beneficial ownership, as defined herein.
(c) “Board” shall mean the Board of Directors of an Employer or any Employer Parent, as
applicable.
(d) “Change in Control” shall mean that any of the following has occurred after the
date of this Agreement with respect to any Employer or any Employer Parent:
(i) any person or Acquiring Group acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by such person or Acquiring
Group) Beneficial Ownership of capital stock of an Employer or any Employer Parent
that constitutes more than 35% or more of the total fair market value and total
voting power of the equity interests in such Employer or Employer Parent;
(ii) any person or Acquiring Group acquires Beneficial Ownership of equity
interests in the Employer or the Employer Parent that, together with any such equity
interests held by such person or Acquiring Group, (A) constitute more than 50% of
the total fair market value and total voting power of the equity interests in such
Employer or Employer Parent and (B) remain outstanding after such acquisition;
provided, however, that if any person or group has already acquired Beneficial
Ownership of more than 35% of the total fair market value and total voting power of
such equity interests under clause (i) above, the acquisition of additional equity
interests by them shall not constitute a “Change in Control;”
(iii) the occurrence, within any twelve (12) month period, of a change in the
members of the Board of an Employer or Employer Parent that in either case has no
Employer Parent, with the result that the Incumbent Members no longer constitute a
majority of the Board members; or
(iv) any person or Acquiring Group acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such person or
Acquiring Group) assets from the Employer or the Employer Parent that have a total
fair market value equal to 40% or more of the total gross fair market value of all
of the assets of such Employer or Employer Parent immediately before such
acquisition or acquisitions, unless such assets are transferred in a Related Party
Transfer. For this purpose, gross fair market value of assets means their value
without regard to any liabilities associated with such assets.
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(e) “Employer” shall mean, for purposes of this Section 6, Employee’s original
employer under this Agreement, any other employer for whom Employee is performing services
under this Agreement at the time of a Change in Control, or any other entity that is liable
for payment of benefits to Employee under this Agreement in the event of a Change in
Control.
(f) “Employer Parent” shall mean the Majority Owner of an Employer, or any entity in a
chain of entities in which each entity is a Majority Owner of another entity in the chain,
ending in an Employer.
(g) “Incumbent Members,” with respect to any period, shall mean the members of the
Board on the date immediately preceding the commencement of such period; provided, however,
that any person becoming a member of the Board during such period whose election or
nomination for election was supported by a majority of the Board members who, on the date of
such election or nomination for election, comprised the Incumbent Members shall be
considered one of the Incumbent Members with respect to such period.
(h) “Majority Owner” shall mean any entity (other than any individual or individuals)
that owns more than 50% of the total fair market value and total voting power of the equity
interests in another entity.
(i) “Related Party Transfer” shall mean any transfer by an Employer or an Employer
Parent that is made to a “related party” described in Section 1.409A-3(g)(5)(vii)(B) (or any
successor section defining such term) of the regulations issued under Code Section 409A.
(a) Transfers to Distribution Account and Distribution Trust. Upon the
occurrence of the Distribution Event: (i) the Unit Account shall be valued pursuant to
Section 4 as of the Valuation Date related to the Distribution Event; (ii) the resulting
Unit Account value shall be transferred as of that Valuation Date from Executive’s Unit
Account to a Distribution Account established by Employer for Executive under this Section
7; and (iii) Employer shall deposit, into a trust established by Employer for Executive
pursuant to Section 8, an amount of cash equal to at least the balance of the Distribution
Account (including any interest accrued under the following paragraph).
(b) Interest. Beginning as of the date of the Distribution Event,
interest shall be accrued on the remaining balance of the Distribution Account, at a rate
equal to the applicable Federal rate in effect under Code section 1274(d) then in effect,
but not to exceed eight percent (8%) per year, compounded (if needed), and credited to the
Distribution Account at the end of each month following the Distribution Event.
(c) Commencement and Form of Payment. Employer (or the trustee of
the Distribution Trust) shall commence payment to Executive of the balance of the
Distribution Account as of the applicable Distribution Date specified or elected below; and
in the form of a cash lump sum or monthly cash installments, as specified in the following
subsection (d) or elected by Executive as permitted under Section 9.
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(d) Normal Distribution Dates and Forms of Payment. Unless payments of the
Deferred Incentive Benefit must be delayed for six months after a Termination of Employment
pursuant to subsection (e) of this Section 7, or Executive has elected (pursuant to Section
9) a later Distribution Date or different form of payment to follow the applicable
Distribution Event, the Distribution Date and the form of payment shall be those set forth
below for the applicable Distribution Event:
(i) If the Distribution Event is a Change in Control that is a Sale
Transaction, distribution shall be made on the closing date of the Sale Event, in
the form of a cash lump sum.
(ii) If the Distribution Event is a Change in Control (other than a Sale
Transaction) or an involuntary Termination of Employment without Cause, distribution
shall commence as of the first day of the month beginning after the Distribution
Event, in the form of 12 equal monthly installments, plus monthly payments of
interest accrued during the previous month.
(iii) If the Distribution Event is a voluntary Termination of Employment,
distribution shall commence as of the first day of the month beginning after the
Distribution Event, in the form of 24 equal monthly installments, plus monthly
payments of interest accrued during the previous month.
(iv) If the Distribution Event is an involuntary Termination of Employment for
Cause, distribution shall commence as of the first day of the month beginning after
the Distribution Event, in the form of 48 equal monthly installments, plus monthly
payments of interest accrued during the previous month.
(e) Six Month Payment Delay if Executive is a Specified Employee.
Notwithstanding any contrary provisions of this Agreement, if Executive is treated as a
Specified Employee (as described in the following paragraph), as of the date of his
Termination of Employment, no portion of the Deferred Incentive Benefit may be paid to
Executive by Employer or the trustee of the Distribution Trust before a date that is at
least six months after the date of his Termination of Employment (or, if earlier, the date
of his death). If any payments of the Deferred Incentive Benefit is otherwise scheduled to
be made before the end of such period, those benefit payments will be made (with accrued
interest) immediately after the end of such six-month period. This paragraph shall not
apply to a Distribution Event that is a Change in Control or Executive’s death.
“Specified Employee” means an individual who is a “key employee,” as defined in Code
Section 416(i) (without regard to subsection (5) of that section), of the Employer Group and
meets the requirements of subsection (i), (ii) or (iii) of Code Section 416 (applied under
applicable Treasury Regulations and disregarding subsection (i)(5) of that section) at any
time during the 12-month period ending on December 31, 2005, or any later December 31st. If
Executive is identified as such a “key employee” during any such 12-month period, he shall
be treated as a Specified Employee under this paragraph for the 12-month period beginning on
the next April 1st; provided, however, that Executive shall not be treated as a Specified
Employee if no stock of Employer is publicly traded on an established securities market as
of the date of his Termination of Employment.
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(f) No Acceleration of Payments. Except as specifically permitted or required
under this Agreement or the Distribution Trust, neither Employer (or the Board) nor
Executive (or any of his beneficiaries) shall have the right to have any portion of the
Deferred Incentive Benefit paid before the time it is otherwise scheduled or required to be
made under this Agreement.
(g) Employer’s Rights. Employer shall have the right to deduct, from all
amounts payable to Executive under this Agreement, any debts owed to the Employer by
Executive and, except as otherwise provided in Section 15, any taxes required by law to be
withheld with respect to such payments.
8. Distribution Trust. Within 10 days after Employer receives notice of Executive’s
death or any voluntary Termination of Employment by Executive or, if applicable, no later than the
day before the closing date of a Change in Control or the day before the effective date of any
involuntary Termination of Employment by Employer, Employer shall establish a trust (the
“Distribution Trust”) for the benefit of Executive; and contribute thereto an amount of cash
sufficient to pay the Deferred Incentive Benefit, but the assets of any such trust shall remain
subject to the claims of Employer’s general creditors, and neither Executive nor any of his
beneficiaries shall have any right to any of such assets, except in their capacity as unsecured
general creditors of Employer. The Distribution Trust shall be established according to the terms
and conditions (including the identity of the trustee) of the trust agreement attached hereto as
Exhibit A, executed by Employer and the initial trustee and hereby made a part hereof.
If, at any time after such deposit, the fair market value of the assets of the Distribution
Trust is less than the remaining balance of the Distribution Account, Employer shall also deposit
into the Distribution Trust sufficient assets to eliminate such deficit; provided, however, that
except as provided in the following sentence, no Employer deposit into the Distribution Trust shall
reduce Employer’s obligation to pay the Deferred Incentive Benefit. To the extent that any portion
of the Deferred Incentive Benefit is paid to Executive or any of his beneficiaries by the trustee
of the Distribution Trust, the Distribution Account shall be reduced by the amount of such payment
and Employer’s obligation to pay that portion of Deferred Incentive Benefit shall be discharged to
the extent of the trustee’s payment.
9. Permitted Elections of Delayed Payments and Alternative Forms of Payment. At a
time and in a manner permitted under this Section 9, Executive may make the following elections to
delay any Distribution Date to a date later than those specified in Section 7, or elect a form of
payment different from those specified in Section 7:
(a) Initial Elections. When this Agreement is executed by Executive and
Employer, Executive may make the following elections:
(i) Later Distribution Dates. Executive may elect, with respect to any
type of Distribution Event, to have payment of the Deferred Incentive Benefit
delayed until a later Distribution Date for that event, which may be the first day
of either (i) any month elected in a future year before the year 2013, or (ii) the
month following an elected number of months (not greater than 120), in either case
after the applicable Distribution Date specified in Section 7, but not later than
the first day of the month following Executive’s 65th birthday.
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(ii) Alternative Forms of Payment. Executive may elect, with respect
to any type of Distribution Event, to receive payment of the Deferred Incentive
Benefit in either:
(A) monthly installments beginning on the applicable Distribution Date
and payable during any period that does not exceed 120 months; or
(B) a cash lump sum payable on any applicable Distribution Date;
provided, however, that, if the Distribution Event is an involuntary
Termination of Employment for Cause, the lump sum payment shall not be made
before the date otherwise scheduled under Section 7 for the 48th
monthly installment.
(iii) Procedure and Time for Initial Elections. Executive’s initial
elections of a delayed Distribution Date and/or alternative payment form under this
subsection (a) must be delivered to the Board in writing (on a form provided by
Employer and signed by Executive) no later than the date this Agreement is executed
by Employer and Executive; and may not be changed thereafter except to the limited
extent permitted under the following provisions of this Section 9.
(i) Special Elections Made in 2006. As long as Executive has not
received, and is not scheduled to receive, any Deferred Incentive Benefit payment
before 2007, he may make a new election or elections under subsection (a) above at
any time during 2006; provided, however, that any such election shall apply only to
amounts that would not otherwise be payable in 2006, and shall not cause an amount
to be paid in 2006 that would not otherwise be payable in that year.
(ii) Elections After 2006 to Delay Time of Payment and Change Form. In
addition, if Executive has not commenced receiving any payments from his
Distribution Account, and he has not attained age 59, he may elect at any time after
2006, with respect to any type of Distribution Event, to delay any Distribution Date
already scheduled for that type of Distribution Event under the preceding provisions
of this Section 9, to any later date that is (A) permitted under subsection (a)(i)
above, and (B) except in the case of a payment to be made after a Distribution Event
that is Executive’s death, is at least five years after the previously scheduled
Distribution Date for that type of Distribution Event; and if Executive does so, he
may also elect to change the form of payment of that type of type of Distribution
Event to any form permitted under subsection (a)(ii) above; provided, however, that
no election under this paragraph (ii) shall be effective until 12 months after the
Board receives the written election and, if any portion of the Deferred Incentive
Benefit becomes payable within such 12-month period at a time previously scheduled
Section under this Agreement, such election shall not have any effect, and the
Deferred Incentive Benefit shall be payable at such previously scheduled time, in
the manner previously required or elected under this Agreement.
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(iii) Procedure for Subsequent Elections. Any election made by
Executive under this subsection (b) shall be made in writing (on a form provided by
Employer and signed by Executive) and delivered to the Board.
10. Survivor Benefits. In the event of Executive’s death, the following benefits
shall be payable to his beneficiary or beneficiaries designated under subsection paragraph (e)
below (the “beneficiary”):
(a) Before Any Other Distribution Event. If Executive dies before any other
Distribution Event, Employer shall pay to his beneficiary the Deferred Incentive Benefit
amount that would have been payable to Executive if his Termination of Employment had
occurred on the date of his death, at the time and according to the payment method specified
in Section 7 (or elected under Section 9) for a Distribution Event that is Executive’s
death.
(b) After Another Distribution Event. If Executive dies after another
Distribution Event, but before Executive has received all of the Deferred Incentive Benefit
amounts due him, Employer shall pay the remaining amounts of Executive’s Deferred Incentive
Benefit to his beneficiary, at the time and according to the payment method specified in
Section 7 (or elected under Section 9) for the Distribution Event that already occurred.
(c) Death of Beneficiary. In the event a beneficiary becomes entitled to
benefits under this Section 10 and the beneficiary dies after the death of Executive, but
before the beneficiary receives all of the payments due the beneficiary under this Section
10, the remaining payments shall be paid to the beneficiary’s estate or other legal
representative.
(d) No Duplication of Benefits. If the entire benefit due under this Section
10 is paid to Executive’s beneficiary (or a beneficiary’s estate), Employer shall not be
obligated to pay any other benefits under this Agreement to anyone (including, without
limitation, Executive’s estate or other legal representative).
(e) Designation of Beneficiary. Executive may designate one or more
beneficiaries to receive all or any portion of the benefits under this Section 10, by giving
Employer a signed written notice of such designation on a form the Employer may provide.
Executive may revoke or modify each such designation at any time by a further written
designation. Any such beneficiary designation made by Executive shall be automatically
revoked if the beneficiary dies before the death of Executive or, if the beneficiary is
Executive’s spouse, if his marriage to that spouse is dissolved while they are both alive.
If no beneficiary designation remains in effect when Executive dies, the beneficiary shall
be the spouse of Executive, or if no spouse of Executive is then living, the beneficiary
shall be Executive’s estate or other legal representative.
11. Compliance with Rule 16b-3 of the Securities Exchange Act. Transactions under
this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Securities Exchange Act of 1934, as amended; and in all events the Plan shall
be construed in accordance with Rule 16b-3. To the extent any provision of this Agreement or
action by Employer or the Board fails to so comply, such provision or action shall be deemed null
and void to the extent permitted by law and deemed advisable by the Board.
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12. Interpretation and Compliance with Code Section 409A. The captions at the head of
a Section, subsection or a paragraph of this Agreement are designed for convenient reference only
and are not to be used for the purpose of interpreting any provision of this Agreement. Except as
provided in the following paragraph, this Agreement shall be construed according to the laws of the
State of Minnesota without regard to its conflict of laws provisions.
During the period between January 1, 2006, and December 31, 2006, Employer shall, operate and
administer this Agreement in a manner that complies in good faith with Code Section 409A, Internal
Revenue Service Notice 2005-1, the Proposed Regulations issued thereunder on October 4, 2005, and
subsequent guidance issued under Code Section 409A, notwithstanding any contrary provisions of this
Agreement. After December 31, 2006, this Agreement shall be operated and interpreted in a manner
intended to comply with Code Section 409A and any Treasury Regulations issued thereunder.
13. No Employer Obligation to Provide Life Insurance or Other Funding. Employer shall
not be obligated under this Agreement to acquire or retain any insurance on Executive’s life, or
provide or hold any other assets as funding or security for its performance under this Agreement.
Executive’s rights under this Agreement shall not be contingent upon any purchase of insurance or
other assets by Employer.
However, Employer in its sole discretion may apply for and obtain, as owner and for its own
benefit, insurance on the life of Executive, in such amounts and in such forms as Employer may
choose. Executive shall not be entitled to any interest in any such policy or policies. However,
at the request of Employer, Executive shall submit to medical examinations and supply such
information and execute such documents as may be reasonably required by any insurance company or
companies to whom Employer may have applied for insurance.
The rights of Executive, or his beneficiary or their respective estates, to benefits under
this Agreement shall be solely those of an unsecured creditor of Employer. Except to the limited
extent provided in Section 8 (with respect to the Distribution Trust), any insurance policy or
other asset acquired by or held by Employer with respect to Employer’s obligations under this
Agreement shall not be treated as held under any trust for the benefit of Executive, his
beneficiary or their respective estates, or as security for the performance of any obligations of
Employer under this Agreement. Any such asset of Employer shall be and remain a general, unpledged
and unrestricted asset of Employer.
14. No Assignment of Benefits. Neither Executive nor any beneficiary shall have any
right to assign, pledge or otherwise transfer any right to receive benefits under this Agreement or
the Distribution Trust. No creditor of Executive (or of any beneficiary) shall have any right to
garnish or otherwise attach any such benefits. In the event of any attempted assignment, pledge or
other transfer, or attempted garnishment or attachment by a creditor, Employer shall have no
further liability under this Agreement. Notwithstanding the foregoing, all or any portion of
Executive’s benefits under this Agreement and the Distribution Trust may be assigned to his former
spouse by a qualified domestic relations order (as defined in Section 414(p) of the Code).
15. Withholding of Income Taxes; Employer “Gross-up” Payment for FICA taxes. Employer
shall deduct, from any payments made under this Agreement, any Federal or state income taxes
required by law to be withheld from those payments; provided, however, that Employer shall pay:
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(a) to the Internal Revenue Service, Executive’s share of the FICA taxes imposed on the
Deferred Incentive Benefit under Code Section 3101 (or any successor section) for each
taxable period in which Units are granted to Executive (or any later time permitted under
Section 3121(v) of the Code); and
(b) to Executive the estimated amount of income taxes imposed on Executive as a result
of Employer’s payment of such FICA taxes, assuming a marginal income tax rate of 45%, less
any income tax withholding amount required to be remitted by Employer to any tax authority
with respect to the payments described in clauses (a) and (b) of this paragraph.
16. Entire Agreement. With respect to the terms expressed herein, this Agreement and
the attached trust agreement shall supersede any and all prior agreements between Executive and
Employer; and this Agreement contains the entire agreement of the parties hereto with respect to
the matters expressed herein.
17. Amendment. This Agreement may be amended only by a written instrument executed by
Employer and Executive.
18. Form of Communication. Any notice, request, claim or other communication required
or permitted to be made under this Agreement shall be made in writing and in a form, if any, as
Employer shall have prescribed. Any such communication shall be effective upon mailing, if sent by
first class mail, postage prepaid and, if sent to Employer, addressed to the Employer at its
principal business office, which is currently located at 0000 Xxxxxx Xxxx, Xxxxx 000, Xxxxx,
Xxxxxxxxx 00000; and, if sent to Executive, addressed to his principal residence as shown on the
records of Employer.
19. Binding Agreement. Except as otherwise provided herein, the provisions of this
Agreement shall be binding upon Executive and Employer and their respective successors; and any of
their permitted assigns, heirs, executors and beneficiaries, as applicable.
20. Employment Not Guaranteed. Neither this Agreement nor any action taken hereunder
shall be deemed to give Executive the right to be retained as an employee or officer of Employer.
21. Waiver. No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel to enforce any provision hereof, except by a written
instrument executed by the party charged with waiver or estoppel.
22. Attorneys’ Fees. In the event that any dispute between the parties concerning
this Agreement leads to legal action, the prevailing party shall be entitled to reimbursement by
the other party for all its costs and expenses incurred in such action, including, without
limitation, such party’s reasonable attorneys’ fees.
IN WITNESS WHEREOF, Executive has executed this Deferred Equity Incentive Agreement, and Employer
has caused it to be executed by its duly authorized representative, on the day and year first above
written.
| HYPERTENSION DIAGNOSTICS, INC. | ||
Xxxx X. Xxxxxxxx
|
Xxxxxxx X. Xxxxxxx | |
| Chairman of the Compensation Committee |
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