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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into by and
between W. Xxx Xxxx ("Xxxx") and Xxxx Microproducts, Inc., a California
corporation ("Company'), effective as of December 10, 1996.
WITNESETH
WHEREAS, Xxxx has been serving and continues to serve as the Chairman,
President and Chief Executive Officer of Company; and
WHEREAS, the parties wish to continue Xxxx'x employment with Company for a
period of at least three years from the date of this Agreement and wish to set
forth the terms and conditions of that employment relationship in writing;
NOW, THEREFORE, in consideration of Xxxx'x continued employment with
Company, and other good and valuable consideration, and in consideration of the
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree and contract as follows:
1. Term of Employment. Company hereby agrees to employ Xxxx as Chairman,
President and Chief Executive Officer for the period commencing with the date
set forth above and ending on December 31, 1999, unless Xxxx'x employment is
terminated earlier pursuant to Paragraph 4 of this Agreement. After December 31,
1999, Xxxx'x employment with Company may be continued by mutual written
agreement of the parties.
2. Duties. Xxxx accepts employment with Company as its Chairman, President
and Chief Executive Officer. Xxxx agrees to devote his full time, attention and
best efforts to the business and affairs of Company. Xxxx shall perform all
duties and responsibilities commensurate with his position as Chairman,
President and Chief Executive Officer and shall follow the reasonable direction
of the Board of Directors of the Company. Company agrees to nominate Xxxx for
election to Company's Board of Directors, and Xxxx agrees to serve, for any
period for which he is so elected, without additional compensation therefor.
Xxxx may serve on corporate, civic or charitable boards or committees, fulfill
speaking engagements and manage personal investments, so long as Company, in its
sole discretion, reasonably determines that such activities do not interfere,
compete with or otherwise pose a conflict of interest with respect to the
performance of Xxxx'x duties and responsibilities under this Agreement. Xxxx
shall comply with Company's policies and procedures as adopted from time to
time; provided, however, that to the extent any such policies and procedures are
inconsistent with this Agreement, the provisions of this Agreement shall
control.
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3. Compensation and Benefit. During the term of this Agreement, Xxxx shall
be receiving the following compensation and benefits:
a. Base Salary. Xxxx shall receive a minimum base salary of $375,000
per year, less applicable withholding, payable monthly or more frequently
in accordance with Company's customary payroll practices. The Compensation
Committee of the Company's Board of Directors shall review Xxxx'x base
salary at least annually and may, in its sole discretion, increase the base
salary under its normal compensation policies for executive officers.
b. Annual Incentive Compensation. Xxxx shall participate in any and
all annual incentive compensation plans, including but not limited to the
Management Incentive Program, which may be established by the Compensation
Committee of Company's Board of Directors for the Chief Executive Officer
from time to time. In no event shall any annual incentive compensation
plans established by the Compensation Committee for the Chief Executive
Officer after the date set forth above be less favorable than the annual
incentive compensation plans currently maintained for the Chief Executive
Officer as of such date.
c. EPS Enhancement Incentive.
(i) Within thirty (30) days following the issuance of the audited
financial statements for the 1997 fiscal year and each fiscal year
thereafter until the termination of this Agreement, Company shall pay Xxxx
a lump-sum cash incentive payment (the "EPS Enhancement Incentive") equal
to (i) $5,000 for each $0.01 of Company's annual net earnings per share (as
hereinafter defined) over and above [ * ] per share, plus (ii) $3,000 for
each $.01 of Company's annual net earnings per share (as hereinafter
defined) over and above [ * ] per share.
(ii) For purposes of this Paragraph 3(c), the term "annual net
earnings per share" for any fiscal year shall mean the net profits of
Company, after the provision for income taxes, any extraordinary items of
profit or loss and the computation of any payments due under this Paragraph
3(c), expressed on a fully diluted earnings per share basis (based on the
weighted average number of shares of Company's Common Stock outstanding or
equivalent thereto or otherwise treated as outstanding during such annual
fiscal period), computed in accordance with generally accepted accounting
principles by Company's independent public accountants and as reported in
Company's audited financial statements for such fiscal year. The [ * ] and
[ * ] per share thresholds stated herein shall be adjusted to reflect the
effect of any stock dividends on, or stock splits or reverse splits of, or
recapitalizations, reclassifications or other similar transactions
affecting Company's Common Stock which are declared or effected before the
date of this Agreement in the same manner as such dividends, stock splits
or transactions have been reflected in the annual net earnings per share in
accordance with generally accepted
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accounting principles and as reported in Company's audited financial
statements, and the $5,000 and $3,000 amounts shall be adjusted consistent
with the goals of the EPS Enhancement Incentive and the amount that would
otherwise be payable without such adjustment pursuant to Section 3(c).
(iii) If, in any fiscal year, the total compensation paid to Xxxx
would result in a violation of the compensation deduction limits contained
in Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), or any
successor provision, and the regulations issued thereunder, a portion of
the EPS Enhancement Incentive shall be credited to a deferred compensation
account and shall become due and payable upon the effective date of Xxxx'x
termination of employment for any reason. The portion credited to the
deferred compensation account shall be the amount necessary to avoid such
violation of Code Section 162(m). All amounts credited to the deferred
compensation account shall be adjusted for interest, compounded quarterly,
at the prime interest rate quoted by Citicorp, N.A. from time to time,
beginning with the date the deferred compensation account is established
and continuing until all amounts have been paid in full. Upon Xxxx'x
termination of employment, the balance of the deferred compensation account
shall be paid in equal annual installments not to exceed $500,000 per year.
The deferred compensation account shall at all times be entirely unfunded.
Neither Xxxx nor his successors shall have any interest in the assets of
Company by reason of the right to receive the amounts credited to the
deferred compensation account, and Xxxx shall have only the rights of a
general unsecured creditor with respect thereto.
d. Long-Term Disability Insurance. Company agrees to pay all premiums
required for long-term disability insurance which shall provide Xxxx with a
disability benefit equal to sixty percent (60%) of Xxxx'x total
compensation if, as the result of Xxxx'x incapacity due to physical or
mental illness, Xxxx is unable to perform his duties as President and Chief
Executive Officer. Company may, in its discretion, provide such long-term
disability insurance under its group policy.
e. Business Expenses. Company will reimburse Xxxx for ordinary and
necessary travel and other out-of-pocket expenses incurred by Xxxx in
connection with the performance of his duties, provided that Xxxx promptly
submits to Company receipts verifying such expenses.
f. Other Emp1oyee Benefits. Xxxx shall be eligible to participate in
any and all other employee benefit plans and programs offered by Company
from time to time, including but not limited to, any medical, dental,
short-term disability and life insurance coverage, stock option plans or
retirement plans, in accordance with the terms and conditions of those
benefit plans and programs and on a basis consistent with that customarily
provided to Company's executive officers. In addition, Company shall
continue to maintain all life insurance policies currently in effect as of
the effective date set forth above.
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g. Vacation and Other Absence. Xxxx shall be entitled paid vacation
each year in accordance with Company's then-current vacation policy for
executive officers. The rules relating to other absences from regular
duties for holidays, sick or disability leave, leave of absence without
pay, or for other reasons, shall be the same as those customarily provided
to Company's executive officers.
4. Terminition. Unless extended by mutual written agreement of the parties,
and except for the provisions hereof which are intended to survive for other
periods of time as specified herein, this Agreement shall terminate (a) upon the
expiration date stated in Paragraph 1 (i.e., December 31 , 1999); (b) at any
time upon mutual written agreement of the parties; (c) immediately upon Xxxx'x
death; (d) by the Company, immediately and without prior written notice, for
"cause" (as defined in Section 5(c) below); or (e) by Xxxx or by Company for any
reason not otherwise covered by clauses (a), (b), (c) or (d) herein, with at
least thirty (30) days' written notice to the other. Except as otherwise
provided in Paragraph 5, upon the termination of Xxxx'x employment for any
reason, Xxxx shall be entitled to receive his base salary through his last date
of employment, any annual incentive compensation described in Paragraph 3(b)
which Xxxx may have earned through his last date of employment, the amounts
credited to the deferred compensation account described in Paragraph 3(c), any
unreimbursed business expenses incurred prior to such termination of employment
and such other employee benefits to the extent permitted by the applicable
policies or plan documents or as required by law.
5. Severance Benefits.
a. Termination Without Cause or Involuntary Termination. If Company
terminates Xxxx'x employment without cause or in the event of an
"involuntary termination" (as defined in Section 5(c) below) at any time
during the term of this Agreement, Xxxx shall be entitled to the following
additional severance benefits:
(i) Base Salary. Company shall continue to pay Xxxx his then-current
base salary through the expiration date stated in Paragraph 1, or such
later date as may have been mutually agreed to in writing by the parties.
(ii) Benefits. Company shall continue to provide, at no cost to Xxxx,
medical, dental, short-term disability and life insurance benefits for Xxxx
and his dependents through the expiration date stated in Paragraph 1, or
such later date as may have been mutually agreed to by the parties, at the
same level of coverage as was provided to Xxxx immediately prior to the
termination of his employment, and shall continue to pay all premiums
required for the long-term disability insurance coverage described in
Paragraph 3(d) through the expiration date stated in Paragraph 1, or such
later date as may have been mutually agreed to by the parties.
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Company may, in its discretion, provide the benefits described herein
under the Company's group plans or under no less favorable insurance
contracts or arrangements secured by the Company. For purposes of Title X
of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date
of the "qualifying event" for Xxxx and his dependents shall be the
expiration date stated in Paragraph 1. Company's obligations to provide the
benefits described herein shall cease if Xxxx and his dependents become
covered under another employer's group medical, dental, short-term
disability, long-term disability or life insurance plans that provide Xxxx
and his dependents with comparable benefits and levels of coverage.
(iii) portion of EPS Enhancement Incentive for Current Fiscal Year.
Within thirty (30) days after the effective date of Xxxx'x termination of
employment, Xxxx shall receive a lump-sum cash payment for a portion of the
EPS Enhancement Incentive which he could have earned for the fiscal year in
which his employment terminates. Such portion shall be based on the
cumulative monthly earnings per share for such fiscal year through the end
of the month coinciding with or immediately preceding the effective date of
Xxxx'x termination of employment as reported in Company's interim financial
statements. For purposes of determining such portion of the EPS Enhancement
Incentive, the [ * ] and [ * ] thresholds described in Paragraph 3(c) shall
be pro rated for the number of months counted in such cumulative monthly
earnings per share, rounded down to the nearest cent. Exhibit A sets forth
an example of how the payments required under this Paragraph 5(a)(iii)
shall be calculated, but such Exhibit A shall not, in any manner, limit the
application of this Paragraph 5(a)(iii).
(iv) Average Annual and EPS Enhancement Incentives. Within thirty (30)
days after the effective date of Xxxx'x termination of employment, Xxxx
shall receive a lump-sum cash payment equal to three times the sum of (A)
the monthly average of the EPS Enhancement Incentive described in Paragraph
3(e) which Xxxx may have earned for each fiscal year or portion thereof
during the term of this Agreement, including the fiscal year in which
Xxxx'x termination of employment occurs, multiplied by twelve, and (B) the
monthly average of all other annual incentive compensation described in
Paragraph 3(b) which Xxxx may have earned for each fiscal year or portion
thereof during the term of this Agreement, including the fiscal year in
which Xxxx'x termination of employment occurs, multiplied by twelve.
Exhibit A sets forth an example of how the payments required under this
Paragraph 5(a)(iv) shall be calculated, but such Exhibit A shall not, in
any manner, limit the application of this Paragraph 5(a)(iv).
(v) Acceleration of Stock Options. Notwithstanding anything in the
Amended and Restated 1988 Stock Option Plan, any successor plan, or any
stock option agreement to the contrary, upon the effective date of Xxxx'x
termination of employment, one hundred percent (100%) of the unvested
portion of any stock option or restricted stock award held by Xxxx shall
automatically be accelerated in full so as to become fully vested, subject
to the restrictions relating to "pooling-of-interests" accounting treatment
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contained in Section 3(a)(i)(3) of the Management Retention Agreement
entered into by Xxxx and the Company on December 31, 1996, if
applicable.
b. Termination Upon Disability. If Xxxx'x employment with Company is
terminated on account of disability at any time during the term of this
Agreement, Xxxx shall be entitled to the following additional benefits:
(i) Benefits. Company shall continue to provide, at no cost to Xxxx,
medical, dental and life insurance benefits for Xxxx and his dependents
through the expiration date stated in Paragraph 1, or such later date as
may have been mutually agreed to by the parties, at the same level of
coverage as was provided to Xxxx immediately prior to the termination of
his employment.
Company may, in its discretion, provide the benefits described herein
under the Company's group plans or under no less favorable insurance
contracts or arrangements secured by the Company. For purposes of Title X
of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date
of the "qualifying event" for Xxxx and his dependents shall be the end of
the twenty-four month period following the effective date of Xxxx'x
termination of employment. Company's obligations to provide the benefits
described herein shall cease if Xxxx and his dependents become covered
under another employer's group medical, dental or life insurance plans that
provide Xxxx and his dependents with comparable benefits and levels of
coverage.
(ii) Portion of EPS Enhancement Incentive for Current Fiscal Year.
Within thirty (30) days after the effective date of Xxxx'x termination of
employment on account of disability, Xxxx shall receive a lump-sum cash
payment for a portion of the EPS Enhancement Incentive which he could have
earned for the fiscal year in which his employment terminates. Such portion
shall be based on the cumulative monthly earnings per share for such fiscal
year through the end of the month coinciding with or immediately preceding
the effective date of Xxxx'x termination of employment, as reported in
Company's interim financial statements. For purposes of determining such
portion of the EPS Enhancement Incentive, the [ * ] and [ * ] thresholds
described in Paragraph 3(e) shall be pro rated for the number of months
counted in such cumulative monthly earnings per share, rounded down to the
nearest cent.
c. Definitions.
(i) Cause. "Cause" shall mean (i) any act of personal dishonesty taken
by Xxxx in connection with his duties and responsibilities as President and
Chief Executive Officer and intended to result in substantial personal
enrichment of Xxxx, (ii) Xxxx'x conviction of a felony or (iii) a willful
act by Xxxx which constitutes gross misconduct and which is injurious to
the Company.
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(ii) Disability. "Disability" shall have the same meaning as set
forth in the long-term disability insurance contract referred to in
Paragraph 3(d).
(iii) Involuntary Termination. "Involuntary termination" shall
mean:
(A) without Xxxx'x express written consent, the significant
reduction of Xxxx'x duties, authority or responsibilities,
relative to his duties, authority or responsibilities as in
effect immediately prior to such reduction, or the assignment to
Xxxx of such reduced duties, authority or responsibilities;
(B) without Xxxx'x express written consent, a substantial
reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to
Xxxx immediately prior to such reduction;
(C) a reduction by Company in Xxxx'x base salary as in
effect immediately prior to such reduction;
(D) a material reduction by Company in the kind or level of
employee benefits, including bonuses, to which Xxxx was entitled
immediately prior to such reduction with the result that Xxxx'x
overall benefits package is significantly reduced;
(E) Xxxx'x relocation to a facility or a location more than
thirty-five (35) miles from Xxxx'x then present location, without
Xxxx'x express written consent;
(F) any purported relation of Xxxx by Company which is not
effected for disability or for cause, or any purported
termination for which the grounds relied upon are not valid;
(G) the failure of Company to obtain the assumption of this
Agreement by any successors contemplated in Paragraph 8 below; or
(H) any act or set of facts or circumstances which would,
under California law or statute constitute a constructive
termination of Xxxx.
6. Covenant Not to Compete. In consideration of Xxxx'x employment hereunder
and other good and valuable consideration, and in consideration of the covenants
confined herein, the receipt and sufficiency of which are hereby acknowledged,
all of which are express payments for the obligations set forth in this
Paragraph 6, Xxxx agrees that, during his employment and for a period of two (2)
years after the termination of this Agreement, he will not, directly or
indirectly, engage in (whether as an employee, consultant, proprietor, partner,
director or otherwise), have any ownership interest in, or participate in the
financing, operation,
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management or control of any firm, corporation or business that engages in or
intends to engage in business that is in direct competition with the Company's
principal business (as defined and discussed in Company's documents fled with
the Securities Exchange Commission); provided, however, that nothing contained
herein shall prevent Xxxx from owning or purchasing securities of any business
entity whose securities are regularly traded on any national securities exchange
or in the over-the-counter market if such ownership does not result in his or
his affiliates' owning directly or beneficially at any time five percent (50%)
of the voting securities of any corporation engaged in any business competitive
to the business then carried on by Company.
7. Remedies. The restriction contained in Paragraph 6 is necessary for
Company's protection, and any breach thereof will cause Company irreparable
damage for which there is no adequate remedy at law. Xxxx agrees that, in the
event of such breach, Company shall, in addition to any other remedy which
Company may have at law or in equity, be entitled to seek such equitable and
injunctive relief as may be available without the necessity of proving damages.
Company agrees that, in the event of a breach of this Agreement by Company, Xxxx
shall have all such remedies as may be available at law or in equity.
8. Successors.
a. Company's Successors. Any successor to Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the
same extent as Company would be required to perform such obligations in the
absence of succession. For all purposes under this Agreement, the term
"Company" shall include any successor to Company's business and/or assets
which executes and delivers the assumption agreement contemplated by this
Paragraph 8(a) or which becomes bound by the terms of this Agreement by
operation of law.
b. Employee's Successors. The terms of this agreement and all of
Xxxx'x hereunder shall inure to the benefit of, and be enforceable by,
Xxxx'x personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of Xxxx, mailed notices shall
be addressed to him at the home address which he most recently communicated to
Company in writing. In the case of Company, mailed notices shall be addressed to
its corporate headquarters, and all notices shall be directed to the attention
of its Secretary.
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10. Coordination of Agreements. In the event of any conflict between this
Agreement and the Management Retention Agreement entered into by Xxxx and
Company on November, 1996, the terms of this Agreement shall control.
11. Miscellaneous Provisions.
a. No Duty to Mitigate. Xxxx shall not be required to mitigate the
amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that Xxxx may receive from any other
source.
b. Amendment Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed
to in writing and signed by Xxxx and by an authorized officer of Company
(other than Xxxx). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or
of the same condition or provision at any other time.
c. Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not
expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes in their entirety any prior or contemporaneous agreements,
whether written, oral, express or implied, relating to the subject matter
hereof.
d. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
e. Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full
force and effect.
f. Withholding. All payments made pursuant to this Agreement will be
subject to the withholding of all applicable federal, state or local income
and employment
g. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year set forth above.
COMPANY: XXXX MICROPRODUCTS, INC.
/s/ Xxxxxx X. Xxxxxxx
----------------------------------------
Dated: 12/10/96
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XXXX:
/s/ W. Xxx Xxxx
----------------------------------------
W. Xxx Xxxx
Dated: 12/10/96
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EXHIBIT A
This Exhibit A sets forth an example of how the payments required under
Paragraphs 5(a)(iii) and 5(a)(iv) should be calculated, but shall not, in any
manner, limit the application of such provisions.
Example: Assume that Xxxx is terminated on June 30, 1997. Company's earnings per
share ("EPS") for FY 1997 are as follows:
First Quarter [ * ]
Second Quarter [ * ]
Third Quarter [ * ]
Fourth Quarter [ * ]
During FY 1997, Xxxx earned the following incentive bonuses:
First Quarter [ * ]
Second Quarter [ * ]
1. Paragraph 5(a)(iii) - EPS Enhancement Incentive for 1997.
Cumulative Monthly EPS: [ * ]
Pro Rata Threshhold: [ * ]
EPS Enhancement
Incentive for 1997: [ * ]
2. Paragraph 5(a)(iv) - Average Annum and EPS Enhancement Incentives.
(A) EPS Enhancement Incentive: [ * ]
Monthly Aveme EPS: [ * ]
Average Annual EPS: [ * ]
Three-Year Payout: [ * ]
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(B) Other Incentive Bonuses:
Monthly Average
Inventive Bonus: [ * ]
Average Annual Bonus: [ * ]
Three-Year Payout: [ * ]
Total Payout equals the sum of (A) and (B): [ * ]
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