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Exhibit 10
EMPLOYMENT AGREEMENT
THIS AGREEMENT IS MADE AS OF JULY 11, 2002 BY AND BETWEEN AMERICAN SCIENCE AND
ENGINEERING, INC. (THE "COMPANY"), A MASSACHUSETTS CORPORATION HAVING ITS
PRINCIPAL PLACE OF BUSINESS IN BILLERICA, MASSACHUSETTS, AND RALPH S. SHERIDAN
(THE "EXECUTIVE").
The Company desires to retain the services of the Executive, and the Executive
is willing to render such services in accordance with the terms hereinafter set
forth.
The Board of Directors of the Company (the "Board") has by appropriate
resolutions authorized the employment of the Executive as provided for in this
Agreement.
Accordingly, the Company and the Executive agree:
ARTICLE I
1.1 TERM. The term of this Agreement shall begin as of September 25, 2002 (the
"Effective Date") and shall extend until September 25, 2005, unless earlier
terminated pursuant to ARTICLE V hereto (the "Term"). The Executive's employment
under this Agreement may be extended or renewed solely by means of a written
agreement signed by the Executive and a representative of the Company expressly
authorized by the Board.
ARTICLE II
2.1 PRESIDENT AND CHIEF EXECUTIVE OFFICER. The Executive shall be the President
and the Chief Executive Officer of the Company, shall report solely and directly
to the Board on all matters relating to the Executive's performance of his
duties, and shall perform such duties and responsibilities on behalf of the
Company and its subsidiaries as may be designed from time to time by the Board.
The Executive shall devote his full business time and his best efforts, business
judgment, skill and knowledge exclusively to the advancement of the business and
interests of the Company and its subsidiaries and to the discharge of his duties
and responsibilities hereunder. The Executive will use his best judgment not to
accept any outside responsibilities that will jeopardize his ability to fulfill
his responsibilities as President and Chief Executive Officer of the Company.
One or more members of the Compensation Committee of the Board shall meet with
the Executive at least annually during the Term, shall review with him the
Company's performance to date, shall discuss his management accomplishments as
well as any areas requiring improvement, and shall review his base compensation
as provided in SECTION 3.1.
2.2 DIRECTOR. Subject to the vote of the stockholders at subsequent annual
meetings, the Executive shall continue to serve as a Director of the Company
during the term of this Agreement.
ARTICLE III
3.1 BASE SALARY. For services rendered by the Executive under this Agreement
during the Term, the Company
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shall pay or cause to be paid to the Executive, in accordance with the Company's
normal payroll practices for senior executives of the Company, a base salary
("Base Salary") for the initial year of employment at the annual rate of
$300,000. The Base Salary will be formally reviewed on an annual basis by the
Compensation Committee and increased in the ensuing years if the Committee
determines that an increase is warranted.
3.2 BONUSES. In addition to Base Salary, the Executive shall be paid an annual
bonus not to exceed $300,000 annually (the "Maximum Bonus"), which bonus will be
established by the Compensation Committee (the "Bonus"). Promptly following the
execution of this Employment Agreement, the Company and the Executive will meet
to establish the performance goals (the "Bonus Goals") upon which the award of
the Bonus for the first year of employment pursuant to this Employment Agreement
(the "First Bonus Period") will be determined. Seventy-five percent of the Bonus
will be based upon an agreed-upon pre-tax income goal plus the amount expended
by the Company in such year for research and development ("Target Income").
Target Income will be adjusted each year by the mutual consent of the
Compensation Committee and the Executive. Twenty-five percent of the Bonus will
be based on personal performance goals, which will be established annually by
the Compensation Committee and the Executive promptly after the execution of
this Employment Agreement and revised on an annual basis in each subsequent year
of this Employment Agreement. During each subsequent year of employment pursuant
to the terms of this Employment Agreement ("Subsequent Bonus Periods"), the
Chairman of the Board and the Executive shall meet periodically to discuss the
Executive's progress concerning the Bonus Goals. Promptly after the end of each
such Subsequent Bonus Period, the Compensation Committee shall meet to discuss
the Executive's performance with regard the bonus Goals and shall, in its
discretion, determine the amount, if any, of the Bonus to be paid to the
Executive for such Subsequent Bonus Period. For the purpose of this
determination, the goals shall be laddered so that attainment of some, but not
all, goals will give rise to the payment of a partial Bonus.
3.3. STOCK OPTIONS
GRANT OF UNCONDITIONAL OPTION. The Company grants to the Executive a
non-statutory stock option (the "Unconditional Option"), in the form of the
stock option agreement attached hereto as EXHIBIT B (the "Stock Option
Agreement"), to purchase in the aggregate 225,000 shares of the Company's Common
Stock. The purchase price per share of the 225,000 shares covered by the
Unconditional Option shall be the fair market value of the stock as of the date
set forth in the Stock Option Agreement. The option to acquire the first
seventy-five thousand shares will vest on the first anniversary date of the
commencement of this Employment Agreement. The option to acquire an additional
75,000 shares will vest on the second anniversary and a final option to acquire
75,000 shares will vest on the third anniversary of this Employment Agreement.
The stock options shall be subject to termination only if: (a) employment is
terminated by the Company for Cause; or (b) the Executive voluntarily requests
termination prior to September 25, 2005 for reasons other than for Good Reason.
All stock options will immediately vest if the Executive terminates employment
for Good Reason as defined in Article V 5.1(b) herein or in the event of a
Change of Control as defined in Section 2(b) of the Stock Option Agreement.
3.3 SECURITIES ACT OF 1933. The Company agrees to register the shares subject to
the stock options referred to in this ARTICLE III pursuant to the Securities Act
of 1933, as promptly as practicable.
ARTICLE IV
4.1 BENEFITS DURING THE TERM. During the Term, the Executive will be covered by
and receive the benefits of the payment provisions set forth in ARTICLE V of
this Agreement in the event of termination of employment,
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which are intended to be exclusive, and certain additional benefits under the
benefit plans and programs maintained by the Company from time to time for its
senior executives. The Executive shall also be entitled to such other
perquisites of office as are generally provided from time to time by the Company
to its senior executive officers. The Executive shall be reimbursed for all
reasonable out-of-pocket expenses reasonably incurred by him in the performance
of his duties hereunder, upon submission of appropriate documentation in
accordance with the Company's written policies.
4.2 AUTOMOBILE. The Company shall provide the Executive, at his request, with an
automobile for his use during the Term. The Company will pay for all expenses
associated with the Executive's business use of the automobile. At the end of
the Term, the Executive shall return the automobile to the Company in
substantially the same condition as on the date he first received it, reasonable
wear and tear excepted.
ARTICLE V
5.1 TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD
REASON.
(a) The Company may, upon written notice to the Executive, immediately
terminate the Executive's employment hereunder without Cause. For
purposes of this ARTICLE V, "Cause" shall mean:
(i) the Executive's willful and continuing failure to perform his
duties in the course of his employment under this Agreement,
which failure is not cured by the Executive within thirty (30)
days after notice specifically describing such failure is
provided in writing by the Company to the Executive; or
(ii) the conviction of the Executive for, or his plea of nolo
contendere to, a felony or any other crime which involves
fraud, dishonesty or moral turpitude.
(b) The Executive may, upon 15 days' written notice to the Company,
terminate his employment hereunder for Good Reason. For purposes of this
ARTICLE V, "Good Reason" shall mean:
(i) the assignment of the Executive of any duties, inconsistent in
any respect with the Executive's position as the President and
Chief Executive Officer of the Company or any other action by
the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company within
thirty (30) days after receipt of written notice thereof given
by the Executive, PROVIDED, HOWEVER, that any change or
diminution of the business of the Company or of any subsidiary
or subsidiaries of the Company, including without limitation
the sale or transfer of such subsidiaries, or any or all of
their assets, shall not constitute "Good Reason";
(ii) any failure of the Company to comply with any of the
provisions of the Employment Agreement, other than in
insubstantial failure (not occurring in bad faith) and which
is remedied by the Company within thirty (30) days after
receipt of written notice thereof given by the Executive;
(iii) failure of the Company to bargain in good faith relative to
fixing an annual Base Salary for the second and third year of
this contract pursuant to Section 3.1 above or relative to
matters covered by Section 3.2 above;
(iv) any failure of the Company to obtain a satisfactory agreement
from any successor to all or substantially all of the business
or assets of the Company to assume and agree to perform this
Agreement; or
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(v) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by the
Employment Agreement.
(c) In case of any termination of the Executive's employment hereunder
without Cause or for Good Reason (as defined above), the Company
shall pay to the Executive (or in the event of his death, his
designated beneficiary or his estate, as the case may be): (1) a sum
equal to the Executive's then annual Base Salary in cash payable at
the times such sum would have been paid to the Executive if he had
remained in the employ of the Company and was entitled to receive
such sum in the form of Base Salary during the 12-month period
following his termination of employment, and (2) the amount the
Executive earned in Bonus payments and, if such termination occurs
prior to September 25, 2005, the value of any stock received in the
year previous to such termination, payable at such time such Bonus
would have been paid had the Executive remained in the employ of the
Company. In addition, any unvested stock options outstanding on the
date of the Executive's termination of employment without Cause UNDER
THIS SECTION 5.1(c) shall become vested and exercisable as follows:
there shall vest such number of unvested shares (if any) as shall
equal the product of (x) 75,000 and (y) a fraction, the numerator of
which is the number of calendar days from the start of the year
during the Term which have occurred up to and including the effective
date of such termination, and the denominator of which is 365
(rounded upwards to the nearest whole share). The failure of the
Company to extend the term of this Employment Agreement or any
extension of this Employment Agreement for additional term of not
less than one year on terms no less favorable to the Company than
those contained herein and if requested by the Executive shall be
deemed a termination for Good Reason requiring the Company to make
the severance and benefits to the Executive as described in this
Section.
5.2 TERMINATION BY THE COMPANY FOR CAUSE OR BY THE EXECUTIVE OTHER THAN FOR
GOOD REASON. During the Term, the Company, by action of the Board, may
terminate the Executive's employment hereunder for Cause by written notice
to the Executive's stating in detail the reasons for such termination.
During the Term, the Executive may, by written notice to the Board,
terminate his employment hereunder other than for Good Reason. In the event
of any such termination for Cause or other than for Good Reason (and other
than by reason of his death or disability), the Executive shall not be
entitled to any unpaid bonus that may have been earned through such date,
nor shall he be entitled to exercise any portion of the Unconditional
Option which has not vested.
5.3 TERMINATION FOR DISABILITY.
(a) The Company may terminate the Executive's employment hereunder, upon
notice to him, in the event that he becomes disabled through any
illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for any
consecutive sixty (60) day period.
(b) If any questions shall arise as to whether during any period the
Executive is disabled through any illness, injury, accident or condition
of either a physical or psychological nature so as to be unable to
perform substantially all of his duties hereunder, the Executive may,
and at the request of the Company shall, submit to a medical examination
by a physician mutually acceptable to the Company and the Executive or
his guardian to determine whether the Executive is so disabled, and such
determination shall for the purposes of this Agreement be conclusive of
the issue. In the event that a physician cannot be selected by mutual
agreement, a physician shall be appointed by the
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Massachusetts Medical Society.
(c) If the Executive's employment hereunder is terminated as the result of
his disability, the Executive will receive his Base Salary through the
date of termination, together with any unpaid Bonus that may have been
earned through such date, but shall otherwise look solely to the
Company's disability insurance policy or policies for compensation
(except that any waiting period for eligibility purposes shall be waived
by the Company).
5.4 TERMINATION IN THE EVENT OF DEATH. In the event of the Executive's death
during the Term, his employment hereunder shall be deemed to have terminated for
all purposes of this Agreement on his date of death and neither his designated
beneficiary nor his estate shall be entitled to any of the compensation or
benefits provided for herein, other than the Executive's Base Salary, and any
unpaid Bonus earned by the Executive, through his date of death (it being
understood that his designated beneficiary or estate, as the case may be, shall
be entitled to receive the life insurance benefits available under the Company's
executive life insurance policies), and to exercise the Unconditional Option to
the extent exercisable on his date of death, within one (1) year of his date of
death, but not later than the expiration date of such Option.
ARTICLE VI
6.1 DESIGNATION OF A BENEFICIARY OR BENEFICIARIES. The Executive may designate
in a writing filed with the Company one or more persons (including his estate)
as the beneficiary or beneficiaries of the benefits provided for under the
Agreement after the Executive's death. The Executive may change his designation
of beneficiary or beneficiaries from time to time, and the last designation in
writing filed with the Company prior to his death will control. If the Executive
has failed to file a designation of beneficiary at the time of the Executive's
death, or if all designated beneficiaries have predeceased him, the amounts
payable under this Agreement shall be paid to the Executive's estate.
ARTICLE VII
7.1 NOTICES. All notices required by this Agreement shall be in writing and
delivered by hand, by overnight courier against receipt, by registered or
certified mail, postage prepaid, or by telephonic facsimile transmission duly
acknowledged, and, in the case of the Executive, addressed to the Executive at
79 Byron Road, Weston, MA 02193, or, in the case of the Company, to its
principal office, addressed to the attention of the Clerk. Either party may from
time to time designate a new address by notice given in accordance with this
SECTION 7.1.
7.2 ASSIGNMENT. The Company may not assign all or any part of its obligation
under this Agreement, except in conjunction with a sale of its business as a
going concern or substantially all of its assets, merger or consolidation. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of the company expressly to assume and agree to perform this Agreement
to the same extent that the Company would be required to perform it if no
succession had taken place. As used in this Agreement, unless the context
requires otherwise, the "Company" shall mean the company as defined above or any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law, or otherwise. This Agreement shall
inure to the benefit of and be enforceable by and binding upon (i) any such
successor and (ii) the Executive's personal or legal representatives, executors,
administrators and designated beneficiaries.
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7.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties and supersedes all prior oral and written agreement, understandings and
commitments between the parties relating to this Agreement. No amendment to this
Agreement shall be made except by a written instrument signed by both parties.
7.4 PROPRIETARY INFORMATION AND NON COMPETITION. The Executive acknowledges and
stipulates that, in the performance of his duties hereunder, the Executive is
entrusted by the Company and its subsidiaries with confidential and secret
information of a proprietary nature, including, but not limited to scientific
data, financial and statistical information regarding affairs of the Company and
its subsidiaries, supplier and subcontractor lists, price and cost information,
business plans and programs, expansion plans, data methods, techniques,
marketing date, designs and know-how, developed or obtained by the Company or
its subsidiaries (collectively, "Proprietary Information"). The Executive may
not at any time use, or cause or permit others to use, the Proprietary
Information except in the performance of his duties for the Company and shall
not directly or indirectly disclose at anytime either during the Term or for a
period of two (2) years thereafter any such Proprietary Information to any third
party other than in the course of the performance of his duties for the Company.
"Proprietary Information" shall not include any (i) information which is part of
the public domain (other than by act of the Executive), or (ii) any information
required to be disclosed by law.
Executive agrees that, subsequent to the termination of this Employment
Agreement, unless terminated by the Company without Cause or by the Executive
for Good Reason, Executive shall not:
(i) request, cause or encourage any person or entity to cancel,
terminate or refuse to enter into any business relationship
with the Company;
(ii) during the one-year period following such termination solicit
or encourage, directly or indirectly, any employee of the
Company to leave the employment of the Company; or
(iii) during the one (1) year period following such termination
either engage in any business or undertake employment or
consulting services in the area of x-ray detection devices,
which would directly compete with devices then manufactured
and/or marketed by the Company.
The provisions of this SECTION 7.4 shall continue in effect after the Term.
7.5 PARTIAL INVALIDITY. If for any reason any provision of this Agreement shall
be held invalid in whole or in part, such invalidity shall not affect such
provision to the extent not so held invalid, nor any other provisions of this
Agreement not held so invalid, and such provisions and all other such provisions
shall to the full extent be consistent with law continue in full force and
effect.
7.6 WITHHOLDING. All payments made by the Company under this Agreement shall be
reduced by any tax or other amounts required to be withheld by the Company under
applicable law.
7.7 GOVERNING LAW. This Agreement shall be construed and enforced under and be
governed in all respects by the law of The Commonwealth of Massachusetts,
without regard to the conflict of law principles thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed on its
behalf by a duly authorized officer and the Executive has executed this
instrument, all as of the date set forth above.
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AMERICAN SCIENCE AND ENGINEERING, INC.
BY: /s/ Edwin L. Lewis
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EDWIN L. LEWIS, VP, GENERAL COUNSEL
/s/ Ralph S. Sheridan
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RALPH S. SHERIDAN
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