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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into as of November __, 1994, by and between PHASE METRICS, INC., a California
corporation (the "Company"), and John F. Schaefer ("Executive").
R E C I T A L S
A. Concurrently herewith, the Company and Executive, among
others, are entering into that certain Securities Purchase Agreement dated
November __, 1994 (the "Purchase Agreement").
B. Contingent upon the closing of the transactions contemplated
by the Purchase Agreement (the "Purchase Closing"), the Company and Executive
desire to enter into this Agreement, which shall govern the terms and conditions
of Company's employment of Executive.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions hereinafter set forth, the parties hereto agree as follows:
1. Contingent Agreement. This Agreement shall be effective only upon the
occurrence of the Purchase Closing. Nothing contained herein shall be construed
to require, commit or otherwise obligate any of the parties hereto to enter into
or consummate the transactions contemplated by the Purchase Agreement or the
Purchase Closing. In the event the Purchase Closing shall not occur, this
Agreement shall be of no force or effect, and neither party hereto shall have
any liability or obligation hereunder or in any way relating hereto.
2. Employment. The Company hereby employs Executive and Executive hereby
accepts employment with the Company. Subject to the provisions of Sections 7, 8
and 9 hereof, this Agreement shall be terminable at will by either party hereto
upon 30-days written notice to the other party. The period from the date hereof
until the date of such termination is sometimes referred to herein as the
"Term."
3. Duties and Authority.
(a) During the entire Term, Executive shall perform the duties
and have the authority of Chief Executive Officer and Chairman of the Board of
the Company. Subject to the direction of the Company's Board of Directors (the
"Board"), Executive shall have, among other things (along with Arthur Cormier
("Cormier") with respect to significant matters), full authority over all
departments, officers, employees and agents of the Company. Subject to the
direction of the Board, in the performance of Executive's duties, Executive
shall have (along with Cormier with respect to significant matters) full and
complete authority and discretion (in the same manner as heretofore exercised by
Executive) to take all
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action Executive deems appropriate to operate, manage and develop the business
of the Company. Subject to the terms of the Voting Agreement bearing even date
herewith between Executive and Cormier, the Board shall resolve any disagreement
between Executive and Cormier with respect to any of the foregoing business
operations.
(b) During the term of his employment hereunder, Executive will
devote substantially all of his business time and best efforts to the
performance of his duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would conflict with
the rendition of such services either directly or indirectly, without the prior
written consent of the Board.
4. Compensation.
4.1 Salary. For Executive's services rendered hereunder, the
Company shall pay Executive an annual salary of Three Hundred Thousand Dollars
($300,000) ("Executive's Salary"). Executive's Salary shall be payable in equal
installments in conformity with the Company's normal payroll period. Executive's
Salary shall be reviewed by the Board from time to time at its discretion but
not less often than annually, and Executive shall receive such salary increases
(but not decreases) as the Board, in its sole discretion, shall determine,
taking into consideration Executive's performance and the overall performance of
the Company; provided, however, that until the occurrence of a public offering
under the Securities Act of 1933, as amended, of any of the Company's capital
stock (a "Company IPO"), Executive's Salary shall not be less than that of
Cormier. Immediately after the execution of this Agreement, the Company shall
pay to Executive in a lump sum salary from August 1, 1994 to the date hereof at
the rate set forth in this Section 4.1.
4.2 Annual Bonus. With respect to the Company's 1994 and 1995
fiscal years, Executive shall not be entitled to any bonus. With respect to each
fiscal year thereafter during the Term, in addition to Executive's Salary,
Executive shall be eligible to receive an annual bonus from the Company in
accordance with a bonus plan for the Company's officers which shall be
implemented by the Company. Each such bonus, if any, shall be payable to
Executive no later than 45 days after the end of the applicable fiscal year.
Unless Executive is terminated for Cause (as defined herein) or Executive
terminates his employment without Good Reason (as defined herein), in which case
Executive shall not be eligible for any bonus in respect of the fiscal year of
termination, for each fiscal year during which Executive is employed hereunder
for fewer than twelve (12) months, Executive shall receive a pro rata portion of
the annual bonus, if any, which he would otherwise have received for such full
fiscal year. For the period of time during which both Executive and Cormier are
employed by the Company, unless an IPO has occurred, all bonuses to Executive
and Cormier shall be in equal amounts.
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5. Executive Benefits.
Executive shall be entitled to the following benefits, which
benefits shall be, until the occurrence of a Company IPO, individually and in
the aggregate, of no less value than the benefits provided to Cormier:
5.1 Vacation. Executive shall be entitled to four (4) weeks paid
vacation during each year of the Term. Vacation which is not taken during any
respective year shall be accrued and carried forward to the following year of
the Term, provided, (a) in no event shall Executive be entitled to carry over
more than eight (8) weeks vacation from one year to the next year and (b)
Executive shall not be permitted to take more than three (3) consecutive weeks
of vacation without the prior consent of the Board.
5.2 Automobile. During the Term, the Company shall provide
Executive, for Executive's sole use, an automobile reasonably satisfactory to
Executive and the Company or, in lieu thereof, an automobile allowance in
accordance with Company policy. The Company shall pay all operating expenses of
any nature whatsoever with regard to such automobile and shall procure and
maintain in force insurance coverage on such automobile.
5.3 Group Benefits. Executive shall be entitled to participate in
any group life, health, accident, disability or other insurance programs,
deferred compensation, profit sharing and pension programs and any other fringe
benefits as the Company may from time to time generally make available to
executives of similar status.
5.4 Life Insurance. Subject to the approval of the Board, during
the Term the Company shall pay up to $5,000 each year of the Term of premiums
due annually on a policy of term life insurance on the life of Executive in the
face amount of Two Million Dollars ($2,000,000) (the "Policy"), the proceeds of
which will be payable to the beneficiary or beneficiaries designated by
Executive.
6. Business Expenses and ReimburSement. Provided Executive provides
proper documentation of such expenses, Executive shall be entitled to
reimbursement by the Company for any and all ordinary and reasonable business
expenses incurred by Executive in the performance of Executive's duties for and
on behalf of the Company during the Term, including, but not limited to, the
cost of entertainment, meals, travel expenses, conventions, meetings and
seminars. Immediately after execution of this Agreement, the Company shall
reimburse Executive an amount equal to $17,000, representing business expenses
incurred by Executive for the benefit of the Company up to the date hereof.
7. Death or Disability of Executive. Executive's employment shall be
terminated upon his death. In the event Executive's inability to perform his
services hereunder by reason of Disability (as defined below) occurring during
the Term, the Company may terminate Executive's employment. In the event of
Executive's termination due to Disability, Executive shall nevertheless be
entitled to receive Executive's Salary and benefits as provided for herein for a
period of one year after the occurrence of such Disability; provided,
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however, that if Executive has commenced receiving disability insurance benefits
referenced in Section 5.3 hereof, the Company's obligation to pay Executive's
Salary shall be reduced by the amount of the benefits received. "Disability"
shall mean that Executive has been mentally or physically impaired in a manner
rendering Executive unable to perform the duties of his usual employment for a
period of six (6) consecutive months or for an aggregate of six (6) months in
any eighteen (18) month period, all as attested to by a qualified medical
doctor.
8. Termination for Cause; Termination for Good Reason.
8.1 Termination for Cause. Except as provided below, the Company
shall have the right during the Term, at its election, to terminate Executive's
employment upon written notice (which shall specify the grounds for such
termination) for any of the following reasons, which shall constitute "Cause":
(a) Executive's willful and continued failure
substantially to perform Executive's services as provided herein (other than
Executive's actual or anticipated failure to perform resulting from termination
of this Agreement by Executive by reason of the Company's material breach of
this Agreement);
(b) Executive's commission of an act of fraud upon
the Company;
(c) Conviction of Executive of a felony;
(d) Executive's willful dishonesty in the
performance of his duties hereunder;
(e) Any material breach by Executive of Section
10.1 hereof or any breach of Sections 10.2 or 10.3 hereof; or
(f) Any other act or omission constituting material
misconduct which is materially injurious to the financial condition or business
reputation of the Company or any of its subsidiaries or affiliates;
provided, however, that the Company shall not have the right to terminate
Executive's employment under subsection (a) above until after (i) written notice
by the Board to Executive identifying, with a reasonable degree of specificity,
the basis for the Board's belief that Executive has willfully and continuously
refused to perform his duties hereunder, and (ii) Executive has failed, within
ten (10) days after such notice was received, to correct his performance
provided that, in the event of such failure substantially to perform hereunder,
there shall be no cure in the event of any subsequent willful and continued
failure substantially to perform hereunder of a similar nature.
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8.2 Payment Upon Termination For Cause. In the event of Executive's
termination for Cause by the Company or termination by the Executive without
Good Reason (as hereinafter defined), the Company shall only be obligated to pay
Executive (i) any of Executive's Salary due and owing to Executive for the
period through the effective date of such termination and (ii) benefits vested
under any applicable pension or other employee benefit plans.
8.3 Termination for Good Reason.
(a) Good Reason. Executive may unilaterally terminate his
employment under this Agreement immediately upon "written notice to the Company
and for ninety (90) days thereafter if (i) the Company fails to pay Executive
any material amounts owed to Executive and such failure to pay continues for
thirty (30) days following written notice from Executive to the Company of such
failure to pay, or (ii) Executive is required to relocate his principal place of
employment outside of a radius of fifty (50) miles from present place of
employment, or (iii) without Executive's written consent, there is any material
adverse change in Executive's duties, position, authority or responsibility
under this Agreement, including without limitation the assignment of any duties
which would constitute a material reduction in the importance of Executive's
position. authority or responsibilities provided, however, that Executive shall
not be able to terminate his employment under subsection (iii) above until after
(i) written notice by Executive to the Company identifying, with a reasonable
degree of specificity, the basis for Executive's belief that the Company has
materially adversely changed Executive's duties, position, authority or
responsibility under this Agreement, and (ii) the Company has failed, within ten
(10) days after such notice was received, to correct the material adverse
change; provided that, in the event of such material adverse change, there shall
be no opportunity to cure in the event of any subsequent material adverse change
hereunder of a similar nature. Any such termination by Executive shall be deemed
a termination with "Good Reason."
9. Payment Upon Termination Other Than For Cause. In the event that
this Agreement or Executive's employment under this Agreement is terminated for
any reason other than for Cause, death or Disability (including without
limitation, in the event Executive terminates this Agreement for Good Reason),
the following shall apply:
9.1 Accrued Salary and Benefits. The Company shall pay Executive
(a) the amounts payable under clauses (i) and (ii) of Section 8.2 hereof, and
(b) all vested, accrued and unused vacation time existing as of the effective
date of such termination as reflected in the Company's personnel records;
provided such amount does not exceed an amount equal to (i) the amount of
vacation remaining for such year and (ii) the maximum amount of vacation which
may be carried forward under Section 5.1 of this Agreement. Payment for such
vacation time shall be at a rate equal to Executive's Salary.
9.2 Severance. Subject to Executive's continued compliance with
Article 10, the Company shall continue to pay Executive's Salary and provide the
benefits set forth in Sections 5.2 and 5.3 of this Agreement, (i) if such
termination occurs prior to the first
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anniversary of the date hereof, for the period of time up to the second
anniversary of the date hereof, or (ii) if such termination occurs after the
first anniversary of the date hereof, for a period of one year after the
effective date of such termination, all without any offset for any amounts or
benefits received by Executive from any third parties, including without
limitation, subsequent employers of Executive.
9.3 Board Position. To the extent provided in that certain
Securityholders Agreement dated November 1994 by and among the Company,
Executive and certain other parties (the "Securityholders Agreement"), Executive
shall be entitled to retain his position as a member of the Board, provided that
Executive shall not receive any compensation hereunder for so serving on the
Board (but Executive shall be entitled to reimbursement for his reasonable
expenses in attending Board Meetings).
10. Covenants. Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and accordingly agrees as
follows:
10.1 Confidentiality. During the term of his employment and
thereafter, Executive shall keep in confidence and shall not use for the benefit
of any person or entity other than the Company, or divulge to others, any secret
or confidential information, knowledge, data, ideas or plans of the Company
gained in his capacity as an employee, officer or director of the Company,
unless authorized by the Company in writing.
10.2 Covenant Not to Compete. During the Term, employee shall not
compete, directly or indirectly, with the Company. In the event that (a) (i)
Company terminates this Agreement for Cause, or (ii) Executive terminates this
Agreement for any reason other than Good Reason, then Executive agrees that for
a period of two (2) years following the date of any such termination, and (b)
Executive's employment terminates for any other reason, then Executive agrees
that for so long as he shall be receiving compensation pursuant to Section 9.2,
Executive shall not (a) compete, directly or indirectly, with the business of
the Company as conducted by it on the date of such competition in such county or
counties within the United States where such business shall then be conducted or
(b) in any line of business, market or geographic area in which the Company has
plans to expand on the date of such termination. Ownership by Executive, as a
passive investment, of less than five percent (5%) of the outstanding shares of
capital stock of any corporation listed on a national securities exchange or
publicly traded in the over-the-counter market shall not constitute a breach of
this Section 10.2.
10.3 Covenant Not to Solicit Employees. Except with the prior
consent of the Company, both during the term of his employment and for the
period of two years thereafter, Executive will not directly or indirectly induce
any employees of the Company or any of its affiliates to engage in any activity
in which Executive is prohibited from engaging by Paragraphs 10.1 and 10.2 above
or to terminate such employee's employment with the Company or any of
affiliates, and will not directly or indirectly employ or offer employment
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to any person who was employed by the Company or any of its affiliates unless
such person shall have ceased to be employed by the Company or any of its
affiliates for a period of at least 12 months.
10.4 Enforceability of Non-Compete. It is expressly understood
and agreed that although Executive and the Company consider the restrictions
contained in this Article 10 to be reasonable, if a final judicial determination
is made by a court of competent jurisdiction that the time or territory or any
other restriction contained in this Agreement is an unenforceable restriction
against Executive, the provisions of this Agreement shall not be rendered void
but shall be deemed amended to apply as to such maximum time and territory and
to such maximum extent as such court may judicially determine or indicate to be
enforceable. Alternatively, if any court of competent jurisdiction finds that
any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any of.the other restrictions contained herein.
11. Miscellaneous.
11.1 Notice. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided for herein shall be given in
writing delivered personally, by overnight courier, by facsimile or registered
or certified mail, addressed as follows:
Company: Phase Metrics
3978 Sorrento Valley Boulevard
San Diego, CA 92121
Facsimile: (619) 552-1132
Executive: John Schaefer
1509 Dolphin Terrace
Corona Del Mar, CA 92625
Facsimile: (714) 760-1222
or to such other address as may be designated in writing or as otherwise
provided in this Agreement. Each such notice shall be deemed given (i) if by
hand, when personally delivered during normal working hours, (ii) if by
overnight courier, on the next business day following deposit by the sender with
such courier, (iii) if by telecopy, upon transmission during normal working
hours and receipt by the sender of a transmission confirmation, and (iv) if by
mail, on a date which is four (4) days after it is mailed in any post office or
branch post office regularly maintained by the United States Postal Service
(registered or certified, with postage prepaid and properly addressed).
11.2 Construction. This Agreement and the performance hereof
shall be governed, interpreted, construed and regulated by the laws of the State
of California without giving effect to the conflicts of law provisions thereof.
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11.3 Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of this Agreement.
11.4 Severability. If any term, covenant, condition or provision
of this Agreement, or the application thereof to any person or circumstance,
shall at any time or to any extent be invalid or unenforceable, the remainder of
this Agreement, or the application of such term or provision persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant, condition and provision
of this Agreement shall be valid and enforced to the fullest extent permitted by
law.
11.4 Entire Agreement. This Agreement, the Purchase Agreement and
the Securityholders Agreement constitute the entire agreement and understanding
of the parties with respect to the subject matter set forth herein, and
supersede all prior agreements, arrangements and understandings related to such
subject matter. This Agreement may not be amended except in a writing signed by
both of the parties hereto.
11.5 Attorney's Fees. In the event of any proceeding between the
parties hereto with respect to any dispute arising under this Agreement, the
prevailing party shall, in addition to such other relief as may be awarded, be
entitled to recover reasonable attorneys' fees and expenses.
11.7 Assignment; No Third Party Beneficiary. This Agreement shall
be binding upon and inure to the benefit of the Company and the Executive and
their respective executors, administrators, personal representatives, heirs,
successors and permitted assigns. Except as provided in this Section, this
Agreement shall not create, and shall not be construed as creating, any rights
or benefits in favor of, or enforceable by, any person or entity other than the
Company and the Executive.
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[SCHAEFER EMPLOYMENT AGREEMENT]
IN WITNESS WHEREOF, the Company and Executive have executed this
Agreement as of the day and year first above written.
"Company"
Phase Metrics,
a California corporation
By:
Title:
"Executive"
/s/ John F. Schaefer
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JOHN F. SCHAEFER
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