Exhibit 10.1
EMPLOYMENT AGREEMENT
Agreement made as of April 18, 2005 between Standard Microsystems Corporation, a
Delaware corporation having an office at 80 Arkay Drive, Hauppauge, New York
11788 ("Company"), and William Shovers, residing at 3921 Indian Road, Toledo,
Ohio 43606 ("Executive").
W I T N E S S E T H:
WHEREAS, Company desires to employ Executive as Company's Chief Financial
Officer ("CFO"), upon the terms and conditions hereinafter in this Employment
Agreement (the "Agreement") set forth, and Executive desires to be so employed;
Now, therefore, in consideration of the promises and the mutual covenants and
conditions contained herein, the parties hereto agree as follows:
1. Employment.
Subject to the next sentence, Company hereby agrees to employ Executive, and
Executive hereby accepts such employment, upon the terms and conditions
hereinafter set forth. The Agreement shall not be effective unless approved by
Company's Board of Directors.
2. Title and Duties.
Company shall employ Executive as Senior Vice President upon the commencement of
such employment, and Chief Financial Officer ("CFO"), effective as of the
retirement of the current CFO, Andrew Caggia on approximately May 31, 2005.
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.
a. The term of employment under the Agreement shall commence as of
April 18, 2005 and shall continue through April 17, 2008 (the "Employment
Term"). Thereafter, the Employment Term shall be automatically extended for
one-year periods, unless either party shall give notice ("Contrary Notice") as
per section 12 (e) herein, at least six months prior to the end of the initial
Employment Term, or any extended 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 Executive, which cannot be overcome
by making any reasonable accommodations and which prevents Executive
from performing 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 or being
charged or sanctioned by a federal or state government or governmental
authority or agency with violations of federal or state securities
laws in any judicial or administrative process or proceeding, or
having been found by any court or governmental authority or agency to
have committed any such violation;
(iii) Notice by Company of termination other than for cause. Reduction
of compensation or duties, OR requirement to relocate outside of Long
Island OR other breach hereof and failure to cure within 30 days
following delivery of written notice thereof by the Executive to the
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 (e.g. stock appreciation rights
(SARs), etc., excluding the SERP addressed in Section 5.), any accrued, unused
vacation and unreimbursed business expenses (including automobile expenses, 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 24 months of
the date of such termination, such option shall become exercisable as of such
termination date, remain exercisable during the 24-month period immediately
following such termination date, and expire at the end of such 24-month period,
except that if the termination of the Employment Term pursuant to clause (iii)
of Section 3.b occurs within twelve months from the date of grant of such
option, such option shall become exercisable to the extent permitted under the
provisions of the plan from which any such stock option was granted. 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 then be fully satisfied upon payment
by Company to 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 (RSAs), and deferred compensation (e.g. stock appreciation
rights, etc., excluding the SERP addressed in Section 5.) shall immediately vest
and become exercisable, and should Executive's employment be terminated pursuant
to clause 3.b (iv) or, within six months after the Change in Control, by Company
pursuant to clause 3.b (iii), Executive shall be entitled to the payments
referred to in clause 3.c (i), the insurance coverage referred to in clause 3.c
(iii), a payment in an amount equal to 50% of Base Salary on the day of
termination, and any unexercised stock option shall remain exercisable for the
24-month period immediately following such termination. With respect to the
immediate vesting of any stock option in this section 3.e. by reason of a Change
in Control of Company that occurs within twelve months from the date of grant,
immediate vesting will only occur to the extent permitted under the provisions
of the plan from which any such stock option was granted.
f. Notwithstanding any provisions to the contrary, to the extent the
provisions of this Section or any other provisions of this Agreement would
result in any adverse tax consequences under Section 409A of the Code of 1986,
the Executive agrees to delay and/or accelerate the payment of any benefits to
the extent necessary to satisfy Section 409A. For example, Section 409A provides
that any form of nonqualified deferred compensation may not be paid to key
employees of a publicly traded company for a period of at least six months after
the date of a separation from service. Accordingly, any required payments under
the deferred compensation provision above shall not be paid until after the
expiration of the applicable six-month period. Similarly, severance benefits may
be subject to Section 409A. To the extent that any severance benefits are deemed
to result in a deferral of compensation, acceleration of payments may be
required, such as the commitment to provide certain benefits for a period of 18
months.
4. Annual compensation.
a. In consideration of the services to be rendered by Executive
hereunder, Company shall pay to Executive:
(i) An annual base salary of $290,000, 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"). Executive's annual base salary shall
be increased to $300,000 upon assumption of the CFO position and
(ii) A management incentive bonus ("Bonus") target, with respect to
fiscal year 2006 ending February 28, 2006 and thereafter, equal to 50
percent of Base Salary, i.e., $145,000 (the "At Plan Bonus"). An
additional bonus payment for over target performance (the "Over Target
Bonus") equal to 50% of the At Plan Bonus amount. Therefore, the
maximum total bonus is 75% of Base Salary. Any Bonus plan approved by
the Board of Directors for Executive will be consistent with the
management incentive bonus plan for other Company executives.
Executive shall be paid a Bonus equal to the At Plan Bonus for fiscal
2005 ending February 28, 2005 prorated based on the number of days
employed during fiscal 2005. Notwithstanding Section 4. a. iii. of
this Agreement, Executive shall be paid all of his fiscal year 2005
prorated bonus in cash. Executive shall be paid a minimum Bonus equal
to 50% of the At Plan Bonus for fiscal year 2006.
(iii) Any Bonus payable 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.
b. For purposes hereof, Market Value of a share of Company restricted
stock (RSA) shall mean the closing sale price of Company stock on the date the
RSA is actually granted following approval by the Compensation Committee of
Company's Board of Directors.
5. Benefits; Expenses.
Executive shall be entitled to such benefits as are provided generally to
Company's senior executive officers. In addition, Executive shall receive a
$1,100 per month car allowance, plus insurance, fuel and normal travel expenses
(i.e. tolls, parking, etc.). 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 $250,000 and individual disability income coverage if
insurance underwriting can be obtained based on Executive's health examination
results.
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, as soon as practical following April 18, options
to purchase 175,000 shares of Company Common Stock with five-year (20% per year)
vesting and ten-year expiration.
Executive's benefit under the Executive Retirement Plan (the "SERP") shall vest
50% after five years of service and pro-ratably over the next five years as to
the remaining 50%. Executive's eligibility for and enrollment in the SERP shall
commence upon Executive's first day of employment with Company. The Company's
Board of Directors shall fully vest Executive's SERP benefits upon a change in
control of Company. The acceleration of vesting does not otherwise change the
distribution rules in existence under the SERP.
In the case of a Change in Control of Company, Executive is entitled to a
"gross-up" payment in an amount sufficient to offset the effect of any excise
tax incurred in accordance with Section 280G of the Internal Revenue Code of
1986, as amended (the "Code").
Executive must follow the Company's stock, options and appreciation rights
trading policy.
6. Appointment Bonus.
A cash appointment bonus of $200,000 less applicable withholdings shall be paid
to Executive immediately following the date Executive is appointed CFO. This
bonus will be earned by Executive over the first two years of continuous
employment following the date of this bonus payment ("Bonus Date") on an
annually prorated basis. If, prior to a Change in Control of the Company,
Executive resigns from Company prior to one year after Bonus Date, Executive
shall pay the entire bonus of $200,000 back to Company on or before his last day
of employment without regard to any income taxes Executive may have paid or be
responsible to pay relating to this bonus. If, prior to a Change in Control of
the Company, Executive resigns after one year, but prior to two years, from the
Bonus Date, Executive shall pay the prorated amount of $100,000 to Company on or
before his last day of employment without regard to any income taxes Executive
may have paid or be responsible to pay relating to this bonus. This bonus shall
be fully earned by Executive upon two years after the Bonus Date.
Although the appointment bonus is subject to a substantial risk of forfeiture,
requiring repayments in the event of termination of employment as described
above, the Executive shall nevertheless be taxed on the signing bonus when it is
paid and it is not believed that the appointment bonus will be treated as a
deferral of compensation.
7. Intellectual Property; Noncompetition.
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 therefore 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 patent, 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 April 18, 2005, 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.
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. Non-solicitation of Employees.
Executive covenants and agrees that for a period of 24 months after Executive's
termination of employment with Company for any reason, Executive shall not,
directly or indirectly, whether on behalf of the Executive or others, solicit,
lure or hire away any employees of Company or assist or aid in any such
activity.
10. Release of Violation of Covenants.
Any options or SARs that are granted to Executive are an incentive for Executive
to remain employed by Company and to exert his best efforts to enhance the value
of Company over the long-term. Accordingly, in addition to all the rights
Company shall have against Executive, in the event Executive violates the
provisions of Section 7, Intellectual Property/Non-Competition; Section 8,
regarding Competition; and Section 9, addressing the Non-Solicitation of
Employees ("Violation"), Company shall have the following rights:
a. Any stock option or SAR granted to Executive during his employment,
whether or not fully vested, shall be immediately canceled as of the date of
such "Violation".
b. Any gain attributable to the exercise of any stock option or SAR by
Executive (represented by the closing market price on the date of exercise over
the exercise price, multiplied by the number of option shares or SARs exercised,
without regard to any subsequent market price decreases or increases) within a
period of 12 months prior to the date of any Violation shall be paid by
Executive to Company.
Executive hereby agrees to pay to Company the difference between the fair market
value of Company stock on the date of exercise, and the option or SAR price,
without regard to any income taxes Executive may have paid or be responsible to
pay relating to the exercise of any options or SARs.
For purposes of this Section 10, the date of the Violation shall be established
in good faith by Company. The date of Violation shall be deemed to have occurred
within 10 days after Company provides Executive with notice of any Violation. If
Executive disagrees with the determination of any Violation, the date of
Violation shall be extended until the dispute is resolved, but the damages shall
nevertheless be determined as of the date of Violation determined by Company, if
such Violation is upheld in any Court Order, mediator's decision, or other
similar forum.
Company shall have the right, in its sole discretion, not to enforce the
provisions of this Section 10 with respect to Executive.
11. Release from prior agreements.
Executive releases Company and Company releases Executive from any prior
agreements between Company and Executive upon the commencement of the term of
this Employment Agreement, except for any continuing obligations of Executive
relating to proprietary or confidential information of the Company.
12. Miscellaneous.
a. Executive agrees that a remedy at law for any breach or proposed or
attempted breach of the provisions of Sections 7, 8 or 9 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, 8 and 9 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 telecopy 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 Mr. Steven J. Bilodeau,
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.
EXECUTIVE STANDARD MICROSYSTEMS CORPORATION
By: /s/ WILLIAM SHOVERS By: /s/ STEVEN J. BILODEAU
---------------------- -------------------------
William Shovers Steven J. Bilodeau,
Date: April 18, 2005 Chief Executive Officer
Date: April 18, 2005