EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of the 12th day of September,
1996, is between DDL ELECTRONICS, INC., a Delaware corporation (the
"Company"), and RICHARD K. VITELLE ("Vitelle").
WHEREAS, the Company, being well satisfied with Vitelle's services as
Vice President of Finance and Chief Financial Officer (referred to herein
together as "Chief Financial Officer"), desires to retain him in an
executive capacity for the period and upon the other terms and conditions
herein provided; and
WHEREAS, Vitelle is willing to continue in employment by the Company
pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and obligations herein contained, and for other good and valuable
consideration, the receipt, adequacy, and sufficiency of which are hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:
1. EMPLOYMENT
1.1 Position. The Company hereby confirms Vitelle's employment as
its Chief Financial Officer. From time to time during the term of this
Agreement, Vitelle may be offered, and (in his discretion) may accept or
reject, the duties associated with additional offices in the Company and
its subsidiaries. Vitelle shall report directly to the Company's Chief
Operating Officer, or, if at any time the Company has no Chief Operating
Officer, then directly to the Company's President, or, if at any time the
Company has no President, then directly to the Company's Chief Executive
Officer, and in any case shall perform the duties described in Section 1.2
hereof, subject to such limitations of authority as may be established from
time to time by the Company's Chief Operating Officer (or President, if the
Company has no Chief Operating Officer (or Chief Executive Officer, if the
Company has no President)) and applicable law. Notwithstanding any other
provision of this Agreement, Vitelle shall at all times during the term of
this Agreement function as an executive officer of the Company, with duties
that require the performance of policy making functions as contemplated by
Rule 3b-7 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
1.2 Duties. Vitelle's duties will include all those duties
customarily associated with the position of Chief Financial Officer in an
emerging growth company, subject to the direction of the Company's Chief
Operating Officer (or President, if the Company has no Chief Operating
Officer (or Chief Executive Officer, if the Company has no President)).
Such duties shall include management of all financial functions and
financial facilities required of and maintained by the Company and its
subsidiaries. Vitelle agrees to devote substantially his entire business
time and attention to the performance of his duties hereunder and to serve
the Company diligently and to the best of his abilities. Notwithstanding
the foregoing, Vitelle shall have the continuing right (a) to make passive
investments in the securities of any publicly-owned corporation, (b) to
make any other passive investments with respect to which he is not
obligated or required to, and does not in fact, devote any substantial
managerial efforts that interfere with the fulfillment of his duties to the
Company, and, (c) subject to the prior written approval of the Company's
Board of Directors (the "Board of Directors"), to serve as a director of or
consultant to other companies and entities. Vitelle represents that he is
under no actual or alleged restriction, limitation or other prohibition
(whether as a result of prior employment or otherwise) to perform his
duties as described herein.
2. COMPENSATION AND BENEFITS
2.1 Base Annual Salary. The Company shall pay Vitelle a base annual
salary of $125,000 (the "Base Annual Salary") periodically throughout the
year, commencing the date hereof, in accordance with its customary payroll
practices, as modified from time to time, subject to all payroll and
withholding deductions required by applicable law. Base Annual Salary
shall be reviewed at least annually by the Compensation Committee of the
Board of Directors (the "Compensation Committee"), but shall not be
decreased without Vitelle's prior written consent.
2.2 Cash Bonuses. For the Company's fiscal year commencing July 1,
1996, the Company will pay Vitelle a cash bonus quarterly, in arrears, in
an amount per annum equal to 30% of his initial Base Annual Salary (as
stated above).
2.3 Other Incentive Compensation. Subject to the satisfaction of
such criteria and the achievement of such objectives as the Compensation
Committee may establish, Vitelle may receive additional cash bonuses and
other incentive compensation (including stock options), it being understood
that the Compensation Committee shall at least once annually consider the
payment of a cash bonus to Vitelle.
2.4 Other Benefits. Vitelle shall be entitled to other benefits and
perquisites no less favorable than those provided to the Company's
employees generally, as such benefits and perquisites may be modified from
time to time in the Company's discretion. Such benefits shall in all
events include health insurance, a 401(k) plan and 11 paid holidays
annually. Such perquisites shall in all events include three weeks of
vacation annually, disability insurance and group term life insurance (in
an amount equal to at least two times Base Annual Salary). To assist with
the commuting and business travel essential to conducting business in
greater Los Angeles, throughout the term of this Agreement the Company will
provide Vitelle with an automobile allowance of $500 per month or, at his
election, will provide him with a company-acquired and -maintained
automobile the expense of which shall not exceed $500 per month or such
higher amount as may be authorized in writing by the Company's Chief
Operating Officer, President or Chief Executive Officer.
2.5 Expense Reimbursement. Vitelle shall be reimbursed by the
Company for his reasonable out-of-pocket business expenses in accordance
with the Company's established policies applicable to executive officers
generally. In addition, the Company will reimburse Vitelle for all
customary expenses, not to exceed $25,000 in the aggregate, incurred by
Vitelle and his wife to relocate their principal residence to Ventura
County, California.
2.6 Stock Options. Vitelle and the Company acknowledge that, as of
September 11, 1996, there were issued and outstanding and owned by Vitelle
options to purchase 185,000 shares (the "Old Options") of the Company's
Common Stock, par value $.01 per share ("Common Stock"). Effective the
date hereof, the Old Options are annulled and void and have no further
force or effect; in furtherance thereof, Vitelle agrees promptly to tender
to the Company, for cancellation, any and all certificates evidencing Old
Options. The parties further acknowledge that, subject to Vitelle's tender
of said certificates, the Compensation Committee has granted to Vitelle, on
and as of the date hereof, incentive stock options to purchase 185,000
shares of Common Stock at an exercise price of $1.25 per share ("New
Options"). The parties further acknowledge that the Compensation Committee
also has granted to Vitelle, on and as of the date hereof, incentive stock
options to purchase an additional 200,000 shares of Common Stock at an
exercise price of $1.25 per share ("Additional Options"). The New Options
and the Additional Options are evidenced by three separate agreements
between Vitelle and the Company dated the date hereof and referred to
herein collectively as the "Option Agreements."
3. TERMINATION AND SEVERANCE PAY
3.1 At Will. Vitelle and the Company acknowledge and agree that
Vitelle's employment with the Company is "at will" during the term of this
Agreement. Accordingly, either party may terminate Vitelle's employment by
the Company, with or without cause, in which case Vitelle shall have no
claim for lost wages, although termination of Vitelle's employment shall be
subject to the terms and conditions of this Agreement regarding severance
pay, benefits and other obligations. Vitelle and the Company are not party
to any oral agreement relating to Vitelle's employment by the Company.
3.2 Voluntary Resignation. In the event that Vitelle's employment
with the Company terminates as a result of his voluntary resignation,
Vitelle shall be entitled to no severance pay or benefits. If at any time
the principal place of Vitelle's employment is relocated to any site beyond
the 35-mile radius of 2151 Anchor Court, Newbury Park, California, then
Vitelle may resign at any time within the following twelve months,
whereupon his resignation shall be treated as termination by the Company
other than For Just Cause and he shall be entitled to severance payments
and benefits for twelve months as and in the manner, and to the extent,
contemplated by Sections 3.3(a) and 3.3(b) hereof. For purposes of this
Agreement, the term "voluntary resignation" shall not include a resignation
tendered by Vitelle pursuant to a written request of the Chief Operating
Officer, the President, the Chief Executive Officer or the Board of
Directors, provided that a copy of such request is delivered to the
Chairman of the Board of Directors promptly following its delivery to
Vitelle, and provided further that the Board of Directors does not overrule
such request within one week of its Chairman's receipt of such copy. A
resignation tendered by Vitelle pursuant to a written request of the Chief
Operating Officer, the President, the Chief Executive Officer or the Board
of Directors shall, for purposes of this Agreement, be treated as an
involuntary termination, and Vitelle's entitlement to severance pay and
additional benefits in accordance with Sections 3.3(a) and 3.3(b) hereof
shall depend upon whether such request or suggestion was For Just Cause (as
defined in Section 3.3(c) hereof).
3.3 Involuntary Termination.
(a) Severance Pay. In the event that Vitelle's employment
with the Company is terminated by the Company For Just Cause (as defined in
Section 3.3(c) hereof), Vitelle shall not be entitled to severance pay or
benefits. In the event that Vitelle's employment with the Company is
terminated by the Company other than For Just Cause, Vitelle shall be
entitled to severance pay in the form of continuation of Base Annual Salary
for twelve months from the effective date of the termination. Vitelle
shall have no duty to mitigate such payments by seeking or accepting other
employment; accordingly, such payments shall not be reduced due to
Vitelle's receipt of other compensation from such other employment as he
may obtain during the term of his severance payments.
(b) Additional Benefits. In the event that Vitelle's
employment with the Company is terminated by the Company other than For
Just Cause, Vitelle shall be entitled to continue to participate in the
Company's employee benefit programs as and to the extent theretofore made
available to them pursuant to Section 2.4 above. Such benefits shall be
continued at no additional cost to Vitelle, except to the extent, if any,
that tax laws require the inclusion of the value of such benefits in his
gross income. Such benefits shall continue for the benefit of Vitelle for
the entire period of his severance pay continuation as provided in Section
3.3(a) above, in the same manner and at the same level as in effect
immediately prior to Vitelle's termination. In addition, upon any
termination of Vitelle by the Company other than For Just Cause, (i) any
and all employee stock options, stock appreciation rights, restricted stock
and other similar rights and financial assets held by Vitelle shall become
fully vested and exercisable immediately, and (ii) any and all cash bonuses
that would be payable to Vitelle at the end of a period but for his earlier
termination shall be payable to him immediately and pro rata (in accordance
with the percentage of completion of the period in question and with
reference to the best available financial information proximate to the time
of termination).
(c) For Just Cause. For purposes of this Agreement, the term
"For Just Cause" shall mean any termination of employment of Vitelle for
one or more of the following reasons: (i) the substantial failure by such
person, for any reason other than his death or Disability (as defined
below), to comply with a lawful, written instruction of the Company's Chief
Operating Officer, President, Chief Executive Officer or Board of
Directors, which instruction is consistent with his duties as elsewhere
provided in this Agreement, which instruction is not overruled by higher
corporate authority and which failure continues without interruption for
the 30 days immediately following Vitelle's receipt of such instruction;
(ii) the substantial and continuing failure of Vitelle, for any reason
other than his death or Disability, to render vital service to the Company
in execution of his essential duties, as determined by the Board of
Directors in good faith with reference to such person's employment
agreement then in effect after giving written notice to such person and an
opportunity for him to remedy such failure within 30 days of receiving such
notice; (iii) the conviction of such person for a felony involving an act
of moral turpitude, which conviction has become final and non-appealable;
(iv) recklessness in the performance of such person's duties to the Company
causing material harm to the Company; or (v) material dishonesty, material
breach of fiduciary duty or material breach by Vitelle of any
representation, covenant or other agreement contained in this Agreement.
(d) Constructive Termination. If Vitelle, without his prior
written consent, is removed from the position of Chief Financial Officer,
or if Vitelle's duties are restricted or reduced in such a manner as to
result in his position with the Company no longer including duties
requiring the performance of policy making functions by an executive
officer within the meaning of Rule 3b-7 of the Exchange Act, then, in
either such case, the employment of Vitelle shall be deemed, in his
discretion, involuntarily terminated by the Company other than For Just
Cause, it being understood that Vitelle must exercise his discretion under
this Section 3.3(d) in writing to the Board of Directors within sixty days
following the latest to occur of any event constituting involuntary
termination pursuant to this Section 3.3(d).
3.4 Death. In the event of Vitelle's death, this Agreement shall
automatically terminate and shall be of no further force or effect, it
being understood that the Company shall be obligated to make all the
payments and to provide all the benefits due to Vitelle hereunder to the
time of his death.
3.5 Disability. In the event of Vitelle's Disability (as defined
below) during the term of this Agreement for any period of at least three
consecutive months, the Company shall have the right, exercisable in its
discretion, to terminate this Agreement. In the event that the Company
does elect to terminate this Agreement, Vitelle shall not be entitled to
any severance pay but shall be entitled to normal disability benefits in
accordance with such policies of the Company as may then be in effect. For
purposes of this Agreement, "Disability" shall mean the inability of
Vitelle to perform the essential functions of his employment hereunder by
reason of physical or mental illness or incapacity as determined by a
physician chosen by the Company and reasonably satisfactory to Vitelle or
his legal representative.
4. TERM
This Agreement shall become effective as of the date hereof and shall
terminate on the date that is five years after the date hereof, unless
earlier terminated pursuant to Article 3 hereof.
5. NONDISCLOSURE, NON-SOLICITATION, NON-COMPETE AND NON-DISPARAGEMENT
5.1 Nondisclosure. Except as is reasonably necessary in the
performance of his duties hereunder, Vitelle shall not disclose to any
person or entity or use for his own direct or indirect benefit any
Confidential Information (as defined below) pertaining to the Company
obtained by him in connection with his employment with the Company. For
purposes of this Agreement, the term "Confidential Information" shall
include information with respect to the Company's products, services,
processes, suppliers, customers, customers' account executives, financial,
sales and distribution information, price lists, identity and list of
actual and potential customers, trade secrets, technical information,
business plans and strategies; provided, however, that such information
shall not be treated as Confidential Information to the extent that it has
been publicly disclosed by the Company (other than by Vitelle through a
breach of this Section 5.1).
5.2 Non-Solicitation. Vitelle agrees that, so long as he is
employed by the Company and for a period of one year after termination of
his employment for any reason other than involuntary termination not For
Just Cause, he shall not (a) directly or indirectly solicit, induce or
attempt to solicit or induce any Company employee to discontinue such
employee's employment by the Company, (b) usurp any opportunity of the
Company of which he became aware during his tenure at the Company, or that
was made available to him on the basis of a mistaken belief that he was
still employed by the Company, or (c) directly or indirectly solicit or
induce or attempt to influence any person or business that is an account,
customer or client of the Company to reduce or cancel the business of any
such account, customer or client with the Company.
5.3 Non-Compete. Vitelle agrees that, so long as he is employed by
the Company and for a period of one year after termination of his
employment for any reason other than involuntary termination not For Just
Cause, he shall not, without prior written consent of the Company's Chief
Operating Officer (or President, if the Company has no Chief Operating
Officer (or Chief Executive Officer, if the Company has no President)),
either directly or indirectly (including, without limitation, through a
partnership, joint venture, corporation or other entity or as a consultant,
director or employee), engage in the business engaged in by the Company as
of the date hereof within any of those geographical areas in which the
Company currently conducts active business operations. The parties hereto
agree that the scope and the nature of such covenant, and the duration and
the area within which such covenant is to be effective, are reasonable in
light of all facts and circumstances.
5.4 Non-Disparagement. Vitelle agrees that, so long as he is
employed by the Company and for a period of one year after termination of
his employment for any reason other than involuntary termination not For
Just Cause, he shall not make any public comment (whether written or oral)
concerning or touching upon the Company or any of its Affiliates, including
but not limited to any or all of the Company's executive officers and
directors, which comment would tend to disparage the personal, financial or
business reputation of such other person or persons, except for such
comments as may be required by law and except for such comments as may be
made in litigation, arbitration or mediation with such person or persons.
6. CERTAIN COVENANTS OF THE COMPANY
6.1 Amendments of Charter or By-laws. The Company covenants with
Vitelle that it shall not permit the indemnification provisions of the
charter or the by-laws of the Company to be amended in any manner that is
or may be construed as adverse to his interests without his prior written
consent. The Company agrees and acknowledges that Vitelle's remedy at law
for any breach of this Section 6.1 would be inadequate. The Company agrees
that, for breach of any such provision, in addition to such other remedies
as may be available to him at law or in equity, Vitelle shall be entitled
to injunctive relief and to a judicial order of specific performance. The
Company agrees not to oppose any formal request by Vitelle for such relief
or such order.
6.2 Legal Fees. The Company agrees to pay any and all reasonable
legal fees and other expenses that may be incurred by Vitelle in connection
with his efforts to seek a resolution of any dispute with the Company
arising under this Agreement or the Option Agreements, but only if Vitelle
shall have obtained a judgment in his favor against the Company.
7. CHANGE IN CONTROL
(a) If (1) a Change in Control of the Company (as defined below)
shall occur and (2) Vitelle's employment shall be terminated (including,
without limitation, any constructive termination pursuant to Section
3.3(d)) for any reason other than For Just Cause or his voluntary
resignation within six months after such Change in Control of the Company,
then the Company shall pay to Vitelle, (A) upon demand delivered to the
Company at any time during the six months immediately following such
termination, an amount in cash equal to his Base Annual Salary in effect
immediately preceding such termination, plus (B) upon demand delivered to
the Company at any time during the six months immediately following such
termination, an amount equal to the fair market value of any and all stock
options held by him that remain unexercised at the time of such demand for
payment; provided that: (i) for the purposes of this Article 7 and
notwithstanding any provision in the Option Agreements, any and all
unexpired stock options held by Vitelle upon his termination shall be
considered vested and exercisable in full at any time during the six months
immediately following such termination; (ii) for the purposes of this
Article 7, any and all stock options held by Vitelle that remain
unexercised at the time of his demand for payment under clause (B) hereof
shall be valued by an independent public accountant selected by the Company
and approved by Vitelle (whose approval shall not be withheld arbitrarily)
using the Black-Scholes option valuation formula; (iii) the amount payable
to Vitelle pursuant to clause (A) hereof shall be in substitution for, and
not in addition to, any amount otherwise payable to him under Section
3.3(a); (iv) upon payment to Vitelle of the full amount due to him pursuant
to this Article 7, any and all unexercised stock options then held by
Vitelle shall be considered expired and of no further force or effect; and
(v) the total cash payment to Vitelle pursuant to this Article 7 shall be
reduced by any amount necessary to avoid the creation of a nondeductible
"excess parachute payment" by the Company as defined in Section 280G of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder.
(b) For the purposes of this Article 7: (1) a "Change in Control of
the Company" shall have occurred if (A) any person (within the meaning of
Section 13(d) of the Exchange Act) other than the Company or an Affiliate
shall become the beneficial owner (as that term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 35% or more of the
outstanding Common Stock (such person's beneficial ownership to be
determined, in the case of warrants, options or rights to acquire Common
Stock, pursuant to paragraph (d) of Rule 13d-3 under the Exchange Act), (B)
the stockholders of the Company shall approve (i) a merger or consolidation
of the Company with or into any person other than an Affiliate, (ii) any
sale, lease, exchange or other transfer of all or substantially all the
assets of the Company to any person other than an Affiliate or (iii) the
dissolution of the Company or (C) at the end of any period commencing one
month prior to the consummation of any of the events described in clauses
(i), (ii) and (iii) above and ending five months after such consummation,
individuals who at the commencement of such period were directors of the
Company (the "Original Directors") shall have resigned or retired or
otherwise shall have been removed from the Board of Directors, or during
such period the number of directors shall have been increased, or both,
with the result that, at the end of such period, the Original Directors who
remain directors of the Company constitute less than 50% of the entire
Board of Directors; (2) an "Affiliate" shall mean any person who is, at the
date hereof, controlling or controlled by, or under common control with,
the Company, including, without limitation, any person with a Schedule 13D
on file with the Securities and Exchange Commission with respect to the
Common Stock on the date hereof; and (3) "person" shall mean any
individual, group, corporation, partnership, joint venture, association,
joint-stock company, limited partnership, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
of any government and shall also have the meaning assigned to it in Section
13(d) of the Exchange Act.
8. MISCELLANEOUS
8.1 Directors' And Officers' Liability Insurance. The Company shall
use its best efforts at all times to maintain in effect a directors' and
officers' liability insurance policy in an amount, and with such coverages,
as are customary in the Company's industry, which policy shall be
underwritten by an insurer reasonably satisfactory to Vitelle.
8.2 No Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a
waiver of any subsequent breach thereof.
8.3 Notices. Any and all notices referred to herein shall be
furnished in writing and shall be delivered by hand or sent by registered
or certified mail, postage prepaid, to the respective parties at the
following addresses (or at such other address as either party may from time
to time designate to the other by like notice):
To the Company: DDL Electronics, Inc.
2151 Anchor Court
Newbury Park, CA 91320
Attention: President
To Vitelle: Mr. Richard K. Vitelle
Chief Financial Officer
DDL Electronics, Inc.
2151 Anchor Court
Newbury Park, CA 91320
8.4 Assignment. This Agreement may not be assigned by Vitelle and
may not be assigned by the Company otherwise than by operation of law.
This Agreement shall be binding upon the Company's successors and assigns.
8.5 Entire Agreement. This Agreement supersedes any and all prior
written or oral agreements between Vitelle and the Company and, together
with the Option Agreements, evidences the entire understanding of the
parties hereto with respect to the terms and conditions of Vitelle's
employment with the Company.
8.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without
regard to the choice of law rules of the State of California or any other
jurisdiction.
8.7 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to constitute an original, but all of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
DDL ELECTRONICS, INC.
By: /s/ Gregory L. Horton
----------------------------
Gregory L. Horton
President and CEO
/s/ Richard K. Vitelle (L.S.)
----------------------------
Richard K. Vitelle