[LETTERHEAD]
November 24, 1997
Xx. Xxxx X. Xxxxxxx
0000 Xxxxxxxx Xxxxx
Xxxx Xxxx Xxxx, XX 00000
Dear Xx. Xxxxxxx:
We write to set forth our agreement with respect to your employment as the
President and Chief Executive Officer of RTW, Inc. (the "Company"),
commencing January 15, 1998 (the "Employment Date"). Upon execution of this
letter by the parties hereto, this letter shall be effective and shall bind
the Company from and after the date hereof, but shall be operative only upon
your actual commencement of employment with the Company. Prior to the date
your employment commences under this letter, you agree to provide consulting
services to the Company in accordance with the terms set forth on the
consulting agreement attached hereto as Exhibit 1 (the "Consulting
Agreement").
1. EMPLOYMENT. The Company hereby agrees to employ you, and you agree to
be employed by the Company, during the term stated in Section 6, and on the
terms and conditions hereinafter set forth. You will serve as the President
and Chief Executive Officer of the Company and its insurance subsidiary,
American Compensation Insurance Company, and, in addition, at no additional
compensation, be elected as a member of the Board of Directors, and in such
other directorships, Board committee memberships and offices of the Company
and its subsidiaries to which you may from time to time be elected or
appointed by the Chairman of the Board. You agree to serve the Company
faithfully and, to the best of your ability, to promote the Company's
interest, and to devote your full working time, energy and skill to the
Company's business. You may attend to personal business and investments,
engage in charitable activities and community affairs, and serve on a
reasonable number of corporate, educational and civic boards, including
Westminister College, so long as those activities do not interfere with your
duties under this Agreement and provided that service on any corporate boards
shall be subject to prior approval by the Board of Directors.
You will assume all of the duties and responsibilities as President and
Chief Executive Officer immediately upon the Employment Date. You will have
such authority, powers, functions, duties, and responsibilities as are
normally accorded chief executive officers. You will discharge your duties
at all times in accordance with any and all policies established by the Board
of Directors and will report to, and be subject to the direction of, the
Board of Directors. You will assume all the duties and responsibilities as a
director effective upon your election to the Board of Directors.
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Page 2
2. BASE SALARY.
As partial compensation for all of your services (including services as
director, Board committee member or officer of the Company and its
subsidiaries) during your term of employment hereunder, you will receive a
base salary at the rate of Four Hundred Thousand Dollars ($400,000) per
annum, payable in semi-monthly installments, which base salary will be
prorated for any partial years. Such base salary shall be reviewed annually
for increase at the discretion of the Board.
3. BONUS; STOCK OPTIONS.
(a) As additional compensation for your services, you shall be eligible
to earn bonus compensation for each fiscal year of the Company commencing
with the fiscal year ending December 31, 1998 during your term of employment
hereunder, based on a "target bonus" of $400,000 per annum and otherwise in
accordance with the criteria considered in an incentive compensation plan to
be mutually agreed to in advance of each such fiscal year by you and the
Company's Board of Directors.
(b) Pursuant to the Consulting Agreement, you received ten-year,
non-qualified stock options to purchase 500,000 shares of the Company's
Common Stock (the "NQSOs"). After your Employment Date but prior to February
1, 1998, you may request that the Company grant to you up to the maximum
number of incentive stock options ("ISO's") that may be issued to you (to
become exercisable during the period beginning on the Employment Date and
ending on the day after the third anniversary of your initial election to the
Board) under the Company's Amended 1994 Stock Plan and applicable law,
provided that a like number of NQSO's shall be surrendered by you for
cancellation. Such ISOs shall be exercisable at the same times and during
the same periods as the NQSOs and otherwise shall have substantially
identical provisions to the NQSOs, except to the extent contrary to
applicable law.
(c) You shall be eligible to receive additional stock options annually,
at the discretion of the Board.
(d) The Company will maintain in effect, throughout the periods that
the stock options described in this Section 3 remain exercisable, a
registration statement on Form S-8 or other appropriate form, registering
the shares of its Common Stock issuable pursuant to such options under the
Securities Act of 1933, as amended. If requested by you, the Company shall
prepare, file and maintain in effect any resale prospectuses under such
registration statement as may be required to permit you to resell your option
shares without restriction.
4. FRINGE BENEFITS.
(a) You will be eligible to participate in any and all Company
sponsored insurance (including medical, dental, life and disability
insurance), retirement, and other fringe benefit programs that it
maintains for its executive officers, subject to and on a basis
consistent with the terms of each such plan or program. A summary
of the benefits
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November 24, 1997
Page 3
currently in effect is set forth on the attached Exhibit 2. In
addition, the Company will, at the Company's expense, (i) provide
you with an additional $1,000,000 of term life insurance and (ii)
pay you an amount sufficient to enable you to maintain an
additional "own occupation" long-term disability policy (with a
three month waiting period) paying monthly benefits of $5,000. The
Company shall also maintain in effect directors and officers
liability insurance coverage during the term of this Agreement with
limits of $5,000,000, unless the cost thereof is uneconomic as
determined by the Board of Directors.
(b) You will be entitled to six weeks of paid vacation annually.
(c) The Company will provide for your relocation to
Minneapolis-St. Xxxx in accordance with the terms of the relocation
plan described on the attached Exhibit 3.
(d) The Company will pay you an additional amount required to pay
any income and payroll taxes payable by you, at the maximum
marginal rate, on the amounts paid by the Company pursuant to
clause (ii) of Section 4(a) and under Section 4(c) and on any
amounts paid pursuant to this Section 4(d).
5. EXPENSES. During the term of your employment, the Company will
reimburse you for your reasonable travel and other expenses incident to your
rendering of services in conformity with its regular policies regarding
reimbursement of expenses as in effect from time to time. Payments to you
under this paragraph will be made upon presentation of expense vouchers in
such detail as the Company may from time to time reasonably require.
6. TERM AND TERMINATION.
(a) TERM. The term of this Agreement will begin on January 15, 1998
and will continue for a period of three (3) years thereafter,
unless and until terminated in accordance with the terms of this
Agreement (the "Original Term"). Upon the expiration of the
Original Term of this Agreement, and on each successive anniversary
thereafter, the term of your employment under this Agreement will
be automatically extended for one (1) additional year, unless at
least 90 days prior to any such anniversary, either you or the
Company delivers to the other written notice of the notifying
party's desire not to extend the term of your employment. Notice by
the Company of its desire not to extend the term of your employment
as provided in this Section shall constitute termination without
Cause and entitle you to the benefits of Section 7(b) below.
(b) TERMINATION. This Agreement and your employment may be
terminated:
(i) By your resignation upon 30 days prior written notice to
the Company;
(ii) By you for Good Reason (as defined in this Agreement) upon
30 days prior written notice to the Company, provided that, with
respect to Good Reason
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Xx. Xxxx X. Xxxxxxx
November 24, 1997
Page 4
as defined in subsection (d)(iii)(E) of this Section, such
notice may not be given earlier than 90 days after a Change in
Control as defined in the NQSOs;
(iii) By the Company for Cause (as defined in this Agreement)
immediately upon written notice to you.
(iv) By the Company for any reason and at any time upon 30 days
prior written notice to you.
(v) By the Company at any time in the event of your Disability
(as defined in this Agreement.)
In the event of your termination of employment for any of the
foregoing reasons, you shall immediately resign as a director of the
Company and any of its subsidiaries.
(c) DEATH. This Agreement will automatically terminate upon your death.
(d) DEFINITIONS. For purposes of this Agreement, the following terms will
have the meanings set forth below:
(i) DISABILITY. "Disability" means that you are deemed to be
disabled under the terms of the Company's long term disability
plan and have satisfied the qualifying period for entitlement to
benefits under such plan (3 months of disability provided you do
not return to work for 15 consecutive days).
(ii) CAUSE. "Cause" means that you have (A) committed an act
of dishonesty or fraud or involving a breach of trust; (B)
committed any act or omission by you that is a substantial
cause for a regulatory body with jurisdiction over the Company
or any of its affiliates to request or recommend your
suspension or removal or to take punitive action against you,
the Company, or any of its affiliates; (C) failed to follow
any reasonable and material policy of the Company or
reasonable and material instructions of the Company's Board of
Directors; (D) been indicted for or convicted of any felony;
(E) engaged in any gross misconduct or gross negligence in the
performance of your duties; or (F) have otherwise materially
breached this Agreement; provided, however, that in the case
of conduct described in clauses (C), (E), and (F), the Company
must give you written notice of that failure or breach and you
will have 30 days to correct the same. You will be entitled
to a hearing before the Board of Directors of the Company
before any termination for Cause described in clauses (A),
(C), (E) and (F) becomes effective.
(iii) GOOD REASON. "Good Reason" means the Company, without
your express written consent, (A) materially reduces your
principal duties, responsibilities, or authority as President
and Chief Executive Officer, including by requiring you to
report to any person or body other than the Board of Directors
of the
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Xx. Xxxx X. Xxxxxxx
November 24, 1997
Page 5
Company; (B) reduces your annual base compensation as
described in Section 2 (including any increases given under
Section 2(b)) or your target bonus as described in Section 3,
or reduces the benefits provided you under any fringe benefit
plan; provided, however, that the Company alter, amend or
terminate any benefit plan not expressly provided for under
Sections 2 and 3 so long as any such change applies to
executive officers generally; (C) relocates the Company's
corporate headquarters or your principal place of work to a
state other than Minnesota; (D) materially breaches this
Agreement or (E) undergoes a Change in Control, as such term
is defined in the NQSOs. The occurrence of an event described
in this subparagraph (d)(iii) will not constitute Good Reason
unless, within 60 days thereof (90 days in the case of a
Change in Control), you give the Company written notice
stating that an event of Good Reason has occurred and
describing that event, and the Company does not correct the
same if the same is correctable within 30 days.
7. CONSEQUENCES OF TERMINATION.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. If
your employment is terminated by the Company for Cause or by you
without Good Reason, then you will be paid your base salary to the
date of termination and the unpaid portion of any bonus or
incentive amount earned by you for the fiscal year ending prior to
the termination of your employment which you are entitled to
receive under the terms of the annual incentive plan. You will not
be entitled to receive any base salary or fringe benefits for any
period after the date of termination, except for the right to
receive benefits which have become vested under any benefit plan or
to which you are entitled as a matter of law.
(b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. If
the Company terminates your employment without Cause or does not
extend the term of your employment, or if you resign your
employment for Good Reason, then:
(i) For the remainder of the term of this Agreement or a
period of 12 months after the effective date of the termination
of your employment whichever is greater;
(A) The Company will continue to pay your then current
base salary in accordance with the Company's normal
payroll practice; and
(B) All stock options issued to you by the Company described
in your Consulting Agreement in consideration for your
employment hereunder or pursuant to Section 3(b) above
shall immediately become exercisable in full; and
(C) The Company will pay the unpaid portion of any bonus or
incentive
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Xx. Xxxx X. Xxxxxxx
November 24, 1997
Page 6
amount earned by you for the fiscal year ending prior to
the termination of your employment which you are entitled
to receive under the terms of the applicable incentive
plan; and
(D) You will be entitled to continued participation in the
health care coverage, and life insurance benefit plans of
the Company, as in effect on the date of your
termination. The Company will continue to pay its share
of the health care and life insurance premiums for this
coverage, and you shall pay your share of the cost
associated with that coverage as if you were still
actively employed by the Company. In addition, the
Company shall pay you the amount described in Section
4(a)(ii) and 4(d) to enable you to maintain the long term
disability policy described therein. If you cannot be
covered under any of the Company's group plans or
policies, the Company will reimburse you for your full
cost of obtaining comparable alternative or individual
coverage elsewhere, less any contribution that you would
have been required to make under the Company's group
plans or policies, together with the amount contemplated
by Section 4(d) with respect to any such payment. If,
during the aforesaid 12-month period, you are employed by
a third party and become eligible for any health care
coverage provided by that third party, the Company will
not, thereafter, be obligated to provide you with the
insurance benefits described in this clause (D). This
12-month coverage shall run concurrently with COBRA and
thereafter you shall be responsible for the full cost of
any such coverage for which you may be entitled by law.
(ii) The Company will pay a reasonable amount for
out-placement and job search services for you by a nationally
recognized out-placement firm selected by you and reasonably
acceptable to the Company.
(c) TERMINATION IN THE EVENT OF DEATH OR DISABILITY. If your
employment terminates due to your death or if the Company
terminates your employment due to a Disability, then
(i) The Company will continue to pay your base salary to your
estate or to you for the remainder of the month in which your
death occurs or in which your employment is terminated due to
Disability, together with the unpaid portion of any bonus or
incentive amount earned by you for the fiscal year ending
prior to the termination of your employment which you are
entitled to receive under the terms of the applicable
incentive plan; and in the event of termination due to
Disability, you will continue to receive, during that month,
all of the fringe benefits then being paid or provided to you;
and
(ii) You will be entitled to receive all Disability and other
benefits, such as
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Xx. Xxxx X. Xxxxxxx
November 24, 1997
Page 7
continued health coverage or life insurance proceeds, provided
in accordance with the terms and condition of the health care
coverage, life insurance, disability, or other employee
benefit plans of the Company and applicable law; and
(iii) All stock options issued to you by the Company described in
your Consulting Agreement or pursuant to Section 3(b) above shall
immediately become exercisable in full.
(d) The benefits provided you under this Section 7 are in lieu of any
benefits that would otherwise be provided to you under any severance
pay or other policies of the Company.
(e) In connection with your voluntary termination of this Agreement
(including for Good Reason other than by
reason of a material breach of this
Agreement by the Company), you agree to
cooperate with the Company in recruiting
and orienting your successor as chief
executive officer. You recognize and
agree that the foregoing obligation may
require a portion of your time and effort
following termination of your employment,
and you agree to devote such time and
effort as is reasonably requested by the
Company to carry out the foregoing
obligations, provided that no such
obligations shall extend beyond 180 days
after the effective date of termination.
8. EFFECT OF TERMINATION ON STOCK OPTIONS.
(a) In the event of (i) the termination of your employment by the Company
for Cause, or (ii) your termination of your employment prior to the end
of the Original Term other than for Good Reason and other than reason of
death of Disability, the stock options granted to you under Section 3,
to the extent unexercised, shall immediately terminate and be without
further force or effect.
(b) In the event of your violation in any material respect of your
obligations under Section 10 following termination of your employment
and during such period as such provisions remain in effect:
(i) The stock options granted to you under Section 3, to the
extent unexercised, shall immediately terminate and be without
further force or effect.
(ii) The Company shall have the right to repurchase for cash any
shares of
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Xx. Xxxx X. Xxxxxxx
November 24, 1997
Page 8
Company's stock acquired by you as a result of the exercise of
any portion or all of the options and held by either you or by
any member of your family or by any trust or other entity in
which you or any member of your family has a beneficial
interest. The Company shall give you written notice of the
exercise of its right to repurchase and shall close on the
repurchase no later than six months after the date of notice.
The purchase price for the shares shall be the option exercise
price or the closing bid price for shares of the Company's
common stock on the date of notice, whichever is lower.
(iii) If you sell or have sold any shares acquired by you as a
result of the exercise of any portion or all of the options at
any time after the date which is 12 months prior to the date
of the termination of your employment, you shall pay to the
Company in cash, upon demand, all gains or other economic
value actually or constructively received by you, any member
of your family or any trust or other entity in which you or
any member of your family has a beneficial interest, upon the
sale of any such shares equal to the difference between the
option exercise price and the value received.
Notwithstanding the foregoing, the maximum value of the right to
repurchase under clause (ii) above and the recovery of gain under clause
(iii) above which the Company may recover shall be $1,000,000. The
foregoing limitation shall be applied first against the recovery of gain
on the sale of shares under clause (iii) and then from the repurchase of
any shares under clause (ii) based on the amount by which the closing
bid price on the date of notice exceeds the option exercise price. The
Company agrees that the $1,000,000 limit will be reduced to the extent
that you do not derive a federal income tax benefit from the payments
under this paragraph equal to the tax cost of the exercise of the
options and/or the sale of the shares.
9. NO MITIGATION. Following termination of your employment for any reason,
you will be under no obligation to mitigate your damages by seeking other
employment, and there will be no offset against the amounts due you under
Section 7, except as specifically provided in Section 7(b)(i)(D), or for any
claims which the Company may have against you.
10. CONFIDENTIAL INFORMATION, INVENTIONS AND NON-COMPETITION. In
consideration of the benefits provided you under this Agreement, you will,
concurrently with the execution of this Agreement, sign the form of Agreement
Regarding Confidential Information, Inventions and Non-Competition attached
as Exhibit 5 (the "Non-Competition Agreement"), and the Non-Competition
Agreement is, by this reference, incorporated in and made a part of this
Agreement. The remedies provided in the Non-Competition Agreement for
resolution of disputes under the Non-Competition Agreement will be in
addition to and not limited by Section 12 of this Agreement. In the event
that you breach the terms of the Non-Competition Agreement, the Company will
be relieved of the obligation to make any further payments to you under
Section 7(b).
11. INDEMNIFICATION. Concurrently with the execution of this Agreement, the
Company will enter into the form of Indemnification Agreement attached as
Exhibit 6.
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November 24, 1997
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12. ARBITRATION. Any disputes arising under or in connection with this
Agreement (including without limitation the making of this Agreement) shall
be resolved by final and binding arbitration to be held in Minneapolis,
Minnesota in accordance with the rules and procedures of the American
Arbitration Association. The parties shall select a mutually acceptable
single arbitrator to resolve the dispute or if they fail or are unable to do
so, each side shall within the following ten (10) business days select a
single arbitrator and the two so selected shall select a third arbitrator
within the following ten (10) business days. The arbitration award or other
resolution may be entered as a judgment at the request of the prevailing
party by any court of competent jurisdiction in Minnesota or elsewhere. The
party prevailing as to a substantial preponderance of the issues as
determined by the arbitration panel in the proceeding shall be entitled to be
reimbursed for the cost and expenses thereof, including without limitation,
the reasonable attorneys fees of the prevailing party, by the other party.
The arbitrator shall have no power to award any punitive or exemplary
damages. The arbitrator may construe or interpret, but shall not ignore or
vary the terms of this Agreement, and shall be bound by controlling law. You
acknowledge that your failure to comply with the terms of the Agreement
regarding Confidential Information, Inventions, and Non-Competition could
cause immediate and irreparable injury to the Company and that therefore, the
arbitrators, or a court of competent jurisdiction, if an arbitration panel
cannot immediately be convened, will be empowered to provide injunctive
relief, including temporary or preliminary relief, to restrain any such
failure to comply.
13. GENERAL PROVISIONS.
(a) This Agreement may not be amended or modified except by a
written agreement signed by both of us.
(b) In the event that any provision or portion of this agreement
are determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement will remain in full force
and effect to the fullest extent permitted by law.
(c) This Agreement shall bind and benefit the parties hereto and
their respective successors and assigns, but none of your rights or
obligations hereunder may be assigned by either party hereto
without the written consent of the other, except by operation of
law upon your death.
(d) This Agreement has been made in and shall be governed and
construed in accordance with the laws of the State of Minnesota
without giving effect to the principles of conflict of laws of any
jurisdiction.
(e) No failure on the part of either party to exercise, and no delay in
exercising, any right or remedy under this Agreement will operate
as a waiver; nor will any single or partial exercise of any right
or remedy preclude any other or further exercise of any right or
remedy.
(f) Any notice or other communication under this Agreement must be
in writing and
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Page 10
will be deemed given when delivered in person, by overnight courier
(with receipt confirmed), by facsimile transmission (with receipt
confirmed by telephone or by automatic transmission report), or
upon receipt if sent by certified mail, return receipt requested,
as follows (or to such other persons and/or addresses as may be
specified by written notice to the other party):
If to RTW:
RTW, Inc.
Attention: Chairman of the Board of Directors
0000 Xxxxxxxxxx Xxxx Xxxx., Xxxxx 0000
Xxxxxxxxxxx, XX 00000
With a copy to:
Xxxxxxxxx & Xxxxxx, PLLP
0000 XXX Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx
If to Xxxx X. Xxxxxxx:
Xxxx X. Xxxxxxx
0000 Xxxxxxxx Xxxxx
Xxxx Xxxx Xxxx, XX 00000
With a copy to:
Xxxxxxx & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxxxx
(g) This Agreement, together with the Consulting Agreement and the
various agreements ancillary hereto and thereto, contains our
entire understanding and agreement with respect to these matters
and supersedes all previous agreements, discussions, or
understandings, whether written or oral, between us on the same
subjects.
(h) In the event any provision of this Agreement is held
unenforceable, that provision will be severed and shall not affect
the validity or enforceability of the remaining provisions. In the
event any provision is held to be overbroad, that provision shall
be deemed amended to narrow its application to the extent necessary
to render the provision enforceable according to applicable law.
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(i) All terms of this Agreement intended to be observed and
performed after the termination of this Agreement will survive such
termination and will continue in full force and effect thereafter,
including without limitation, Sections 7, 8, 9, 10, 11, 12, and 13.
(j) The headings contained in this Agreement are for convenience
only and shall in no way restrict or otherwise affect the
construction of the provisions hereof. Unless otherwise specified
herein, references in this Agreement to Sections and Exhibits are
to the sections of and exhibits to this Agreement. This Agreement
may be executed in multiple counterparts, each of which shall be an
original and all of which together shall constitute one and the
same instrument.
------------------------------------------
If the foregoing correctly sets forth your understanding of our agreement,
please so indicate by signing and returning to us a copy of this letter.
Very truly yours,
RTW, INC.
/s/ Xxxxx X. Xxxxxxx
--------------------------
By: Xxxxx X. Xxxxxxx
Chairman
Accepted and agreed to:
/s/ Xxxx X. Xxxxxxx
--------------------------
Xxxx X. Xxxxxxx
