PART-TIME EMPLOYMENT, NON-COMPETITION, DISABILITY, AND RETIREMENT AGREEMENT
AGREEMENT made as of the 23rd day of October, 1998 between Xxxxx X.
Xxxxxxx ("Executive") and Detection Systems, Inc., a New York corporation
("Company"). It is the intent that this Agreement will supersede the
Part-Time Employment Agreement, dated August 15, 1997, which became effective
April 2, 1998.
WITNESSETH:
In consideration of the mutual covenants contained herein, the parties
agree as follows:
1. Effectiveness and Terms. This Agreement shall be binding on
the parties as of its date set forth above (the "Commencement Date" herein).
"Term of Employment" as used herein shall mean the period commencing on the
Commencement Date and continuing thereafter through December 31 of the year in
which Executive's 68th birthday occurs, unless the Company and Executive agree
in writing to extend the Term of Employment, in which case the Term of
Employment shall have the meaning as determined at that time; provided,
however, that Executive's employment services may be earlier terminated as
hereinafter expressly set forth or as may be agreed between Executive and the
Company, in which event the Term of Employment shall mean the period from the
Commencement Date through the date of such earlier termination (but such a
termination shall not affect Executive's obligation to provide minimum
consulting services as provided in Section 5 below).
2. Non-Competition. During any period (a) in which Executive is
being paid currently for employment services as provided in Section 4 below,
(b) in which Executive is being paid currently the compensation called for by
Section 3 below, (c) in which Executive is being paid currently for disability
benefits as provided under Section 11 below, or (d) in which Executive is
being paid currently for retirement benefits as provided under Section 9 or 10
below, Executive shall not, without the prior written consent of the Board of
Directors of the Company, engage, as an employee, partner, consultant,
venturer, entrepreneur, or otherwise, in the development or sale of any
product or service which is competitive with any product or service sold or
under active development by the Company during the Term of Employment.
3. Compensation for Non-Competition. After the Term of Employment
has ended, in consideration for Executive's non-competition as provided in
Section 2 above, the Company shall pay and provide to Executive the following
compensation and benefits through December 31 of the year in which Executive
attains the age of 68:
(a) An annual non-competition fee equal to or greater than $120,000,
that fee to be increased each year if and to the extent the CPI (defined
below) has increased during the preceding year (and any fees earned as a
director of the Company shall be credited to that fee), which fee shall be
paid in full on January 2 of each year;
(b) The Executive will not participate in any of the Company's
executive incentive compensation plans except for any such plan or plans which
expressly refer to this Agreement;
(c) Grants of options under any Company stock option plan that permits
such options, in such amounts as are determined by the Board of Directors or
the Committee of the Board administering the plan;
(d) Participation in Company pension, deferred compensation,
insurance, health and welfare and other benefit plans in effect on the date of
this Agreement; and
(e) Continuation of all plans in which the Executive participates,
including existing fringe benefits and executive perquisites to which
Executive is entitled as of the date immediately prior to the Commencement
Date under this Agreement.
Beginning on the January 1 after the year in which Executive attains the
age of 68, the retirement benefits set forth in Sections 9 and 10 below shall
be the full consideration to be paid to Executive for his non-competition.
4. Employment. The Company hereby employs Executive in the capacity
of Vice President, Business Development for the Term of Employment commencing
on the Commencement Date. The Company agrees to provide Executive with such
offices and such operational and administrative support as is consistent with
his position and responsibilities under this Agreement. The compensation and
benefits which the Company shall provide Executive for his services during the
Term of Employment shall include, but not be limited to, (a) base salary equal
to or greater than $130,286 (including directors fees, if applicable) and (b)
the benefits listed in clauses (b), (c), (d), and (e) of Section 3 above.
Executive agrees that he will devote approximately half time and his best
efforts during reasonable business hours to performance of the duties and
responsibilities of his office during the Term of Employment. Executive also
agrees not to disclose trade secrets of the Company, or to engage in any other
activity which is detrimental to the interests of the Company, during the Term
of Employment.
Notwithstanding any of the other provisions of this Agreement, the Term
of Employment will automatically terminate upon Executive's death and
thereupon all payments and non-vested benefits payable hereunder and under
Section 3 above shall cease, except for any death benefits and any survivor
benefits for his spouse which are provided under the Company's employee plans
and except for the retirement benefits set forth in Section 9 for any
surviving spouse. Those retirement benefits shall be paid pursuant to Section
9 commencing after Executive's 68th birthday would have occurred, except that
the surviving spouse may elect, by written notice given to the Company's
President or Secretary, to receive early retirement benefits as provided in
Section 10 below, in which case the provisions of Section 9 below shall apply,
except that the initial retirement wage benefit shall be calculated as
provided in Section 10.
The Company may terminate Executive's services due to Executive's
permanent disability, as determined by the Board of Directors in good faith
based on the certification of an independent M.D., and thereupon all payments
and non-vested benefits under this Section 4 and under Section 3 shall cease
except that the disability and retirement benefits shall be paid in accordance
with the provisions of Sections 9, 10, and 11 below.
5. Minimum Consulting Services. After a termination of Executive's
services pursuant to Section 7, 8, or 9 below, the Company shall nevertheless
have the right to call upon Executive, so long as Executive is able, for up to
8 days of consulting services per year to provide information concerning
matters that occurred, were developed, or were determined while Executive was
a full-time or part-time employee of the Company. Unless otherwise agreed,
these consulting services shall be rendered at a place and time mutually
agreed (but within 25 miles of Executive's residence at the time) and shall be
paid at the rate of $1,200 per day (or up to 100 hours of consulting services
per year at an hourly rate to be agreed upon). Any other consulting services
shall be provided if, as, and when the parties may agree.
6. Executive's Acceptance. Executive agrees to provide the
employment and the consulting services described in this Agreement.
7. Termination for Cause. The Company may terminate Executive's
services immediately and without prior notice to Executive for "Cause" as
defined below. The existence of Cause shall be determined by the Company's
Board of Directors (other than Executive) acting in good faith. "Cause" is
defined, and shall be limited to, a good faith determination by the Board of
Directors that any of the following has occurred:
(a) Executive has knowingly misappropriated for his benefit a material
amount of funds or property of the Company;
(b) Executive has obtained a material personal profit from any illegal
Company transaction with a third party;
(c) Executive has obtained a material personal profit from the use of
the Company's trade secrets other than on its behalf; or
(d) The Company has suffered material financial harm from knowingly
illegal action by Executive other than on the Company's behalf or for its
benefit.
If Executive's services are terminated by the Company for Cause, he
shall continue to be paid compensation and benefits for his non-competition in
accordance with the provisions of Section 3 above, for any minimum consulting
services provided pursuant to Section 5 above, and retirement benefits in
accordance with Section 9 and, if elected, Section 10 below, provided that his
cash compensation (including retirement benefit payments to be provided under
this Agreement) shall be reduced by the amount of any monetary damage suffered
by the Company due to the Cause, as determined by a court of competent
jurisdiction, prorated over the actuarially determined term of all such
payments beginning on such determination.
8. Resignation. If, at any time prior to Executive's retirement as
provided in Section 9 below, Xxxx X. Xxxxxxxxx is no longer employed as the
full time senior executive officer of the Company, Executive shall have the
option of resigning from his employment obligations under Section 4 of this
Agreement by giving written notice thereof to the Company's President or
Secretary, but no resignation shall affect Executive's obligation to provide
the minimum consulting services provided for in Section 5 above.
9. Retirement. The Company hereby agrees that, if not ended sooner,
the Term of Employment as used in this Agreement shall end at the close of
business on December 31 of the year in which Executive attains the age of 68,
and beginning on the opening of business on January 1 of the next year (and
regardless whether the Term of Employment ended prior to that December 31),
the Company will pay Executive retirement benefits for his lifetime and for
his spouse's lifetime, if his spouse survives him, as follows:
(a) a retirement wage benefit initially equal to 20% of the base
salary rate being paid to Executive at the end of his full time employment
with the Company, increased for each year after the end of his full time
employment by any increase in the CPI (as defined below), except that the
retirement wage benefit shall be equal to 60% of that base salary rate at the
end of Executive's full time employment with the Company, plus CPI increases,
effective for any retirement year after a Change in Control and after the
conditions described in Section 20(b)(ii) below have occurred which would
allow Executive to give the notice described there (disregarding his
retirement, if any), and except that the retirement wage benefit for his
spouse shall be 75% of the amount thus calculated for each year after the year
of Executive's death;
(b) continuation of Executive's participation (for himself and his
spouse) in the health program in effect on the date of this Agreement
(including for dental and eye care coverage, an annual physical examination,
and similar benefits); and
(c) continuation of all other benefits provided at time of retirement,
such continuation limited in individual benefit cost to 60% of the maximum
annual cost of such benefit in any year prior to retirement, plus CPI
increases,
For these purposes:
(1) unless otherwise agreed or directed by law or a court,
"spouse" shall mean the person to whom Executive is married at the time any
benefit is to be paid, or, after Executive's death, the person to whom
Executive was married at the time of his death;
(2) "CPI" shall mean the Consumer Price Index, all Urban Wage
Earners as determined by the United States Department of Labor, Bureau of
Labor Statistics, or any successor governmental agency or, lacking any such
successor, any other authoritative source designated in good faith by the
Board of Directors; and the wage benefit shall be increased as of January 1
each year by multiplying the wage benefit paid during the previous year by any
fraction greater than one calculated by dividing the CPI most recently
computed and available at the end of that previous year by the CPI most
recently computed and available at the end of the year previous to that; the
CPI shall not be used to decrease the wage benefit.
The parties agree: (x) that the foregoing retirement benefits are in
addition to any other retirement benefits that may be available to Executive
(such as the Company's 401(k) savings plan), (y) that payment of these
retirement benefits may be terminated if a court of law determines that
Executive has violated the provisions of Section 2 above, and (z) that the
Company will purchase and maintain life insurance sufficient to fund the
estimated benefits for Executive's spouse (estimated no later than Executive's
retirement date; any excess policy proceeds to be available, if agreed, to
purchase shares of the Company's Common Stock held in Executive's estate) and
the policy or policies of such insurance shall be held in trust designated for
this purpose.
(d) The retirement benefits provided under this Section 9 (and, if
applicable, Section 10) shall be paid as provided herein regardless whether
the Company has any claims against Executive for default under this Agreement
or for any other breach of duty or otherwise, and, except as otherwise
provided in Section 7 above, the Company shall pay those retirement benefits
as provided and must pursue remedies for any such default or other breach of
duty or other claim separately and independently.
10. Early Retirement Benefits. The parties agree that, in the
circumstances expressly provided in this Agreement, Executive and/or
Executive's spouse shall be paid early retirement benefits in accordance with
the following:
(a) The provisions of Section 9 shall apply to Executive's and the
spouse's retirement benefits as provided therein, except as expressly modified
by this Section 10, and shall be paid beginning at the time payment of the
early retirement benefits actually commences as provided in this Agreement;
(b) The initial retirement wage benefit shall not be the amount set
forth in Section 9(a) above, but shall be calculated as follows: multiply the
initial retirement wage benefit (calculated in accordance with Section 9(a)
above) by the actuarially determined number of years it would be paid during
Executive's then actuarially determined remaining lifespan as if Executive's
68th birthday had just occurred; then divide that amount by the number of years
then actuarially determined to be Executive's actual expected remaining
lifespan based on his actual age at that time. The amount thus calculated
shall be the initial annual retirement wage benefit for purposes of Section
9(a) above.
11. Disability. If Executive is determined to be permanently disabled
in accordance with the provisions of Section 4 above, Executive shall be paid
disability benefits from that date through December 31 of the year in which
Executive attains the age of 68, which disability benefits shall be equal to
the non-competition compensation and benefits and the salary that would have
been paid to Executive pursuant to Sections 3 and 4 above if he had not become
disabled, provided that, to the extent the disability wage benefits are not
taxable income to Executive under the U.S. Internal Revenue Code of 1986, as
amended, the disability benefit amount shall equal 60% of the compensation and
salary that would have been paid pursuant to Sections 3 and 4 above.
12. Stock Transfers by Executive and Executive's Estate and Heirs. So
long as this Agreement is in effect, Executive shall not sell any shares of
Company Common Stock except (a) in transactions approved in advance by the
Company's Board of Directors or (b) pursuant to all the conditions of Rule 144
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (or any rule thus promulgated which is a successor to Rule
144); provided, however, that no such sales shall be made in any block trade
or when there is any plan, program, or tender offer announced by any person
other than the Company to acquire shares of the Company's Common Stock and
that person was required to file a statement, schedule, or other report with
respect thereto with the U.S. Securities and Exchange Commission under Section
13 or 14 of the Securities Exchange Act of 1934, as amended, or the rules and
regulations thereunder. Executive agrees that restrictive legends referring
to the provisions of this Section 12 shall be placed upon all certificates
representing shares to which this Section 12 applies. The provisions of this
Section 12 shall terminate upon any Change in Control or Executive's death,
whichever may first occur and shall not apply thereafter.
13. Expenses and Interest. If the Company is found by a court of
competent jurisdiction to have breached this Agreement, the Company shall pay
the costs and expenses (including reasonable attorneys fees) incurred by
Executive in any litigation seeking damages in respect of such breach or to
enforce the performance of this Agreement by Company, together with interest
on each installment of wages or benefits paid late by the Company calculated
to the date of actual payment at an annual rate equal to 3% over the highest
rate then paid by the Company under its short term borrowing arrangements with
an independent institutional lender (and if there is no such lender, then 4%
above the prevailing prime rate as reported in the Wall Street Journal).
14. Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be delivered personally or given by prepaid,
certified, return receipt requested, first class mail addressed:
(a) if to the Company, to at least two members of the Board of
Directors, c/o the Company's Secretary at the address of the Company's
principal office;
(b) if to Executive, at his home mailing address on file with the
Company; and
(c) to such other address as the party to which such notice is to be
given shall have notified (in accordance with the provisions of this Section
14) as its substitute address for the purpose of this Agreement.
Any notice given as aforesaid shall be deemed conclusively to have been
received on the fifth business day after such mailing.
15. Amendment. It is agreed that no change or modification of this
Agreement shall be made except in a writing signed by both parties.
16. Severability. In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal, or unenforceable in any
respect, the validity, legality, and enforceability of the remaining
provisions shall not be affected thereby.
17. Law Governing. The validity, interpretation, and effect of this
Agreement shall be governed by the laws of the State of New York.
18. Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by
the Company during the Term of Employment and with respect to non-competition,
minimum consulting, and disability and retirement benefits (but does not
affect pension and other benefit plans and arrangements in which Executive
participates). There are no restrictions, agreements, promises, warranties,
covenants, or undertakings other than those expressly set forth herein with
respect to the Term of Employment. As of the Commencement Date this Agreement
supersedes all prior agreements, arrangements, and understandings between the
parties, whether oral or written, with respect to employment or consulting
services of Executive on and after the Commencement Date.
19. [Intentionally left blank]
20. Change in Control.
(a) A "Change in Control" of the Company shall be deemed to have occurred
if:
(1) any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company or any corporation owned,
directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of
the Company), 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 25% or more of the combined
voting power of the Company's then outstanding securities;
(2) there is elected 35% or more of the members of the
Board of Directors of the Company without the approval of the
nomination of such members by a majority of the Board serving
prior to such election;
(3) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent more than 75% of the combined
voting power of the voting securities of the Company, or such
surviving entity, outstanding immediately after such merger or
consolidation; or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined above) acquires more
than 25% of the combined voting power of the Company's
then-outstanding securities; or
(4) The shareholders of the Company approve an agreement
for the sale or disposition by the Company and all or
substantially all of the Company's assets.
(b) If:
(i) any Change in Control of the Company occurs while this Agreement
is effective, and
(ii) Executive gives notice to the Company or the Company (acting upon
a determination of its Board of Directors) gives notice to
Executive, in either case to the effect that the six month period
called for by this subsection 20(b) shall begin to run (provided
that Executive shall not have the right to give that notice
unless Xxxx X. Xxxxxxxxx is no longer employed as the full time
senior executive officer of the Company at the time or he either
has consented in writing to the giving of that notice or has
given a similar such notice for himself under his applicable
agreement with the Company), and
(iii)Executive's employment is terminated by Executive or by the
Company (other than for Executive's death or disability) within
six months after the date the notice provided for in (ii) above
is received (in Executive's case the termination being effected
by Executive giving notice within that six month period,
effective within 30 days after the notice is given, that his
employment is terminated to the extent permitted under Section 8
above), regardless the reason, if any, and regardless which party
gave the notice provided for in (ii) above,
then the Company shall pay, transfer, and provide to Executive the following
amounts, benefits, and assets:
(1) The Company shall pay to Executive the sum of
Executive's full non-competition compensation and salary through
the effective date of termination of his employment at the rate in
effect at the time of termination or at the time the Change in
Control occurs, whichever is higher, and an amount equal to the
amount of any bonus which has been earned by him but not yet paid
to him. These two amounts shall be paid to Executive in a lump
sum within five days following the effective date of termination,
or in the case of a bonus which is not readily calculable at that
time, within five days after the bonus can be calculated.
(2) The Company shall pay to Executive an amount equal to
three times the highest total cash compensation (including any
base salary, non-competition compensation, bonuses, and consulting
fees) paid Executive in any of the Company's last three fiscal
years completed prior to such termination. This amount shall be
paid to Executive as provided in the last sentence of subsection
(1) above.
(3) The Company shall pay to Executive an amount equal to
the total amounts that would be expended for the benefits to be
provided Executive under Section 3 above on the assumption that
Executive will continue to be compensated for non-competition for
three years after the termination. This amount shall be paid to
Executive as provided in the last sentence of subsection (1) above
either in cash or in the form of an annuity contract issued by an
independent insurance company licensed to do business in New York
that will provide payment of all such total amounts.
(4) All options and other rights that Executive may hold
to purchase or otherwise acquire Common Stock of the Company shall
immediately become exercisable in full for the total number of
shares that are or might become purchasable thereunder, in each
case without further condition or limitation except the giving of
notice of exercise and the payment of the purchase price
thereunder (but without amendment of the plan under which they
were issued). At his discretion, Executive may elect to surrender
to the Company his rights in any such options and rights held by
him and, upon that surrender, the Company shall pay him an amount
in cash equal to the aggregate spread between the exercise prices
of all those options and rights and the value of the Common Stock
purchasable thereunder (or of any other security into which the
Common Stock has been exchanged or converted) as of the date of
the termination of employment, the value to be determined by the
reported last sale price of the Common Stock or that other
security (or the mean between the reported last bid and asked
prices) on that date on NASDAQ (or, if it is not NASDAQ, on
whatever may then be the principal exchange or quotation system on
which the Company's Common Stock or that other security is traded
at that time).
(5) The Company shall repay any policy loans previously
taken on the Company's life insurance policies on Executive's
life (provided that the directors of the Company were given
written notice promptly after the making of any such loans which
were made while Executive was an officer of the Company), and then
shall transfer to Executive any and all of its right, title, and
interest in and to all Company life insurance policies on
Executive's life (and upon that transfer, Executive shall be deemed
to have released the Company from any and all obligations it then
owes to him to maintain and pay premiums on those policies, all
other provisions of any agreements under which those policies were
agreed to be maintained, however, to remain in effect).
(6) In addition to the amounts specified in clauses (1)
through (5) of this paragraph (b), the Company shall pay to
Executive, at the same time as those amounts are paid, an
additional amount which, after taking into account all federal,
state, and local income and excise taxes that Executive is
required to pay with respect to receipt of the additional amount
under this clause (6), will render the net after-tax payment to
Executive under this clause (6) equal to the sum of:
(A) all federal, state, and local excise taxes that
Executive is required to pay with respect to the payments
made pursuant to clauses (1) through (5) above; and
(B) all federal, state, and local income and excise
taxes that Executive is required to pay with respect to the
payment made pursuant to this clause (6).
The foregoing amounts of federal, state, and local income and
excise taxes shall be determined initially by a nationally
recognized firm of independent public accountants retained by
Executive at his expense or, at Executive's option, by independent
public accountants at the Company's expense, and such
determination and the basis therefor shall be furnished in writing
to Executive and the Company. Payment shall be made by the
Company in accordance with that initial determination regardless
whether there is a dispute over the accuracy thereof. If either
party disputes that initial determination the matter shall
promptly be referred to a nationally recognized firm of
independent public accountants selected by the Executive (which
firm shall not have been involved in the initial determination),
and Executive and the Company shall promptly furnish to that firm
such information as it reasonably requests. The Company shall
make such additional payment to Executive or Executive shall
refund to the Company, as the case may be, in accordance with the
latter firm's determination. The fees and expenses of that firm
shall be borne by the Company.
(c) The Company may withhold from any payments due to Executive
under paragraph (b) such amounts as its independent public accountants may
determine are required to be withheld under applicable federal, state, and
local tax laws.
(d) If applicable, the provisions of this Section 20 shall
control over the provisions of Section 7. In the event that Executive's
employment is not terminated by the Company or the Executive within the six
month period specified in Section 20(b), the provisions of Section 7 once
again shall be applicable thereafter.
(e) In addition, if any Change in Control of the Company occurs
while this Agreement is effective, the Company shall purchase and fully pay
for an annuity policy sufficient to pay the retirement benefits called for by
Section 9 of this Agreement and shall transfer ownership thereof to a "rabbi"
trust for the benefit of Executive (but subject to the claims of Company
creditors to the extent required under applicable tax laws so that the
transfer to the trust will not itself be an event upon which Executive
recognizes income for federal or state income tax purposes). In lieu of
purchasing the annuity policy, the Company may deposit cash into such a trust
sufficient to provide, based on assumptions believed reasonable in the written
opinion of a nationally recognized employee benefits organization, for
assuring payment of those retirement benefits to Executive and his spouse.
(f) Payment of the amounts called for by this Section 20 shall
not affect the Company's obligation to pay non-competition compensation and
benefits under Section 3 above or retirement benefits under Section 9 and, if
elected by Executive, Section 10 above.
21. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the heirs, legatees, administrators, successors, and
assigns of the respective parties.
IN WITNESS WHEREOF, Executive for himself, and the undersigned director
of the Company, acting on behalf of the Company by authority of its Board of
Directors, have executed this Agreement as of the day and year first above
written.
October 23, 1998 /s/Xxxxx X. Xxxxxxx, Executive
DETECTION SYSTEMS, INC.
October 23, 1998 By:/s/Xxxxxx X. Xxxxx, Chairman of the
Compensation Committee of the Board of
Directors
