EXECUTIVE SEVERANCE AGREEMENT
This EXECUTIVE SEVERANCE AGREEMENT (the "Agreement") is made as of
April 1, 2004, by and between SCAN-OPTICS, INC. (the "Company") and Xxxxx X.
Xxxxxxxx (the "Executive").
RECITALS:
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A. The Executive is an executive of the Company and has made
and is expected to continue to make major contributions to the short- and
long-term profitability, growth, and financial strength of the Company;
B. The Company recognizes that the possibility of a Change of
Control (as hereafter defined) exists;
C. The Company desires to assure itself of both present and
future continuity of its management and desires to establish certain severance
benefits for key executive officers of the Company, including the Executive,
applicable in the event of a Change of Control; and
D. The Company wishes to aid in assuring that such executives
are not practically disabled from discharging their duties in respect of a
proposed or actual transaction involving a Change of Control.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. Certain Defined Terms: In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual aggregate fixed
base salary from the Company at the time in question.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" means a change of control of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
the Company is then subject to such reporting requirement; provided
that, without limitation, such a Change of Control shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 22% or more of
the combined voting power of the Company's then outstanding securities;
or (ii) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at
the beginning of such period constitute the Board and any new
directors, whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof.
(d) "Cause" means that, prior to any Termination by the
Executive for Good Reason, the Executive shall have:
(i) committed an intentional act of fraud,
embezzlement, or theft in connection with the Executive's
duties or in the course of his employment with the Company;
(ii) committed intentional wrongful damage to
property of the Company; or
(iii) intentionally and wrongfully disclosed
confidential information of the Company;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act on the part of the Executive shall
be deemed "intentional" if it was due primarily to an error in judgment
or negligence, but shall be deemed "intentional" only if done by the
Executive not in good faith and without reasonable belief that the
Executive's action or omission was in the best interests of the
Company. The determination of whether a Termination of the Executive's
employment is for "Cause" shall be made by the Board.
(e) "Commission Pay" means the average annual commissions paid
to the Executive by the Company during the three year period ending at
the time in question.
(f) "Date of Termination" means the date of receipt of a
Notice of Termination or any later date specified therein, as the case
may be; provided, however, that if the Executive is Terminated by the
Company other than for Cause or for disability pursuant to Section
2(a)(ii), the Date of Termination will be the date on which the
Executive receives a Notice of Termination from the Company; and
provided further, if the Executive is Terminated by reason of death or
disability pursuant to Section 2(a)(i) or 2(a)(ii), the Date of
Termination will be the last day of the month in which occurs the date
of death or the disability effective date, as the case may be.
(g) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under the plans and programs
maintained by the Company, including, but not limited to, plans and
programs which are "employee benefit plans" under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended, and any
amendment or successor to such plans or programs (whether insured,
funded or unfunded).
(h) "Good Reason" means the occurrence of any of the events
listed in Sections 2(b)(i) through 2(b)(vii), inclusive.
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(i) "Incentive Pay" means an annual amount equal to the
aggregate annual bonus, incentive compensation or performance pay, in
addition to Base Pay, made or to be made in regard to services rendered
in any calendar year or performance period pursuant to any bonus,
incentive compensation or performance pay plan of the Company.
(j) "Notice of Termination" means a written notice which (i)
indicates the specific provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for the Termination under the provision so indicated,
and (iii) if the effective date of the Termination is other than the
date of receipt of such notice, specifies the effective date of
Termination (which date will be not more than sixty (60) days after the
giving of such notice). The failure by the Executive to set forth in
the Notice of Termination any fact or circumstance which contributes to
a showing that the Executive is entitled to the benefits intended to be
provided by this Agreement will not constitute a waiver of any right of
the Executive hereunder or otherwise preclude the Executive from later
asserting such fact or circumstance in enforcing the Executive's rights
hereunder.
(k) "Severance Period" means the period of time commencing on
the date of an occurrence of a Change of Control and continuing until
the earlier of (i) the date which is two years following the occurrence
of the Change of Control and (ii) the Executive's death.
(1) "Term" means (i) the period commencing on the date hereof
and ending on the second anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Term shall be automatically
extended so as to terminate two years from such Renewal Date, unless at
least sixty (60) days prior to the Renewal Date the Company shall give
notice to the Executive that the Term shall not be so extended, (ii)
if, prior to a Change of Control, for any reason the Executive is
Terminated or Terminates, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect, and (iii) in the event of a
Change of Control, the Term will, without further action, be considered
to terminate at the expiration of the Severance Period.
(m) "Terminate", "Termination" and correlative terms mean the
termination of the Executive's employment with the Company and any
Affiliate or Subsidiary.
2. Termination Following a Change of Control: (a) If, during
the Severance Period, the Executive is Terminated, the Executive will be
entitled to the benefits provided by Section 3, unless such Termination is by
reason of one or more of the following events:
(i) The Executive's death;
(ii) The permanent and total disability of the
Executive, as defined in any long term disability plan of the
Company applicable to the Executive, as in effect immediately
prior to the Change of Control;
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(iii) Cause; or
(iv) The Executive's voluntary Termination in
circumstances in which Good Reason does not exist.
(b) In the event of the occurrence of a Change of Control, the
Executive may Terminate during the Severance Period with the right to
severance compensation as provided in Section 3 upon the occurrence of
one or more of the following events (regardless of whether any other
reason, other than Cause as hereinabove provided, for Termination
exists or has occurred, including, without limitation, other
employment):
(i) An adverse change in the nature or scope of the
authorities, powers, functions, responsibilities, or duties
attached to the position with the Company, which the Executive
held immediately prior to the Change of Control;
(ii) A reduction in the Executive's Base Pay as in
effect immediately prior to any Change of Control, or as it
may have been increased from time to time thereafter;
(iii) Any failure by the Company to continue in
effect any plan or arrangement providing Incentive Pay in
which the Executive is participating at the time of a Change
of Control (or any other plans or arrangements providing
substantially similar benefits) or the taking of any action by
the Company which would adversely affect the Executive's
participation in any such plan or arrangement or reduce the
Executive's benefits under any such plan or arrangement in a
manner inconsistent with the practices of the Company prior to
the Change of Control;
(iv) Any failure by the Company to continue in effect
any Employee Benefits in which the Executive is participating
at the time of a Change of Control (or any other plans or
arrangements providing the Executive with substantially
similar benefits) or the taking of any action by the Company
which would adversely affect the Executive's participation in
or materially reduce the Executive's benefits under any
Employee Benefits or deprive the Executive of any material
fringe benefit enjoyed by the Executive at the time of a
Change of Control;
(v) The liquidation, dissolution, merger,
consolidation, or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer, or otherwise) to
which all or a significant portion of its business and/or
assets have been transferred (directly or by operation of law)
assumed all duties and obligations of the Company under this
Agreement pursuant to Section 9;
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto; or
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(vii) Any action by the Company which causes the
Executive's services to be performed regularly at any office
or location greater than thirty-five (35) miles from the
office or location where the Executive was employed
immediately preceding the date of the Change of Control.
(c) Any Termination will be communicated by Notice of
Termination hereto given in accordance with Section 10 of this
Agreement.
3. Severance Compensation: (a) If, following the occurrence of
a Change of Control, the Executive is Terminated by the Company during the
Severance Period other than in the circumstances set forth in Section 2(a)(i),
2(a)(ii), or 2(a)(iii), or if the Executive Terminates for Good Reason:
(i) The Company will pay to the Executive in a lump
sum in cash within five business days after the later of the
date on which the Company receives the determination of the
Accounting Firm required in Section 4 hereof or the Date of
Termination an amount (the "Severance Payment") equal to the
sum of (A) 2.5 times the sum of Base Pay and Commission Pay at
the highest rates in effect at any time within the 90-day
period preceding the date the Notice of Termination was given
or, if higher, at the highest rates in effect at any time
within the 90-day period preceding the date of the first
occurrence of a Change of Control, plus (B) an amount equal to
2.5 times the greatest amount of Incentive Pay received by the
Executive during any year from and including the third year
prior to the first occurrence of a Change of Control, plus (C)
an amount equal to 2.5 times the matching contribution that
would be made by the Company to the Scan-Optics, Inc.
Retirement Savings Plan on the Executive's behalf if the
Executive deferred under such Plan four percent (adjusted for
any applicable limitation under the Internal Revenue Code of
1986, as amended) of the sum of Base Pay, Commission Pay and
Incentive Pay (at the rates used in (A) and (B) above) or such
higher percentage as may then be eligible for Company matching
contributions, plus (D) an amount equal to the value
(determined as of the Date of Termination and assuming
exercisability as of such date) of all options granted to the
Executive to acquire Company common stock that will not become
exercisable as a result of Executive's Termination; and
(ii) For two years following the Date of Termination,
the Executive shall be eligible for participation in and shall
receive all benefits under such benefit plans, practices,
policies and programs of the Company that provide medical,
prescription, dental, disability, accident or life insurance
coverage, with the costs of such participation to be paid by
the Company to the same extent as prior to the Executive's
Termination. In the event that such continued participation is
not allowed under the terms and provisions of such plans or
programs, then in lieu thereof, the Company shall acquire
individual insurance policies providing comparable coverage
for the Executive; provided that if any such individual
coverage is unavailable, the Company shall pay to the
Executive an amount equal to the contributions that would have
been made by the Company
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for such coverage on the Executive's behalf if the Executive
had remained in the employ of the Company for two years
following the Date of Termination.
(b) There will be no right of set-off or counterclaim in
respect of any claim, debt, or obligation against any payment to or
benefit for the Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit
required to be made or provided under this Agreement (including under
this Section 3 or Section 6) on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of
interest equal to the so-called composite "prime rate" as quoted from
time to time during the relevant period in the Northeast Edition of The
Wall Street Journal. Such interest will be payable as it accrues on
demand. Any change in such prime rate will be effective on and as of
the date of such change.
(d) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 3 and under
Sections 4 and 6 will survive any termination or expiration of this
Agreement following a Change of Control or any Termination following a
Change of Control for any reason whatsoever.
4. Excise and Other Taxes. The Executive shall bear all
expense of, and be solely responsible for, all federal, state, local or foreign
taxes due with respect to any payment received hereunder, including, without
limitation, any excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"); provided, however, that the Severance Payment
shall be reduced to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code. The foregoing
determination will be made by a nationally recognized accounting firm (the
"Accounting Firm") selected by the Executive and reasonably acceptable to the
Company (which may, but will not be required to be, the Company's independent
auditors). The Executive will direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Company and the
Executive within fifteen (15) days after the Date of Termination. If the
Accounting Firm determines that such reduction is required by this Section 4,
the Company shall pay such reduced amount to the Executive in accordance with
Section 3(a)(i). If the Accounting Firm determines that no reduction is
necessary under this Section 4, it will, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive will not be liable for any excise tax under Section 4999 of the Code.
The Company and the Executive will each provide the Accounting Firm access to
and copies of any books, records, and documents in the possession of the Company
or the Executive, as the case may be, reasonably requested by the Accounting
Firm, and otherwise cooperate with the Accounting Firm in connection with the
preparation and issuance of the determinations and calculations contemplated by
this Section 4. The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by this Section
4 will be borne by the Company.
5. No Mitigation Obligation: The Company hereby acknowledges
that it will be difficult, and may be impossible, for the Executive to find
reasonably comparable
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employment following the Date of Termination. The payment of the severance
compensation by the Company to the Executive in accordance with the terms of
this Agreement will be liquidated damages, and the Executive will not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise, nor will any profits, income, earnings,
or other benefits from any source whatsoever create any mitigation, offset,
reduction, or any other obligation on the part of the Executive hereunder or
otherwise.
6. Legal Fees and Expenses: If the Company has failed to
comply with any of its obligations under this Agreement or in the event that the
Company or any other person takes or threatens to take any action to declare
this Agreement void or unenforceable, or institutes any litigation or other
action or proceeding designed to deny, or to recover from, the Executive the
benefits provided or intended to be provided to the Executive hereunder, the
Company irrevocably authorizes the Executive from time to time to retain counsel
of the Executive's choice, at the expense of the Company to the extent hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement, or defense, including, without limitation, the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any member of the Board, officer, stockholder, or other
person or entity affiliated with the Company, in any jurisdiction. If the
Executive prevails, in whole or in part, in connection with any such litigation,
the Company will pay and be solely financially responsible for any and all
attorneys' and related fees' and expenses incurred by the Executive in
connection with such litigation.
7. Employment Rights: Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company prior to
or following any Change of Control.
8. Withholding of Taxes: Except as otherwise provided in this
Agreement, the Company may withhold from any amounts payable under this
Agreement all federal, state, city, or other taxes as the Company is required to
withhold pursuant to any law or government regulation or ruling.
9. Successors and Binding Agreement: (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization, or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including, without limitation, any persons acquiring directly or
indirectly all or substantially all of the business and/or assets of the Company
whether by purchase, merger, consolidation, reorganization, or otherwise (and
such successor will thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable, or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, and/or
legatees.
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(c) This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign,
transfer, or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 9(a) and 9(b).
Without limiting the generality or effect of the foregoing, the
Executive's right to receive payments hereunder will not be assignable,
transferable, or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by will or by the laws
of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 9(c), the Company will
have no liability to pay any amount so attempted to be assigned,
transferred, or delegated.
10. Notices: For all purposes of this Agreement, all
communications, including, without limitation, notices, consents, requests, or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
two business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or one business day
after having been sent by a nationally recognized overnight courier service,
addressed to the Company (to the attention of the Chairman of the Board) at its
principal executive office and to the Executive at the Executive's principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
will be effective only upon receipt.
11. Governing Law: The validity, interpretation, construction,
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Connecticut, without giving
effect to the principles of conflict of laws of such State, to the extent not
preempted by applicable federal law.
12. Validity: If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable, or otherwise illegal, the remainder of this Agreement
and the application of such provision to any other person or circumstances will
not be affected, and the provision so held to be invalid, unenforceable, or
otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid, or legal.
13. Non-Exclusivity of Rights: Nothing in this Agreement will
prevent or limit the Executive's present or future participation in any benefit,
bonus, incentive, or other plan or program provided by the Company for which the
Executive may qualify, nor will this Agreement in any manner limit or otherwise
affect such rights as the Executive may have under any stock option or other
agreements with the Company. Amounts or benefits which are vested or which the
Executive is otherwise entitled to receive under any plan or program of the
Company at or subsequent to the Date of Termination will be payable in
accordance with such plan or program, except as otherwise expressly provided in
this Agreement; provided, however, that any amounts received by the Executive
pursuant to this Agreement shall be in lieu of (but, if necessary to give effect
to this provision, shall be reduced by) any benefits which the Executive is
entitled to receive or may become entitled to receive under any
reduction-in-force or severance pay plan or practice which the Company now has
in effect or may hereafter put into effect, any other benefits to which the
Executive may be entitled under any previous individual agreement
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of employment or severance agreement with the Company which would provide a
benefit to the Executive upon the occurrence of, or the termination of
employment following, a Change of Control (whether or not so defined in said
individual agreement), and any severance benefits required under federal or
state law to be paid to the Executive.
14. Miscellaneous: No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
SCAN-OPTICS, INC.
By /s/ Xxxxx X. Xxxxx
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Name: Xxxxx X. Xxxxx
Title: Chairman, President and
Chief Executive Officer
/s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
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