Exhibit 10.5
EMPLOYMENT AGREEMENT
Agreement made as of January 7, 2000 between Standard Microsystems Corporation,
a Delaware corporation having an office at 00 Xxxxx Xxxxx, Xxxxxxxxx, Xxx Xxxx
00000 ("Company"), and Xxxxxx X. Xxxxxx, residing at 000 Xxxxxxx Xxxx,
Xxxxxxxxx, Xxx Xxxx 00000 ("Executive").
W I T N E S S E T H:
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WHEREAS, Company desires to employ Executive as Company's Chief Financial
Officer, upon the terms and conditions hereinafter in this Agreement set forth,
and Executive desires to be so employed;
Now, therefore, in consideration of the premises and the mutual covenants and
conditions contained herein, the parties hereto agree as follows:
1. Employment.
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Subject to the next sentence, the Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, upon the terms and
conditions hereinafter set forth. This Agreement shall not be effective unless
approved by Company's Board of Directors at or before its February 7, 2000
meeting.
2. Title and Duties.
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Company shall employ Executive as Company's Senior Vice President and Chief
Financial Officer, effective as of February 15, 2000. Executive will render
his services faithfully and to the best of his ability and devote his full
business time and attention to the services to be rendered by him hereunder.
3. Term; Severance; Change in Control.
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a. The term of employment under this Agreement (the "Employment Term")
shall commence as of February 15, 2000 and shall continue through
February 14, 2003. Thereafter, the Employment Term shall be automatically
extended for one-year periods, unless either party shall give notice
("Contrary Notice") as per section 9 (e) herein, at least six months prior to
the end of the Employment Term, that the Employment Term shall not be so
extended.
b. Notwithstanding Section 3.a, the Employment Term shall terminate prior
to any date otherwise specified in Section 3.a, upon:
(i) Executive's death or disability ("disability" shall mean the
physical or mental incapacity of the Executive which prevents
Executive from performing the Executive's duties as herein provided
for a continuous period of 60 days or an aggregate period of 90 days
during any consecutive six-month period, and disability shall be
deemed to have occurred as of the end of the applicable period);
(ii) Notice by Company of termination for cause, which shall mean
Executive's (x) material dishonesty in the course of employment, (y)
willful and material failure to perform his duties hereunder,
following delivery of written notice thereof and a reasonable period,
not to exceed 30 days from delivery of notice, to cure such failure,
or (z) conduct, regardless whether in the course of employment,
constituting a felony or any crime involving moral turpitude;
(iii) Notice by Company of termination other than for cause.
Reduction of compensation or duties, OR requirement to relocate
outside of Long Island (or more than 20 miles east of Hauppauge) OR
other breach hereof and failure to cure within 30 days following
delivery of written notice thereof by Executive to Company shall be
considered notice of termination under this subsection; or
(iv) Notice of voluntary termination by Executive within six months
after a change in control of Company (for purposes hereof, a "change
in control of Company" shall mean an event that Company would be
required to report as such pursuant to Securities and Exchange
Commission ("SEC") Form 8-K).
c. Should Company terminate the Employment Term pursuant to clauses (i)
or (iii) of Section 3.b: (i) Company shall pay Executive, in lump sum on the
day of termination, an amount equal to one year's Base Salary, any vested or
unvested stock grants, any deferred compensation (if any deferred compensation
plan shall be adopted in the future), any accrued, unused vacation and
unreimbursed business expenses (including automobile, and tax gross up on such
automobile expenses); (ii) Company shall pay any accrued, unpaid Bonus, as
hereinafter defined, (i.e., a pro-rated amount of the Bonus that Executive
would have earned if Executive remained employed through the then current
fiscal year of Company, to be based on the number of weeks employed during the
then current fiscal year), payable at the same time such Bonus would have been
paid for such fiscal year; (iii) Company shall continue to provide paid
coverage for any Company-paid individual life insurance, and all group health
insurance plans under COBRA, provided by Company to Executive as of the date of
such termination, excluding group life and group disability plans, for a period
of 18 months from the date of termination of the Employment Term, or until
Executive shall have sooner obtained full-time employment; (iv) insofar as any
stock option granted by Company to Executive would have, but for such
termination, become exercisable in accordance with its terms within 13 months
of the date of such termination, such option shall become exercisable as of
such termination date, remain exercisable during such 13 month period, and
expire at the end of such 13 month period. This Section 3.c sets forth
Company's entire obligation to Executive in case of termination of the
Employment Term on any basis referred to in this Section 3.c.
d. Should Company terminate the Employment Term pursuant to clause 3.b
(ii), Company's obligations hereunder shall be fully satisfied upon payment by
the Company to the Executive of any unpaid Base Salary, accrued, unused
vacation time and unreimbursed business expenses through the date of
termination, provided, however, that such payment shall not prevent the Company
from seeking relief respecting any claim it might have against the Executive
hereunder or otherwise.
e. In the event of a change in control of Company all stock options, all
stock grants and deferred compensation (if any deferred compensation plan shall
be adopted in the future) shall immediately vest, and, should Executive
terminate the Employment Term pursuant to clause 3.b. (iv), Executive shall be
entitled to the payments and insurance coverage referred to in clauses 3.c
(i), (ii) and (iii).
4. Annual compensation.
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a. In consideration of the services to be rendered by Executive
hereunder, the Company shall pay to the Executive:
(i) An annual base salary of $250,000, which may be increased, but
not decreased without Executive's consent, from time to time,
by Company's Board of Directors, based upon Compensation
Committee review and recommendation ("Base Salary"). Base
Salary will automatically increase to $275,000 upon the
Company achieving sales of $250M over four consecutive
quarters; and
(ii) A management incentive bonus ("Bonus") target, with respect to
fiscal year 2001, equal to 50 percent of Base Salary, i.e.,
$125,000 (the "At Plan Bonus"), and any additional earned Bonus for
fiscal year 2001 (under the plan described below) payable in cash,
and a Bonus with respect to each succeeding fiscal year, both the At
Plan Bonus and any additional bonus being determined in accordance
with Company's EVC Plan payable within 75 days following the end of
such fiscal year. The Bonus plan is defined by the Board of Directors
for each fiscal year, and, during the Company's fiscal year 2001, it
shall be based on the Company achieving specific changes in economic
profit generated or Economic Value Contributed ("EVC"). The fiscal
year 2001 EVC plan for the Company will be provided in a separate
document. However, some of the major provisions of the plan provide
for an EVC target, indexing Company EVC performance to the market, and
additional bonus payment for over target EVC performance not to
exceed 50% of the At Plan Bonus amount, i.e., for fiscal year 2001
not to exceed $62,500 over the Bonus amount of $125,000 specified in
4.a. (ii). The target Bonus for Executive will remain at 50% of Base
Salary for the Company's fiscal years 2002 and 2003; however, the
basis on which Bonus is earned may be modified by the Board of
Directors. Any Bonus plan approved by the Board of Directors for
Executive will be consistent with the management incentive bonus plan
for other Company executives.
b. Any Bonus payable respecting fiscal year 2002 shall be paid 75% in
cash, and the balance shall be paid in shares of Company restricted stock
having a total Market Value, as hereinafter defined, equal to 25% of the
amount of such Bonus. Any Bonus payable respecting any subsequent fiscal year
shall be paid 50% in cash, and the balance shall be paid in shares of Company
restricted stock having a total Market Value equal to 50% of the amount of such
Bonus. All restricted stock so issued shall be subject to the same transfer
restrictions and forfeiture under the same conditions as shall apply generally
to Company bonus awards of Company restricted stock, except as otherwise
provided herein in paragraphs 3 and 6. Executive shall have the right to
demand registration for all vested stock and Company shall use best effort to
cause such registration at Company expense to be effective.
c. For purposes hereof, Market Value of a share of Company restricted
stock shall mean the closing sale price of such a share on the date that
Company's independent accountants shall have completed the audit for the
fiscal year respecting which the Bonus shall be paid.
5. Benefits; Expenses.
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Executive shall be entitled to such benefits as are provided generally to
Company's senior executive officers. In addition, Executive shall receive a
$950 per month car allowance, plus insurance, fuel and normal travel expenses
(i.e. tolls, parking, etc.). All the preceding expenses (excluding the car
allowance) are fully tax protected. Company shall furnish Executive with
individual supplemental life insurance coverage in the amount of $125,000 and
individual disability income coverage. Company shall furnish and maintain
continuously directors and officers liability insurance coverage during
employment, and will continue to indemnify and advance legal expenses on behalf
of Executive, during Employment Term and after termination for actions
occurring during the Employment Term to the extent permitted by law. Executive
shall accrue vacation time at a rate of twenty days per year. Company will
grant Executive, effective February 15, 2000, options to purchase 200,000
shares of Company Common Stock with four-year (25% per year) vesting and
ten-year expiration.
If options granted to Executive during employment (including the option
referred to in the last sentence of the previous paragraph) do not achieve a
total potential value before taxes of at least $463,000 before 2/16/2004
(whether or not they are actually exercised), then the Company will pay the
Executive the amount by which $463,000 exceeds the total potential value in ten
equal installments over the subsequent ten fiscal quarters, on the last day of
each quarter. "Potential value" with respect to each option means the sum of
the maximum vested values of each option. "Maximum vested value" means, as to
each portion of the option that becomes exercisable, (a) the difference between
(i) the maximum closing price of a share of the Company's common stock on at
least one day that Executive could exercise such portion of the option and
resell the common stock received on exercise under the Company's then in effect
trading policy and (ii) the exercise price of the option, multiplied by (b) the
number of shares as to which such portion is initially exercisable (as adjusted
for stock dividends, stock splits, or like changes to the outstanding common
stock and stock price). In no event shall the maximum closing price in (a)(i)
herein be lower than the exercise price of the option and in no event will the
Executive ever be entitled to payments exceeding $463,000. Should Company
terminate the Employment Term for cause, or should Executive terminate the
Employment Term voluntarily (other than on account of Company's material breach
hereof or pursuant to 3.b.(i) or 3.b.(iv)), in either case prior to receipt of
these payments, then these payments are forfeited.
Should any of Executive's stock options granted by his current employer expire,
because of his termination of employment, during a period in which, under the
"lockup" agreement Executive signed in connection with his current employer's
recent private placement under Rule 144A, thereby prohibiting Executive from
immediately reselling the shares issuable upon exercise of such option, Company
shall lend Executive the amount necessary to exercise such option, for a period
ending two weeks after such lockup agreement shall expire, such loan to be
secured by the stock received on exercise.
Executive's benefit under the Executive Retirement Plan shall vest 50% after
five years of service and pro-ratably over the next five years as to the
remaining 50%.
6. Signing Bonus.
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In first pay check after 15 February 2000 Company shall pay $50,000 cash, and
on 15 February 2000 issue to Executive 15,000 shares of Company common stock,
and use reasonable efforts to register the shares for resale by 30 July 2001.
Should Company terminate the Employment Term for cause, or should Executive
terminate the Employment Term voluntarily (other than on account of Company's
material breach hereof or pursuant to 3.b.(i) or 3.b.(iv)), in either case
prior to 15 February 2001, Executive shall, as liquidated damages, and not as
penalty, transfer to the Company cash equal to $50,000 multiplied by the
Forfeiture Fraction, and also transfer a number of shares of Company common
stock equal to 15,000 multiplied by the Forfeiture Fraction, or an amount equal
to the product obtained by multiplying 15,000 by the Forfeiture Fraction and
multiplying that amount by the mean of the closing sale prices of the Company
common stock on the first ten trading days following effectiveness of the
registration of the shares for resale. The Forfeiture Fraction is a fraction,
the numerator of which shall be the number of whole calendar days remaining in
the one-year period starting February 15, 2000, and the denominator of which
shall be 366.
7. Intellectual Property; Noncompetition.
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a. Assignment of Inventions.
(i) Subject to paragraph (a)(ii) below, Executive hereby assigns
and agrees to assign to Company, or to any business concern controlled
by or under common control with Company ("Company Affiliate") as
Company shall specify, all of Executive's right, title and interest
in and to any inventions, formulas, techniques, processes, ideas,
algorithms, discoveries, designs, developments and improvements which
Executive may make, reduce to practice, conceive, invent, discover,
design or otherwise acquire during Executive's employment by Company
or any Company Affiliate, whether or not made during regular working
hours, relating to the actual or anticipated business, products,
research or development of Company or any Company Affiliate
(collectively, "Inventions").
(ii) The foregoing shall not apply to, and Executive shall not be
required to assign any of Executive's rights in, an invention that
Executive developed entirely on Executive's own time without using any
equipment, supplies, facilities, computer programs, or trade secret(s)
and/or other proprietary and/or confidential information of Company or
any Company Affiliate, except for those inventions that either:
(1) Relate directly or indirectly at the time of
conception or reduction to practice of the
invention, to the business of Company or any Company
Affiliate, or to the actual or contemplated
products, research or development of Company or any
Company Affiliate, or
(2) Result from any work performed by Executive for
Company or any Company Affiliate.
b. Trade Secrets. Executive shall regard and preserve as confidential:
(x) all trade secrets and/or other proprietary and/or confidential information
belonging to Company or any Company Affiliate; and (y) all trade secrets and/or
other proprietary and/or confidential information belonging to a third party
which have been confidentially disclosed to Company or any Company Affiliate,
which trade secrets and/or other proprietary and/or confidential information
described in (x) and (y) above (collectively, "Confidential Information") have
been or may be developed or obtained by or disclosed to Executive by reason of
Executive's employment. Executive shall not, without written authority from
Company to do so, use for Executive's own benefit or purposes, or the benefit
or purpose of any person or entity other than Company or any Company Affiliate,
nor disclose to others, either during Executive's employment with Company or
thereafter, except as required in the course of employment with Company or any
Company Affiliate, or except as required by law, any Confidential Information
(Executive, as CFO, shall have the usual and customary discretion to determine
when disclosure is required for the benefit of Company). This provision shall
not apply to Confidential Information that has been voluntarily disclosed to
the public by Company or any Company Affiliate, or otherwise entered the public
domain through lawful means. Confidential Information shall include, but not
be limited to, all nonpublic information relating to any of the following
regarding Company or any Company Affiliate: (1) business, research,
development and marketing plans, strategies and forecasts; (2) business; (3)
products (whether existing, in development, or being contemplated); (4)
customers' identities, usages, and requirements; (5) reports; (6) formulas; (7)
specifications; (8) designs, software and other technology; (9) research and
development programs; and (10) terms of contracts.
c. Works of Authorship. Executive agrees that any original works of
authorship, including, without limitation, all documents, blueprints, drawings,
mask works and computer programs (including, without limitation, all software,
firmware, object code, source code, documentation, specifications, revisions,
supplements, modules, and upgrades), conceived, created, performed or produced
during the term of Executive's employment with Company or any Company
Affiliate, and all foreign and domestic, registered and unregistered,
copyrights and mask work rights and applications for registrations therefor
related to any such work of authorship, in each case, whether or not made
during regular working hours, relating to the actual or anticipated business,
products, research or development of Company or any Company Affiliate
(collectively, "Works of Authorship") shall be the exclusive property of
Company or any Company Affiliate as Company shall specify. To the extent that
Executive has or obtains any right, title or interest in or to any Works of
Authorship, Executive hereby assigns and agrees to assign to Company or any
Company Affiliate as Company shall specify, all of such right, title and
interest therein and thereto. This paragraph does not include any publicly
available materials, unless such materials shall have become public in
violation of this Agreement.
d. Disclosure. Executive shall promptly and fully disclose any and all
Inventions and Works of Authorship to Company's General Counsel or other
official as Company's Board of Directors may designate for such purpose.
e. Further Assistance. Executive shall, during Executive's employment
with Company or any Company Affiliate and at any time thereafter, upon the
request of and at the expense of Company or such Company Affiliate, but at no
additional compensation to Executive: do all acts and things including, but not
limited to, making and executing documents, applications and instruments and
giving information and testimony, in each case, deemed by Company from time to
time, in its sole discretion, to be necessary or appropriate (1) to vest,
secure, defend, protect or evidence the right, title and interest of Company in
and to any and all Inventions, Works of Authorship and Confidential
Information; and (2) to obtain for Company, in relation to all such, letters,
patents, design registrations, copyright registrations and/or mask work
registrations, in the United States and any foreign countries, and/or any
reissues, renewals and/or extensions thereof.
f. Previous Obligations. Executive represents and warrants to Company
that Executive has no continuing obligation with respect to assignment of
inventions, developments or improvements to any previous employer(s),
respecting any invention, development, or improvement made prior to February
15, 2000, nor does Executive claim any existing title in any previous
unpatented inventions, developments or improvements within the scope of this
Section 7. except as may be set forth on an Exhibit hereto acknowledged on the
face thereof as an Exhibit hereto by an authorized representative of Company.
g. Return of Documents. All media on which any Inventions, Works of
Authorship or Confidential Information may be recorded or located, including,
without limitation, documents, samples, models, blueprints, photocopies,
photographs, drawings, descriptions, reproductions, cards, tapes, discs and
other storage facilities (collectively, "Documentation") made by Executive or
that come into Executive's possession by reason of Executive's employment are
the property of Company and shall be returned to Company by Executive upon
termination of employment. Executive will not deliver, reproduce, or
in any way allow any Documentation to be delivered or used by any third party
without the written direction or consent of a duly authorized representative
of Company.
8. Competition.
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Executive covenants and agrees that (a) for so long as he shall be employed by
Company or any Company Affiliate, he shall not, directly or indirectly, as
principal, partner, agent, servant, employee, stockholder, or otherwise,
anywhere in the world (the "Territory"), engage or attempt to engage in any
business activity competitive with the business being conducted or, to the
knowledge of Executive prior to Notice of Termination or actual termination,
whichever is earlier, being planned to be conducted by Company or any Company
Affiliate, and (b) for one year after termination, Executive shall not, in the
Territory, so engage or attempt to engage in any business activity competitive
with any business conducted or planned to be conducted by any of Company or any
Company affiliate within one year prior to termination. The foregoing shall
not prohibit Executive, his affiliates, spouse, and children from owning
beneficially any publicly traded security, so long as the beneficial ownership
by all of them, when combined with the beneficial ownership of such publicly
traded security by any person (as defined in Section 13(d) of the Exchange Act)
of which any of them is a member, constitutes less than 5% of the class of
such publicly traded security. Executive recognizes that the foregoing
territorial and time limitations are reasonable and properly required for the
adequate protection of the business of Company and that in the event that any
such territorial or time limitation is deemed to be unreasonable in any
proceeding to enforce these provisions or otherwise, Executive agrees to
request, and to submit to, the reduction of said territorial or time limitation
to such an area or period as shall be deemed reasonable by the relevant
tribunal. In the event that Executive shall be in violation of the foregoing
restrictive covenants, then the time limitation thereof shall be extended for a
period of time during which such breach or breaches shall occur. The existence
of any claim or cause of action by Executive against Company, if any, whether
predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by Company of the foregoing restrictive covenants.
9. Miscellaneous.
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a. Executive agrees that a remedy at law for any breach or proposed or
attempted breach of the provisions of Sections 7 or 8 shall be inadequate and
that Company shall be entitled to injunctive relief with respect to such breach
or proposed or attempted breach, in addition to any other remedy it might have.
The provisions of Sections 7 and 8 shall be enforceable notwithstanding the
existence of any claim or cause of action of Executive against Company or any
Company Affiliate, whether predicated on such Section or otherwise.
b. Except as otherwise provided herein, the agreements, assignments and
appointments made by Executive hereunder and the obligations of Executive
herein shall survive the termination of Executive's employment with Company,
whether by Executive or Company.
c. This Agreement may be modified only by a written instrument duly
executed by the parties hereto. No term or provision of this Agreement shall
be deemed waived, and no breach excused, unless such waiver or consent shall be
in writing and signed by the parties hereto. The failure of either party or
any Company Affiliate at any time to enforce performance of any provision of
this Agreement shall in no way affect such person's rights thereafter to
enforce the same, nor shall the waiver by any such person of any breach of any
provision hereof be deemed to be a waiver of any other breach of the same or
any other provision hereof.
d. If any provision of this Agreement, or the application of such
provision, is held invalid, the remainder of this Agreement and the application
of such provision to persons or circumstances other than those as to which it
is held invalid shall not be affected thereby.
e. Any notice authorized or required to be given hereunder shall be
deemed given or made, if in writing, upon personal delivery, by telecopier on
the date that transmission is confirmed electronically, if such confirmation
occurs by 4:00PM on such date and such date is a business day, or otherwise,
on the first business day thereafter, or three days after mailing by certified
or registered mail, return receipt requested, to the Company, at the address
set forth at the top of the first page, to the attention of Xx. Xxxxxx X.
Xxxxxxxx, Chief Executive Officer, or to the Executive at the address to
which this letter is addressed, as set forth above, or such other address of
which either party shall give notice to the other.
f. This agreement shall be governed by the laws of the state of New York,
applicable to an agreement negotiated, signed, and wholly to be performed in
such state.
g. Any dispute arising hereunder (including but not limited to
interpretation of performance) shall be resolved in New York NY by arbitration
before the American Arbitration Association, in accordance with its rules,
except that the arbitrator shall be an active member of the New York bar
specializing for at least 15 years in general corporate law and contracts
practice, who shall apply the terms of this agreement and make findings of
fact and conclusions of law in making his award.
IN WITNESS WHEREOF, the undersigned have executed this agreement on the dates
below as of the date first written above.
STANDARD MICROSYSTEMS
CORPORATION
By: /S/ XXXXXX X. XXXXXX By: /S/ XXXXXX X. XXXXXXXX
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Xxxxxx X. Xxxxxx Xxxxxx X. Xxxxxxxx
Chief Executive Officer
Date: January 7, 2000 Date: January 7, 2000
