Exhibit 10.38
EMPLOYMENT AGREEMENT
AGREEMENT dated August 14, 2001 between XXXXXX AUGUST
("Executive"), and CPI AEROSTRUCTURES, INC. ("Company");
WHEREAS, the Company desires to continue the employment of
Executive and Executive desires to continue his present employment with the
Company, pursuant to the terms and conditions herein set forth, superseding all
prior agreements between the Company, its subsidiaries and/or predecessors and
Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
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1.1 General. The Company shall employ Executive from
August 14, 2001 until December 31, 2001 as its Chairman of the Board
("Chairman"), President and Chief Executive Officer ("CEO") and from January 1,
2002 until December 31, 2004, as its Chairman and CEO, under the terms hereof.
All of Executive's powers and authority in any capacity shall at all times be
subject to the direction and control of the Company's Board of Directors. The
Board may assign to Executive such management and supervisory responsibilities
and executive duties for the Company or any subsidiary of the Company, including
serving as an executive officer and/or director of any subsidiary, as are
consistent with Executive's status as Chairman, President and CEO, as the case
may be. The Company and Executive acknowledge that Executive's functions and
duties as Chairman, President and CEO, as the case may be, include establishing
policies and strategies for the Company's overall business and operations,
including plans for growth and strategic alliances.
1.2 Full-Time Position Through 12/31/02. Executive
accepts such employment and agrees to devote substantially all of his business
time, energies and attention to the performance of his duties hereunder through
December 31, 2002 and thereafter, to devote such time as he, in his sole
discretion, deems to be necessary. Nothing herein shall be construed as
preventing Executive from making and supervising personal investments, provided
they will not interfere with the performance of Executive's duties hereunder or
violate the provisions of Section 6.4 hereof.
1.3 Location. The Company will maintain its principal
executive offices within a 30 mile radius of its current location in Edgewood,
New York. Notwithstanding the foregoing, Executive may, in his sole discretion,
perform his obligations under this Agreement off the premises of the Company.
Additionally, Executive may maintain an office in, adjacent to, or within the
vicinity of his residence, and the Company shall reimburse him for all costs
reasonably related thereto (including secretarial assistance, telephone, fax,
computer and other communications equipment).
1.4 Board of Directors Position. At any time during the
term hereof that Executive is not serving as a director of the Company, he shall
nonetheless be invited to attend each meeting of the Board of Directors of the
Company.
2. Compensation and Benefits.
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2.1 Salary. The Company shall pay to Executive a salary
("Base Salary") at the annual rate of not less than $300,000 per annum from
August 14, 2001 until December 31, 2002 and at the annual rate of not less than
$100,000 from January 1, 2003 until December 31, 2004. Executive's compensation
shall be paid in equal, periodic installments in accordance with the Company's
normal payroll procedures.
2.2 Bonus. In addition to Base Salary, Executive shall
be paid a bonus ("Bonus") equal to 4% of the Company's consolidated net income
for the year ending December 31, 2001 and 2002; equal to 3% of the Company's
consolidated net income for the year ending December 31, 2003; and equal to 2%
of the Company's consolidated net income for the year ending December 31, 2004,
as determined by reference to the Company's audited financial statements for
such year. The amount of the Bonus shall be pro-rated to the date of termination
of Executive's employment. The Bonus with respect to any year shall be paid on
or prior to April 15 of the following year.
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2.3 Additional Compensation. As additional compensation
for Executive entering into this Agreement and agreeing to be bound by its terms
(including Article 6 hereof) and for the services to be rendered by Executive
hereunder, the Company hereby issues to Executive options to purchase 100,000
shares of Common Stock under the Company's Performance Equity Plan 2000. These
options ("Agreement Options") shall be evidenced by one or more Stock Option
Agreements of even date herewith between the Company and Executive. The
Agreement Options will have an exercise price of $1.20 per share and will vest
immediately. The Compensation Committee may, in its discretion, grant additional
options to Executive during the term of this Agreement.
2.4 Benefits. Executive shall be entitled to such
medical, life, disability and other benefits as are generally afforded to other
senior executives of the Company, subject to applicable waiting periods and
other conditions.
2.5 Vacation. Executive shall be entitled to such paid
vacation days in each year during the Employment Term and to a reasonable number
of other days off for religious and personal reasons in accordance with
customary Company policy.
2.6 Automobile. The Company shall continue to lease a
luxury class automobile (reasonably satisfactory to Executive) for Executive
during the term of this Agreement to be used in connection with the business of
the Company. The Company shall reimburse Executive for all costs associated with
the use of a vehicle, including lease and insurance costs, repairs and
maintenance.
2.7 Expenses. The Company shall pay or reimburse
Executive for all transportation, hotel and other expenses reasonably incurred
by Executive on business trips (including business class air travel if the
scheduled flight is more than two (2) consecutive hours) and for all other
ordinary and reasonable out-of-pocket expenses actually incurred by him in the
conduct of the business of the Company against itemized vouchers submitted with
respect to any such expenses and approved in accordance with customary
procedures.
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2.8 Life Insurance. During the Employment Term, as
defined below, the Company shall continue to maintain the insurance policy on
the life of Executive in favor of his named beneficiary or his estate in a
minimum amount of $500,000.
3. Term. The term of Executive's employment hereunder shall
commence as of August 14, 2001 and shall continue until December 31, 2004 (as it
may be extended, the "Employment Term"), unless sooner terminated as herein
provided. The Employment Term shall be automatically renewed for successive one
year periods unless terminated by the Company or Executive by written notice to
the other party at least thirty (30) days before the end of the Employment Term
or any renewal thereof.
4. Termination.
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4.1 Death. If Executive dies during the term of this
Agreement, Executive's employment hereunder shall terminate and the Company
shall pay to Executive's estate the amount set forth in Section 4.7.
4.2 Disability. The Company, by written notice to
Executive, may terminate Executive's employment hereunder if Executive shall
fail because of illness or incapacity to render, for six consecutive months,
services of the character contemplated by this Agreement. Upon such termination,
the Company shall pay to Executive the amount set forth in Section 4.7.
4.3 By Company for "Cause". The Company, by written
notice to Executive, may terminate Executive's employment hereunder for "Cause".
As used herein, "Cause" shall mean: (a) the refusal or failure by Executive to
carry out specific directions of the Board which are of a material nature and
consistent with his status as Chairman, President and CEO (or whichever
positions Executive holds at such time), or the refusal or failure by Executive
to perform a material part of Executive's duties hereunder; (b) the commission
by Executive of a material breach of any of the provisions of this Agreement;
(c) fraud or dishonest action by Executive in his relations with the Company or
any of its subsidiaries or affiliates ("dishonest" for these purposes shall mean
Executive's knowingly or recklessly making of a material misstatement or
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omission for his personal benefit); or (d) the conviction of Executive of a
felony under federal or state law. Notwithstanding the foregoing, no "Cause" for
termination shall be deemed to exist with respect to Executive's acts described
in clauses (a) or (b) above, unless the Company shall have given written notice
to Executive specifying the "Cause" with reasonable particularity and, within
thirty calendar days after such notice, Executive shall not have cured or
eliminated the problem or thing giving rise to such "Cause;" provided, however,
no more than two cure periods need be provided during any twelve-month period.
Upon such termination, the Company shall pay to Executive the amount set forth
in Section 4.7. In the event of a dispute as to the existence of suitable
"Cause" for termination pursuant this Section 4.3, Executive shall be entitled
to file for arbitration of such dispute in accordance with the rules of the
American Arbitration Association with one arbitrator to be selected by the
Company and one arbitrator to be selected by the Executive, and pending final
determination of such arbitration proceedings, Executive shall continue to be
compensated in accordance with the terms of this Agreement and shall be
reimbursed for his expenses including his legal costs.
4.4 By Company Without "Cause". The Company may
terminate Executive's employment hereunder without "Cause" by giving at least 30
days written notice to Executive. Upon such termination, the Company shall pay
to Executive the amount set forth in Section 4.7.
4.5 By Executive for "Good Reason". The Executive, by
written notice to the Company, may terminate Executive's employment hereunder if
a "Good Reason" exists. For purposes of this Agreement, "Good Reason" shall mean
the occurrence of any of the following circumstances without the Executive's
prior written consent: (a) a substantial and material adverse change in the
nature of Executive's title, duties or responsibilities with the Company that
represents a demotion from his title, duties or responsibilities as in effect
immediately prior to such change; (b) Executive is not nominated or is removed
from service as a director of the Company; (c) material breach of this Agreement
by the Company; (d) a failure by the Company to make any payment to Executive
when due, unless the payment is not material and is being contested by the
Company, in good faith; (e) any person or entity other than the Company and/or
any officers or directors of the Company as of the date of this Agreement
acquires securities of the Company (in one or more transactions) having 30% or
more of the total voting power of all the Company's securities then outstanding;
or (f) a liquidation, bankruptcy or receivership of the Company. Notwithstanding
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the foregoing, no "Good Reason" shall be deemed to exist with respect to the
Company's acts described in clauses (a), (c) or (d) above, unless Executive
shall have given written notice to the Company specifying the "Good Reason" with
reasonable particularity and, within thirty calendar days after such notice, the
Company shall not have cured or eliminated the problem or thing giving rise to
such "Good Reason"; provided, however, that no more than two cure periods shall
be provided during any twelve-month period of a breach of clauses (a), (c) or
(d) above. Upon such termination the Company shall pay to Executive the amount
set forth in Section 4.7
4.6 By Executive Without Reason. The Executive may
terminate his employment hereunder by giving at least 75 days written notice to
the Company. Upon such termination, the Company shall pay to Executive the
amount set forth in Section 4.7.
4.7 Compensation Upon Termination. In the event that
Executive's employment hereunder is terminated, the Company shall pay to
Executive the following compensation:
(a) Payment Upon Death or Disability or by
Executive Without Reason. In the event that Executive's employment is terminated
pursuant to Sections 4.1, 4.2 or 4.6, the Company shall pay to Executive (or his
executor, administrator or personal representative), (i) the Base Salary due
Executive pursuant to Section 2.1 hereof through the date of termination; (ii)
any Bonus which would have become payable under Section 2.2 for the year in
which the employment was terminated prorated by multiplying the full amount of
the Bonus by a fraction, the numerator of which is the number of "full calendar
months" worked by Executive during the year of termination and the denominator
of which is 12 (a "full calendar month" is a month in which the Executive worked
at least two weeks); (iii) all earned and previously approved but unpaid Bonuses
for any year prior to the year of termination; (iv) all valid expense
reimbursements, (v) all accrued but unused vacation pay, and (vi) the payments
required by Section 4.7(d), below.
(b) Payment Upon Termination by the Company For
"Cause". In the event that the Company terminates Executive's employment
hereunder pursuant to Section 4.3, the Company shall pay to Executive his Base
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Salary, all valid expense reimbursements, all unused vacation pay required by
law through the date of termination, and the payments required by Section
4.7(d), below.
(c) Payment Upon Termination by Company Without
"Cause" or Executive for "Good Reason". In the event that Executive's employment
is terminated, pursuant to Sections 4.4 or 4.5, the Company shall (i) continue
to pay to Executive (or in the case of his death, the legal representative of
Executive's estate or such other person or persons as Executive shall have
designated by written notice to the Company), all payments, compensation and
benefits required under Section 2 hereof through December 31, 2004, (ii)
continue to maintain and pay for the same medical insurance then covering
Executive through June 30, 2006, and (iii) make the payments to Executive
required by Section 4.7(d), below. Notwithstanding the foregoing, if a "change
of control" of the Company (as described in Section 4.5(e)) occurs prior to a
termination of Executive's employment pursuant to Sections 4.4 or 4.5, then at
the option of Executive, in lieu of the above compensation and benefits, the
Company shall pay to Executive a lump sum payment on the date of termination
equal to three times (3X) the total compensation (including salary and bonus)
earned by Executive during the last full calendar year of his employment.
(d) Non-compete Payments. In consideration of
Executive's agreement not to compete with the Company for an extended period of
time pursuant to Section 6.4 hereof, the Company agrees to pay Executive the
aggregate sum of $300,000 ("Non-compete Fee"). The Non-compete Fee shall be
paid to Executive in the event that his employment is terminated for any reason,
even if his employment is terminated in a manner which causes Section 6.4 hereof
to become null and void pursuant to Section 6.7. The Non-compete Fee shall be
paid to Executive (or his estate, in the event of his death) in five equal
installments of $60,000 each, commencing on the date of termination of
employment and continuing on each of the first four annual anniversaries
thereof. The Non-compete Fee shall be in addition to any other payment required
to be made to Executive hereunder.
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(e) Executive shall have no duty to mitigate
awards paid or payable to him pursuant to this Agreement, and any compensation
paid or payable to Executive from sources other than the Company will not offset
or terminate the Company's obligation to pay to Executive the full amounts
pursuant to this Agreement.
4.8 Resignation as Member of Board. If Executive's
employment hereunder is terminated for any reason, then Executive shall, at the
Company's request, resign as a director of the Company and all of its
subsidiaries, effective upon the occurrence of such termination.
5. Executive Indemnity. The Company agrees to indemnify
Executive and hold Executive harmless against all costs, expenses (including,
without limitation, reasonable attorneys' fees) and liabilities (other than
settlements to which the Company does not consent, which consent shall not be
unreasonably withheld) (collectively, "Losses") reasonably incurred by Executive
in connection with any claim, action, proceeding or investigation brought
against or involving Executive with respect to, arising out of or in any way
relating to Executive's employment with the Company or any subsidiary or
Executive's service as a director of the Company or any subsidiary; provided,
however, that the Company shall not be required to indemnify Executive for
Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if the Company's counsel would have
a "conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the reasonable
fees and expenses of counsel) incurred by the Executive (in accordance with the
foregoing) in connection with any such claim, action, proceeding or
investigation, provided, however, that Executive shall repay such advances if
indemnification is found not to have been available hereunder. This Section
shall survive the termination of this Agreement for any reason. To the extent
that the Company obtains director and officers' insurance coverage for any
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period in which Executive was an officer, director or consultant to the Company,
Executive shall be a named insured and shall be entitled to coverage thereunder.
6. Protection of Confidential Information; Non-Competition.
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6.1 Acknowledgment. Executive acknowledges that:
(a) As a result of his current and prior
employment with the Company, Executive has obtained and will obtain secret and
confidential information concerning the business of the Company and its
subsidiaries (referred to collectively in this Section 6 as the "Company"),
including, without limitation, financial information, proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage
which will be difficult to compute if, during the period of his employment with
the Company or thereafter, Executive should enter a business competitive with
the Company or divulge Confidential Information.
(c) The provisions of this Agreement are
reasonable and necessary for the protection of the business of the Company.
6.2 Confidentiality. Executive agrees that he will not
at any time, during the Employment Term and for a period of one year thereafter,
divulge to any person or entity any Confidential Information obtained or learned
by him as a result of his employment with the Company, except (i) in the course
of performing his duties hereunder, (ii) with the Company's prior written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 48 hours after learning of such subpoena,
court order, or other government process, shall notify, confirmed by mail, the
Company and, at the Company's expense, Executive shall: (a) take all reasonably
necessary and lawful steps required by the Company to defend against the
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enforcement of such subpoena, court order or other government process, and (b)
permit the Company to intervene and participate with counsel of its choice in
any proceeding relating to the enforcement thereof.
6.3 Documents. Upon termination of his employment with
the Company, Executive will promptly deliver to the Company all memoranda,
notes, records, reports, manuals, drawings, blueprints and other documents (and
all copies thereof) relating to the business of the Company and all property
associated therewith, which he may then possess or have under his control;
provided, however, that Executive shall be entitled to retain copies of such
documents reasonably necessary to document his financial relationship with the
Company.
6.4 Non-competition. During the Employment Term and for
a period of five years thereafter, Executive, without the prior written
permission of the Company, shall not, anywhere in the world, (i) be employed by,
or render any services to, any person, firm or corporation engaged in any
business ("Competitive Business") which is directly in competition with any
"material" business conducted by the Company or any of its subsidiaries at the
time of termination (as used herein "material" means the business generated at
least 10% of the Company's consolidated revenues for the last full fiscal year
for which audited financial statements are available); (ii) engage in any
Competitive Business for his or its own account; (iii) be associated with or
interested in any Competitive Business as an individual, partner, shareholder,
creditor, director, officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity; (iv) employ or retain, or have
or cause any other person or entity to employ or retain, any person who was
employed or retained by the Company while Executive was employed by the Company
(other than Executive's personal secretary and assistant); or (v) solicit,
interfere with, or endeavor to entice away from the Company, for the benefit of
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a Competitive Business, any of its customers or other persons with whom the
Company has a contractual relationship. Notwithstanding the foregoing, nothing
in this Agreement shall preclude Executive from investing his personal assets in
any manner he chooses, provided, however, that Executive may not, during the
period referred to in this Section 6.4, own more than 4.9% of the equity
securities of any Competitive Business.
6.5 Injunctive Relief. If Executive commits a breach,
or threatens to commit a breach, of any of the provisions of Sections 6.2 or
6.4, the Company shall have the right and remedy to seek to have the provisions
of this Agreement specifically enforced by any court having equity jurisdiction,
it being acknowledged and agreed by Executive that the services being rendered
hereunder to the Company are of a special, unique and extraordinary character
and that any such breach or threatened breach will cause irreparable injury to
the Company and that money damages will not provide an adequate remedy to the
Company. The rights and remedies enumerated in this Section 6.5 shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or equity. In connection with any legal action or proceeding
arising out of or relating to this Agreement, the prevailing party in such
action or proceeding shall be entitled to be reimbursed by the other party for
the reasonable attorneys' fees and costs incurred by the prevailing party.
6.6 Modification. If any provision of Sections 6.2 or
6.4 is held to be unenforceable because of the scope, duration or area of its
applicability, the tribunal making such determination shall have the power to
modify such scope, duration, or area, or all of them, and such provision or
provisions shall then be applicable in such modified form.
6.7 Survival. The provisions of this Section 6 shall
survive the termination of this Agreement for any reason, except in the event
Executive is terminated by the Company without "Cause, " or if Executive
terminates this Agreement with "Good Reason," in either of which events, Section
6.4 shall be null and void and of no further force or effect.
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7. Miscellaneous Provisions.
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7.1 Notices. All notices provided for in this Agreement
shall be in writing, and shall be deemed to have been duly given when (i)
delivered personally to the party to receive the same, or (ii) when mailed first
class postage prepaid, by certified mail, return receipt requested, addressed to
the party to receive the same at his or its address set forth below, or such
other address as the party to receive the same shall have specified by written
notice given in the manner provided for in this Section 7.1. All notices shall
be deemed to have been given as of the date of personal delivery or mailing
thereof.
If to Executive:
Xxxxxx August
c/o CPI Aerostructures, Inc.
000X Xxxxxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
If to the Company:
CPI Aerostructures, Inc.
000X Xxxxxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: Chief Financial Officer
With a copy in either case to:
Xxxxxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxx Xxxxxx, Esq.
7.2 Entire Agreement; Waiver. This Agreement sets
forth the entire agreement of the parties relating to the employment of
Executive and is intended to supersede all prior negotiations, understandings
and agreements. No provisions of this Agreement, may be waived or changed except
by a writing by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof or thereof shall in no manner affect the right at a later time to enforce
such provision.
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7.3 Governing Law. All questions with respect to
the construction of this Agreement, and the rights and obligations of the
parties hereunder, shall be determined in accordance with the law of the State
of New York applicable to agreements made and to be performed entirely in New
York.
7.4 Binding Effect; Nonassignability. This
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company. This Agreement shall not be assignable by Executive, but
shall inure to the benefit of and be binding upon Executive's heirs and legal
representatives.
7.5 Severability. Should any provision of this
Agreement become legally unenforceable, no other provision of this Agreement
shall be affected, and this Agreement shall continue as if the Agreement had
been executed absent the unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
CPI AEROSTRUCTURES, INC.
/s/ Xxxxxx X. Xxxx
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By: Xxxxxx X. Xxxx, Vice President and
Chief Financial Officer
/s/ Xxxxxx August
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XXXXXX AUGUST
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