Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of April 15, 2005 (the "Agreement"), between
Orthofix Inc., a Minnesota corporation (the "Company") and Orthofix
International N.V., a corporation organized under the laws of the Netherlands
Antilles (the "Parent"), on the one hand, and Charles W. Federico, a citizen and
resident of Cornelius, North Carolina (the "Executive"), on the other.
WHEREAS, the Parent and the Executive are currently parties to an
Employment Agreement dated as of July 1, 2001 (the "2001 Agreement"), but desire
to terminate the 2001 Agreement to permit the Company and the Executive to enter
into this written employment agreement to memorialize the terms of their
relationship; and
WHEREAS, the parties agree and acknowledge that pursuant to this Agreement
the Executive will receive consideration and other benefits over and above that
which he was entitled to receive under the 2001 Agreement and over and above
that which he would be entitled to receive as compensation for services
performed for the Company.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
I. EMPLOYMENT AND DUTIES
1.1 General. The Company hereby employs the Executive as an employee, and
the Executive agrees to be employed by the Company, and to serve as President
and Chief Executive Officer of the Parent. The Executive further agrees to serve
in any other similar position proposed by the Board of Directors of the Parent
(the "Board") and accepted by him, upon the terms and conditions herein
contained. The Executive also agrees to serve, if elected, as an officer or
director of any other direct or indirect subsidiary of the Parent, in each such
case at no compensation in addition to that provided for in this Agreement.
1.2 Services. During his employment with the Company, the Executive shall
provide services to the Company, the Parent and its subsidiaries pursuant to
this Agreement for at least 208 days in each calendar year. Anything in this
Agreement to the contrary notwithstanding, the Executive may, with the consent
of the Board, engage in other business matters that do not interfere materially
with his duties pursuant to this Agreement. In addition, this Agreement shall
not be construed to preclude the Executive from devoting time to civic and
community activities or the management of personal investments so long as such
activities do not interfere with the performance of his duties hereunder.
1.3 Term of Employment. The Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Date") and shall terminate on
the earlier of (i) the second anniversary of the Effective Date, or (ii)
termination of the
Executive's employment pursuant to Section 4 or 5 of this Agreement (the period
commencing on the Effective Date and ending on the second anniversary thereof is
hereinafter referred to as the "Employment Term"). This Agreement shall not be
subject to renewal following the second anniversary of the Effective Date unless
expressly agreed otherwise by the parties in writing.
II. COMPENSATION
2.1 Base Salary and Bonus. The base salary ("Base Salary") and bonus
compensation, if any, to be paid to the Executive shall be determined from time
to time by the Board and paid pursuant to the Company's customary payroll
practices. The Base Salary as of the Effective Date shall be $38,706.08 per
month. During the Employment Term, Executive's Base Salary may be increased
above, but will not be reduced below, $38,706.08 per month; provided, however,
nothing shall prohibit the Company from reducing the Base Salary as part of an
overall cost reduction program that affects all senior officers of the Company
and the Parent and does not disproportionately affect the Executive.
2.2 Share Options. The Executive has heretofore received grants of options
("Options") as follows:
(a) Effective as of August 6, 2003, 30,000 Options under the Parent's Staff
Share Option Plan (the "Staff Plan");
(b) Effective as of October 4, 2004, 25,000 Options under the Parent's 2004
Long Term Incentive Plan (the "LTIP") (together with the Staff Plan, the
"Plans");
(c) Effective as of December 2, 2004, 9,400 Options under the LTIP; and
(d) Effective as of January 1, 1999, a Performance Accelerated Stock Option
("PASO") to purchase 200,000 of the Parent's common shares, which Option is
fully vested and exercisable as of the date of this Agreement.
All such Options shall continue to have the terms and be subject to the
conditions specified therefor in the Plans and any award agreement (each,
including the PASO, an "Award Agreement") relating to the Options granted to the
Executive thereunder, subject only to such further rights available to the
Executive under Section 4.1.1(c) hereof as provided thereby. For the avoidance
of doubt, nothing in this Agreement shall be construed to diminish or alter in
an adverse manner the current rights of the Executive provided for under the
Plans or in any Award Agreement and any additional rights the Executive would
accrue under the terms thereof, and be entitled to thereunder, during the
Employment Term. In the event of any conflict between Section 4.1.1(c) and any
current or subsequent Award Agreement, the document granting the greater rights
to the Executive with respect to the underlying Options shall control.
III. EMPLOYEE BENEFITS
3.1 General. During his employment with the Company, the Executive shall be
included, to the extent eligible thereunder by virtue of his position, tenure,
salary, and other qualifications (which may include nationality and residence),
in all employee benefit plans, programs or arrangements (including, without
limitation, any plans, programs or arrangements providing for retirement
benefits, incentive compensation, bonuses, disability benefits, health and life
insurance, car allowances, or vacation and paid holidays) established by the
Company or the Parent for, or made available to, their senior executives.
3.2 Reimbursement of Expenses. The Company will reimburse the Executive for
reasonable travel and other business expenses incurred by him in the fulfillment
of his duties hereunder upon presentation by the Executive of an itemized
account of such expenditures, in accordance with Company practices consistently
applied.
IV. TERMINATION OF EMPLOYMENT
4.1 Termination Without Cause; Resignation For Good Reason.
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4.1.1 Severance Benefits.
(a) General. If, prior to the expiration of the Employment Term, (i) the
Executive's employment is terminated by the Company without Cause (as defined in
Section 4.3) and for a reason other than death or disability (as described in
Section 5), or (ii) the Executive resigns from his employment hereunder for Good
Reason (as defined in Section 4.4), the Executive shall be entitled to payment
no later than the Company's next regularly scheduled payday following the date
of termination (as described in Section 4.1.2) of all (A) Base Salary due and
owing through the date of termination, (B) accrued unused vacation then owing in
accordance with the Company's then-current policies and (C) expense
reimbursements under Section 3.2. In addition, the Executive shall receive a
one-time lump sum payment (less applicable withholding taxes) in an amount equal
to the product of: (I) his monthly Base Salary at the highest rate in effect
during the three year period immediately preceding the termination, times (II)
the number of months (including any partial month) remaining in the Employment
Term (the "Base Salary Severance Amount"). Further, on the date in the next
fiscal year that bonuses are otherwise paid to senior executives of the Company,
the Executive shall be entitled to receive the pro rata amount (based on the
ratio of the number of business days he was actually employed by the Company in
the fiscal year of his termination to the number of business days in such fiscal
year) of any bonus for the fiscal year of his termination that he would have
received had his employment not been terminated (the "Bonus Severance Amount,"
which, together with the Base Salary Severance Amount, is referred to as the
"Severance Amount"). By way of example of the calculation of the Severance
Amount, if the Executive were terminated under this Section 4.1.1 on the first
anniversary of the Effective Date, he would be entitled to (x) payment equal to
twelve times the highest monthly Base Salary rate in effect during the three
year period preceding his termination
(less applicable taxes) plus (y) an amount payable in the next fiscal year
(2007) equal to any bonus compensation for the number of business days that he
was employed by the Company in the fiscal year (2006) of his termination, but
only to the extent he would have been paid a bonus had he not been terminated.
Nothing in this Section 4.1.1(a) is intended to give the Executive greater bonus
rights than a pro rata portion of what he would ordinarily be entitled to under
any bonus plan or bonus award that would have been applicable to him had he not
been terminated. The parties intend and agree that Executive's termination shall
not be used to disqualify Executive from or make him ineligible for any pro rata
portion of any bonus he otherwise would have been entitled to.
(b) Benefits Continuation. In addition, following a termination as
contemplated under Section 4.1.1(a), until the end of the Employment Term, the
Executive shall continue to participate in any employee welfare benefit plan (as
such term is defined in Section 3(1) of ERISA, but excluding any severance pay
plan) maintained by the Company or the Parent in which he participated
immediately prior to his termination, including but not limited to those listed
on Exhibit A in which he continues to be participating in immediately prior to
his date of termination ("Employee Welfare Benefit Plan"), on the same terms and
conditions pursuant to which he participated in such plan immediately prior to
his termination, to the fullest extent permitted by the applicable plan, but
only to the extent the Executive continues any required co-payments,
deductibles, premium sharing or other cost-splitting arrangements he is
otherwise paying immediately prior to the date of termination (the "Sharing
Ratio"). For the avoidance of doubt, such Employee Welfare Benefit Plan
participation does not apply to any compensatory arrangements such as incentive
compensation, profit sharing, 401(k) plan, bonuses, stock options, severance pay
plans or the like.
In the event that the terms of an Employee Welfare Benefit Plan do not
permit the Executive's continued participation in such plan, the Company agrees
as follows until the end of the Employment Term: (i) if the Employee Welfare
Benefit Plan is a group health plan, the Company will pay the premiums for COBRA
continuation coverage of the Executive and his qualified beneficiaries; (ii) if
the Employee Welfare Benefit Plan can be converted to individual coverage at a
reasonable expense, the Company will assist the Executive in exercising such
conversion rights and will reimburse the Executive for any conversion costs and
for any premium or other coverage costs incurred during the remainder of the
Employment Term; and (iii) in the event that the Employee Welfare Benefit Plan
does not fall under clauses (i) or (ii) of this sentence , or the Company, in
its sole discretion, determines that the cost of conversion to individual
coverage is unreasonable or if this option is otherwise preferable to it, then
the Company will purchase a suitable replacement policy for the Executive (the
"Replacement Policy") which provides coverage for the Executive equivalent to
the coverage provided to the Executive under the Employee Welfare Benefit Plan
on the date of the Executive's termination, and the Company will pay the
premiums on the Replacement Policy through the end of the Employment Term,
provided that the Executive pays any portion of the premiums or deductibles or
other cost-splitting arrangements that he is required to pay according to the
terms hereof based on his historical Sharing Ratio. The Executive agrees to
provide any assistance or information required by the insurer necessary to
obtain the Replacement Policy. The benefits to be continued under this Section
4.1.1(b) shall be referred to in this Agreement as the "Benefits Continuation";
provided, however, that the Executive understands and acknowledges that nothing
pursuant to this Section 4.1.1(b) shall require the Company or Parent to pay for
any portion of any Employee Welfare Benefit Plan that the Executive was required
to pay prior to the date of termination.
(c) Options. Nothing in this Agreement shall be construed to diminish or
alter in an adverse manner the current rights of the Executive provided for in
the Plans or under his Award Agreements, or any additional rights accrued by the
Executive during the Employment Term, and to which he is entitled, under the
terms of the Plans and Award Agreements, with respect to any Options held by him
in the event of (i) his termination of employment by the Company without Cause
and for a reason other than death or disability or (ii) his resignation for Good
Reason. In addition to such Option rights, if termination is pursuant to this
Section 4.1.1, to the fullest extent permitted by such Plans and Award
Agreements, for purposes of vesting, the Executive shall be deemed to have
remained in the employ of the Company within the meaning of the Plans and Award
Agreements, as applicable, until the end of the Employment Term. In furtherance
thereof only, following such termination all unvested Options granted in the
Executive's Award Agreements shall vest on the schedules set forth in those
agreements through the end of the Employment Term. The date of termination of
employment for purposes of such Award Agreements shall be the last day of the
Employment Term. The Executive expressly acknowledges that the rights granted
him under this Section 4.1.1(c) are rights not otherwise available to him prior
to the date hereof, but for his execution of this Agreement and his promises in
Section 6. The Executive further acknowledges that any "deemed employment" for
purposes of the Plans, the Award Agreements and the related Options is solely to
facilitate such additional rights hereunder and such rights give him no rights
whatsoever as an employee of the Company or the Parent or any of its affiliates
following the actual date of his termination of employment that triggers such
rights.
(d) No Other Rights. Except for the compensation to be paid on or before
the next regular payday as provided in subsection 4.1.1(a), and the Executive's
then accrued benefits under the terms of the Company's or the Parent's employee
benefits plans (e.g., 401(k) plan), the parties agree that the Severance Amount,
the Benefits Continuation, and the Executive's rights pursuant to Section
4.1.1(c) shall be the sole rights of the Executive in the event of termination
of employment under this Section 4.1.1 and the Executive shall be entitled to no
other amounts, whether bonuses, incentive compensation, other compensatory
arrangements or otherwise as a result of such termination of employment, except
to the extent Section 4.6 becomes applicable after any termination by the
Company of the Executive without Cause or resignation by Executive for Good
Reason. In the event of any termination under this Section 4.1.1, the Executive
hereby expressly waives any rights to any such other amounts, including without
limitation whether arising under current or future plans, agreements or
compensation or severance arrangements of the Company, the Parent or its
executives (including as a result of changes in (or of) control or similar
transactions).
4.1.2 Date of Termination or Resignation. The date of termination of
employment without Cause and for a reason other than death or disability shall
be the date specified in a written notice of termination to the Executive, which
date shall not be less than thirty days after the date of the notice unless such
earlier date is agreed to by the Executive in writing. The date of resignation
for Good Reason shall be the date specified in a written notice of resignation
from the Executive to the Company, or, if no date is specified therein, 10
business days after receipt by the Company of notice of resignation from the
Executive, provided, however, that no such written notice shall be effective
unless the cure period specified in Section 4.4 has expired without the Company
having effected the correction, to the reasonable satisfaction of the Executive,
of the event or events subject to cure.
4.2 Termination for Cause; Resignation Without Good Reason.
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4.2.1 General. If, prior to the expiration of the Employment Term, (a)
the Executive's employment is terminated by the Company for Cause, or (b) the
Executive resigns from his employment hereunder without Good Reason, the
Executive shall be entitled only to (i) payment of his Base Salary earned
through and including the date of termination or resignation, (ii) accrued
unused vacation then owing in accordance with the Company's then-current
policies; (iii) any benefits then accrued by the Executive under the Company's
or the Parent's benefit plans in which the Executive is participating at the
time of such termination (e.g., 401(k) plan); (iv) any continuation or
conversion rights existing under the terms of the Company's or the Parent's
Employee Welfare Benefits Plans in which the Executive is participating at the
time of such termination, but only to the extent such benefits are still
required by law to be made available notwithstanding the reason for the
Executive's termination (e.g., for Cause); and (v) expense reimbursements under
Section 3.2. The Executive shall have no further right to receive any other
compensation (including bonuses or other incentive compensation), or to
participate in any other plan, arrangement, or benefit, after such termination
or resignation of employment, provided, however, that nothing in this Agreement
shall be construed to diminish or alter the rights of the Executive provided for
in the Plans in the event of his termination for Cause or resignation without
Good Reason in any Options granted to him under such Plans and his rights shall
be as set forth under such Plans and as set forth in the applicable Award
Agreements.
4.2.2 Date of Termination or Resignation. The date of termination for
Cause shall be the date specified in a written notice of termination provided
for in Section 4.2.3, provided, however, that no such written notice shall be
effective unless, if applicable, the cure period specified in Section 4.2.3 has
expired without the Executive having corrected the event or events subject to
cure, to the reasonable satisfaction of the Board as set forth in the notice.
The date of resignation without Good Reason shall be the date specified in a
written notice of resignation from the Executive to the Company, or, if no date
is specified therein, 10 business days after receipt by the Company of notice of
resignation from the Executive.
4.2.3 Notice of Termination. Termination of the Executive's employment
for Cause shall be communicated by delivery to the Executive of a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and reasonable
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board prior to such vote), finding that in the good faith
opinion of the Board an event constituting Cause for termination in accordance
with Section 4.3 has occurred and specifying the particulars thereof (a "Notice
of Termination"). If the event constituting Cause for termination is of a type
specified in clause (iii) of the first sentence of Section 4.3 (other than as a
result of a breach or violation by the Executive of any provision in Section 6),
the Notice of Termination shall describe the material breach with particularity
and the Executive shall have 20 business days from the date of receipt of such
Notice of Termination or such longer reasonable cure period agreed to by the
Company and the Executive to effect a cure of the event described therein as
contemplated by Section 4.2.2 and, upon cure thereof by the Executive within the
cure period to the reasonable satisfaction of the Board as set forth in such
Notice of Termination, such event shall no longer constitute Cause for purposes
of this Agreement and the Company shall thereafter have no further right
hereunder to terminate the Executive's employment for Cause as a result of such
event. The Executive shall have no other cure rights under this Agreement.
4.3 Cause. Termination for "Cause" means termination of the
Executive's employment because of the Executive's: (i) fraud, misappropriation
or embezzlement related to the business or property of the Parent or any of its
subsidiaries; (ii) conviction for, or guilty plea (including a plea of nolo
contendere) to, a felony; (iii) willful and material breach of this Agreement
(it being acknowledged by the parties that such material breach includes,
without limitation, any breach of the Executive's covenants pursuant to Section
6), or (iv) willful or material violation of, or willful or material
noncompliance with, any securities law, rule or regulation or stock exchange
listing rule relating to or affecting the Company or the Parent including
without limitation (a) if the Executive has undertaken to provide any chief
executive officer or principal executive officer certification required under
the Sarbanes-Oxley Act of 2002, including the rules and regulations promulgated
thereunder (the "Sarbanes-Oxley Act"), without taking reasonable and appropriate
steps to determine whether or not the certificate was accurate or otherwise in
compliance with the requirements of the Sarbanes-Oxley Act or (b) if the
Executive fails to establish and administer effective systems and controls
necessary for the Parent to timely and accurately file reports pursuant to
Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended.
4.4 Good Reason. For purposes of this Agreement, "Good Reason" means the
Executive's good faith determination that any of the following has occurred: (i)
any significant diminution, without the Executive's prior written consent, in
the Executive's position, duties, compensation, benefits, responsibilities,
power, title or office with the Company or the Parent, except for any diminution
in compensation described in Section 2.1 above; (ii) any breach by the Company
of any material provision of this Agreement; or (iii) the circumstances
described in Section 4.5 (but only to the extent and in the
manner set forth therein, including as to the six-month waiting period). Unless
the Executive provides written notification of an event described in clause (i),
(ii) or (iii) of the preceding sentence within 30 days after the Executive knows
or has reason to know of the occurrence of any such event, the Executive shall
be deemed to have consented thereto and such event shall no longer constitute
Good Reason for purposes of this Agreement. If the Executive provides such
written notice to the Company, the notice shall describe the event constituting
Good Reason with particularity and the Company shall have 20 business days from
the date of receipt of such notice to effect a cure of the event described
therein and, upon cure thereof effected by the Company within the cure period to
the reasonable satisfaction of the Executive, such event shall no longer
constitute Good Reason for purposes of this Agreement and the Executive shall
thereafter have no further right hereunder to terminate his employment for Good
Reason as a result of such event. The Executive acknowledges that the Parent is
searching for a new President and Chief Executive Officer to replace the
Executive at the end of the Employment Term, or such earlier time as the
Executive's employment with the Company terminates. Notwithstanding anything in
this Agreement to the contrary, the Executive acknowledges that Good Reason
shall not be deemed to result from the Parent's and the Company's gradual and
orderly transfer of duties to a new President and/or Chief Executive Officer of
the Parent as part of their and the Board's successor planning duties and
obligations as contemplated hereby provided that there is no related decrease in
Executive's compensation, benefits or title or assignment of duties inconsistent
with the position of President and CEO and provided that all substantive and
primary duties of his position as President and CEO have not been reassigned.
4.5 Change in Control.
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4.5.1 In the event of a Change in Control (as defined in Section 4.5.2
below) prior to the Executive's employment termination date and prior to the
expiration of the Employment Term, the Executive agrees that he shall continue
as President and Chief Executive Officer of the Parent (or such other position
with the Parent or the Company that he occupied pursuant to Section 1.1 before
the Change in Control) for a period of at least six months from the effective
date of such Change in Control, unless his employment shall be earlier
terminated by the Company or the Employment Term shall have ended. For a period
of three months following such six-month period (but not prior to such time),
the Executive shall have the right to resign his employment hereunder on 10
business days' written notice to the Company. Any such resignation shall be
treated as a resignation for Good Reason for purposes of this Agreement and for
purposes of any other arrangement between the Company or the Parent and the
Executive which incorporates by reference the definition of Good Reason set
forth in this Agreement. The Executive shall have no rights under Sections 4.1,
4.4 and 4.5 if the Employment Term ends before the end of such six-month period
following any such Change in Control except if the Employment Term is extended
by agreement of the parties under Section 1.3 of this Agreement (and then the
Executive shall only have rights under Sections 4.1, 4.4 and 4.5 until the end
of the extended Employment Term as contemplated hereby and shall have no rights
under such Sections if the extended Employment Term ends before the end of such
six-month period following any such Change in Control).
4.5.2 For purposes of this Agreement, a "Change in Control" means:
(a) the acquisition by any individual, Entity (as defined in
Section 6.1) or group of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of more than
50% of the then-outstanding voting securities of the Parent entitled to vote
generally in the election of directors or of equity securities having a value
equal to more than 50% of the total value of all equity securities of the
Parent, provided, however, that the following acquisitions or issuances of
shares or other securities shall not constitute a Change in Control: (I) any
acquisition directly from the Parent or the Company, including one involving the
issuance of shares or other securities, (II) any acquisition by the Parent or
the Company, including one involving the issuance of shares or other securities,
and (III) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by or for the benefit of the Parent or any of its
affiliates; or
(b) individuals who as of the Effective Date constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board, except that any director whose election, nomination for election
or appointment was approved by the vote of at least a majority of directors then
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board on the date hereof, but excluding for this
purpose any individual whose initial assumption of office occurs as the result
of either an actual or threatened election contest or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board unless such election results from any mandatory rules promulgated by the
Securities and Exchange Commission after the Effective Date with respect to
shareholder rights to nominate persons to the Board.
4.6 End of Employment Term. If (a) the Executive serves continuously as an
employee of the Company through the end of the Employment Term or (b) prior to
the end of the Employment Term, Executive's employment is terminated by the
Company without Cause or by Executive with Good Reason (other than a termination
by the Executive for Good Reason during the three-month period described, and as
contemplated, in subsection 4.5.1 of this Agreement as a result of a Change of
Control and during such period the circumstances set forth in subsections 4.4(i)
and 4.4(ii) shall not otherwise have occurred), then the following provisions of
this Section 4.6 shall apply.
4.6.1 The Company agrees to retain the Executive as a consultant to
the Board and its Chairman and the then-current Chief Executive Officer of the
Parent from the end of the Employment Term through December 31, 2010 (the
"Consulting Term"). During the Consulting Term, the Executive shall make himself
available up to five days a month to: (a) assist in continuing the relationship
of the Parent and its subsidiaries with industry groups, including ORAF, AAOS,
AANA, and AAOSM; (b) represent the Company to key customers and accounts; (c)
represent the Company at industry trade shows; and (d) perform such other duties
and projects related to business initiatives of the
Parent or its subsidiaries as may be reasonably requested by the Board. The
Company agrees that until the end of the Consulting Term (i) so long as the
Executive simultaneously serves as a consultant of the Company and/or the
Parent, and a director of the Parent, the Executive shall receive an annual
consulting fee of $50,000 during such period in addition to any compensation to
which he is entitled as a director, and, (ii) if at any time he no longer serves
as a director of the Parent, he shall receive an annual consulting fee of
$110,000 in lieu of such $50,000 consulting fee. In addition, so long as the
Executive is eligible as a result of such director service to the Parent or any
of its subsidiaries, he will receive group health benefits coverage for himself
and his eligible dependents in the form provided to similarly-situated
directors. Further, if at any time prior to the end of the Consulting Term (x)
group health benefits coverage is not available to non-employee directors (and
their eligible dependents) or (y) the Executive is no longer serving as a
director, the Company, at its option, will do one of the following, in its sole
discretion: (i) procure and pay for comparable health benefits coverage for the
Executive and his eligible dependents or (ii) make annual payments to the
Executive in an amount equal to what the Executive would have to pay to purchase
such health benefits coverage on his own accord. At any time that the Executive
is providing consulting services to the Company or the Parent, the Company
agrees to provide secretarial support to the Executive at no cost to him in
order to assist in the performance of his consulting duties. The Company agrees
to reimburse the Executive for all reasonable business expenses incurred by him
in carrying out his duties as a consultant. Notwithstanding anything to the
contrary in this Agreement, in the event the Executive's employment is
terminated by the Company without Cause, the Company reserves the right, in its
sole discretion, to decline receipt of consulting services from the Executive
and in lieu thereof the Company may make an annual payment to the Executive in
the amount otherwise required to be paid to him for consulting services under
this Section 4.6.1 until the end of the Consulting Term. In such event, the
Parent and the Company will choose one of the following, such choice to be at
their sole discretion, (i) continue to provide Executive and his dependents,
until what would otherwise have been the end of the Consulting Term, health care
benefits equivalent to that Executive and his dependents would have received
during the Consulting Term, or (ii) pay the Executive such amounts necessary to
otherwise allow him to procure such benefits on his own through the end of the
Consulting Term (other than the amounts of any required co-payments,
deductibles, premium sharing or other cost-splitting arrangements the Executive
is otherwise responsible for paying). As condition to the payments under this
Section 4.6, at the beginning of the Consulting Term, the Executive will sign a
noncompetition and nondisclosure agreement with covenants identical to those set
forth in Section 6 of this Agreement, except that the term of the restrictions
shall be during the Consulting Term and for one year thereafter and the
restrictions shall be modified as necessary to take into account the Executive's
new position as a consultant and as may otherwise be required to be modified as
a result of then-current noncompetition, nonsolicitation and nondisclosure laws
in North Carolina.
4.6.2 The Executive may continue to be re-nominated to the Board in
subsequent years if at such time the Nominating Committee (or other applicable
committee) of the Board is able to do so taking into consideration its fiduciary
duties,
stock exchange listing rules, the Sarbanes-Oxley Act and then-prevailing
corporate governance standards.
4.7 Resignations. Upon his ceasing to be an employee of the Company for any
reason, the Executive agrees to immediately tender written resignations to the
Company with respect to all officer and director positions he may hold at that
time with the Parent or any of its subsidiaries,; provided, however, nothing in
this Agreement shall require the Executive to tender such a resignation with
respect to his position on the Board unless simultaneously with his termination
as an employee of the Company he is also ceasing to serve on the Board for any
reason.
4.8 Certain Limitations on Severance Benefits. Notwithstanding anything in
this Agreement to the contrary, if at any time the total payments and benefits
to be paid to or for the benefit of the Executive under this Agreement
(expressly including Section 4.1.1 or any other agreement) or by the Parent or
any of its subsidiaries would cause any portion of those payments and benefits
to be "parachute payments" as defined in Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended ("IRC"), or any successor provision, the
Executive and the Company agree to meet and negotiate in good faith to determine
what is in the mutual best interest of both parties with respect to the payment
(or provision) or reduction of total payments and total benefits to the
Executive under this Agreement. The independent public accounting firm serving
as the Company's auditing firm immediately prior to the date of the Executive's
termination of employment (the "Accountants") shall make in writing in good
faith all calculations and determinations under this Section 4.8, including the
assumptions to be used in arriving at any calculations. For purposes of making
the calculations and determinations under this Section 4.8, the Accountants may
make reasonable assumptions and approximations concerning the application of IRC
Section 280G and IRC Section 4999. The Executive shall furnish to the
Accountants and the Company such information and documents as the Accountants or
the Company may reasonably request to make the calculations and determinations
under this Section 4.8. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated hereby.
V. DEATH OR PERMANENT DISABILITY
5.1 Death. If the Executive's employment hereunder is terminated by death,
the Executive's estate shall be entitled only to (i) payment of the Executive's
Base Salary earned through and including the date of the Executive's death, (ii)
accrued unused vacation then owing in accordance with the Company's then-current
policies, (iii) expense reimbursements under Section 3.2, and (iv) any
continuation or conversion rights of the Executive's beneficiaries under the
terms of any Employee Welfare Benefit Plan in which the Executive was then
participating, and neither the Company nor the Parent shall have any further
obligations under this Agreement, provided, however, that nothing in this
Agreement shall be construed to diminish or alter the rights of the Executive's
estate provided for in the Plans in the event of his death in any Options
granted to him under such Plans and all his rights shall be as set forth under
such Plans and in applicable Award Agreements.
5.2 Disability. In the event that the Board terminates the Executive's
employment as a result of a physical or mental incapacity which substantially
prevents the Executive from performing his duties as an employee and that has
continued for at least six months and can reasonably be expected to continue
indefinitely, the Executive shall be entitled only to (i) payment of the
Executive's Base Salary earned through and including the last day of such
six-month period, (ii) accrued unused vacation then owing in accordance with the
Company's then-current policies, (iii) expense reimbursements under Section 3.2,
and (iv) any benefits continuation or benefits conversion rights existing under
the terms of any Employee Welfare Benefit Plan in which the Executive was then
participating. Neither the Company nor the Parent shall have any further
obligations under this Agreement, except as may be provided under any long-term
disability plan maintained by the Company and in which the Executive
participated at the time of his termination of employment, provided, however,
that nothing in this Agreement shall be construed to diminish or alter the
rights of the Executive provided for in the Plans in the event of such
incapacity in any Options granted to him under such Plans and all his rights
shall be as set forth under such Plans and in applicable Award Agreements. Any
dispute as to whether or not the Executive is incapacitated within the meaning
of the first sentence of this Section 5.2 shall be resolved by a physician
reasonably satisfactory to the Board and the Executive (or his legal
representative, if applicable).
VI. NONCOMPETITION, NONINTERFERENCE AND CONFIDENTIALITY
6.1 Noncompetition. During the entirety of the Employment Term (regardless
of whether the Executive continues in the employment of the Company until the
end of the Employment Term), the Executive agrees that he shall not anywhere in
the Prohibited Area engage or participate in a Competing Business. For the
avoidance of doubt, the Executive understands that such prohibition prohibits
the Executive from acting for himself or as an officer, employee, manager,
operator, principal, owner, partner, stockholder, advisor, consultant of, or
lender to, any individual or partnership, firm, enterprise, corporation or other
business organization or entity (each, an "Entity") that is engaged or
participates in a Competing Business. The parties agree that such prohibition
shall not apply to the Executive's (a) passive ownership of (i) not more than 5%
of a publicly-traded company or (ii) stock in OrthoRx, Inc., a Delaware
corporation, or (b) serving on the Board of Directors of OrthoRx, Inc. at the
request of the Parent. As used herein, (x) "Competing Business" means any
business or activity that (i) competes with the Parent or any subsidiary for
which the Executive performed services or the Executive was involved in for
purposes of making strategic or other material business decisions and (ii)
involves the same type of products or services (individually or collectively)
manufactured, marketed or sold by the Parent or any of its subsidiaries and (y)
"Prohibited Area" means North America, South America and the European Union,
which Prohibited Area the parties have agreed to as a result of the fact that
those are the geographic areas in which the Parent and its subsidiaries conduct
a preponderance of their business and in which the Executive provides
substantive services to the benefit of the Parent and its subsidiaries.
6.2 No Solicitation or Interference. During the Employment Term (other than
while an employee of the Company and in such case solely for the express benefit
of the Parent and its subsidiaries) and for a period of two years following the
end of the Employment Term, the Executive shall not, whether for his own account
or for the account or benefit of any other individual or Entity, throughout the
Prohibited Area:
(i) Request, induce or attempt to influence any customer of, or any
person employed by (or otherwise engaged in providing services for or
on behalf of), the Company, or the Parent or any of its subsidiaries
to limit, curtail, cancel or terminate (A) any business it transacts
with, or products or services it receives from, or (B) any
employment, consulting or other service arrangement with the Company,
or the Parent or any of its subsidiaries;
(ii) Solicit from or sell to any customer any products or services that
the Company, or the Parent or any of its subsidiaries provides or is
capable of providing to such customer and that are the same as or
substantially similar to the products or services that the Parent or
any of its subsidiaries, sold or provided while the Employee was
employed with, or providing services to, the Company or the Parent;
(iii) Contact or solicit any customer for the purpose of discussing
services or products that are competitive with and the same or
closely similar to those offered by the Company, or the Parent or any
of its subsidiaries or for the purpose of discussing any past or
present business of the Company, or the Parent or any of its
subsidiaries;
(iv) Request, induce or attempt to influence any supplier, distributor or
other person or entity with which the Company, or the Parent or any
of its subsidiaries has a business relationship to limit, curtail,
cancel or terminate any business it transacts with the Company, or
the Parent or any of its subsidiaries.
6.3 Trade Secrets; Confidential Information.
----------------------------------------
6.3.1 During the period of the Executive's employment with the Company
and at all times thereafter, the Executive shall hold in secrecy for the Company
all Trade Secrets (as defined in Section 6.3.2) and other Confidential
Information (as defined in Section 6.3.2) that he knew or should have known was
Confidential Information or Trade Secrets of the Parent or any of its
subsidiaries. Notwithstanding the preceding sentence, the Executive shall not be
required to maintain the confidentiality of any Trade Secrets or Confidential
Information which (i) is or becomes available to the public or others in the
industry generally other than as a result of disclosure, willful misuse or
knowingly caused by the Executive in violation of this Section 6.3 or (ii) the
Executive is compelled to disclose under any applicable laws, regulations or
directives of any government agency, tribunal or authority having jurisdiction
in the matter or under
subpoena or other process of law. Except as expressly required in the
performance of his duties to the Company under this Agreement for the benefit of
the Parent and its subsidiaries, the Executive shall not use for his own benefit
or disclose (or willfully or knowingly permit or direct the disclosure of) to
any individual or Entity, directly or indirectly, any Trade Secrets or
Confidential Information unless such use or disclosure has been specifically
authorized in writing by the Company in advance. During his employment and as
necessary to perform the Executive's duties under Section 1.2, the Company will
provide and grant the Executive access to the Trade Secrets and/or Confidential
Information. The Executive recognizes that any Trade Secrets or Confidential
Information are of a highly competitive value, will include Trade Secrets and/or
Confidential Information not previously provided the Executive and that the
Trade Secrets and Confidential Information could be used to the competitive and
financial detriment of the Parent and its subsidiaries if misused or disclosed
by the Executive in violation of this Section 6.3. The Company promises to
provide them only in exchange for the Executive's promises contained herein,
expressly including the covenants in Sections 6.1 and 6.2.
6.3.2 As used herein, "Trade Secrets" are information that meets the
definition of trade secrets under the North Carolina Trade Secrets Protection
Act. "Confidential Information" is information of the Parent or any of its
subsidiaries acquired by the Executive in the course and scope of his activities
under this Agreement that is not generally known or disseminated outside the
Parent and its subsidiaries (such as non-public information), and that is
subject to reasonable efforts by the Parent or its subsidiaries, as applicable,
to maintain its confidentiality. Without limiting the foregoing definition,
Trade Secrets and Confidential Information under this Agreement include (a)
matters of a technical nature, such as scientific, trade or engineering secrets,
formulae, secret processes, inventions, and research and development plans or
projects regarding existing and prospective customers and products or services,
(b) information about costs, profits, markets, sales, customer lists, customer
needs, customer preferences and customer purchasing histories, supplier lists,
internal financial data, personnel evaluations, non-public information about
medical devices or products of the Parent or any of its subsidiaries (including
future plans about them), information and material provided by third parties in
confidence and/or with nondisclosure restrictions, computer access passwords,
and internal market studies or surveys, (c) and information that is designated
or marked by the Parent or any of its subsidiaries as "Confidential," that the
Parent or any of its subsidiaries notifies the Executive through its express
written policies, procedures or instructions should not be disclosed to anyone
outside of the Parent or its subsidiaries or that the Executive should
reasonably consider confidential, regardless of the source, and (d) "know-how."
6.4 Return of Documents and Property. Upon termination of the Executive's
employment for any reason, the Executive (or his heirs or personal
representatives) shall immediately deliver to the Company (a) all documents and
materials containing Trade Secrets or Confidential Information (including
without limitation any "soft" copies or computerized versions thereof) or
otherwise containing information relating to the business and affairs of the
Parent and its subsidiaries (whether or not confidential), and
(b) all other documents, materials and other property belonging to the Parent or
any of its subsidiaries that are in the possession or under the control of the
Executive. This Section shall not apply so long as the Executive is serving as a
director of the Parent or as a consultant pursuant to Section 4.6.
6.5 Reasonableness; Remedies. The Executive acknowledges the restrictions
set forth in this Section 6 are reasonable and necessary for the protection of
the Company's and the Parent's business and opportunities and that a breach of
any of the covenants contained in this Section 6 would result in material
irreparable injury to the Parent and its affiliates and subsidiaries for which
there is no adequate remedy at law and that it will not be possible to measure
damages for such injuries precisely. Accordingly, the Company and the Parent
shall be entitled to the remedies of injunction and specific performance, or
either of such remedies, as well as all other remedies to which the Company and
the Parent may be entitled, at law, in equity or otherwise.
6.6 Extension: Survival. The Executive and the Company agree that the time
periods identified in Sections 4.6, 6.1, 6.2 and 6.3 will be stayed during the
period of any breach or violation by the Executive of the covenants contained
therein. The parties further agree that this Section 6 shall survive the
termination or expiration of this Agreement for any reason. The Executive
acknowledges that the Executive's agreement to the provisions of this Section 6
was fundamental to the Company's and the Parent's willingness to enter into this
Agreement and for them to provide for the Severance Amount, Benefits
Continuation and Option rights under Section 4.1.1(c), none of which the Parent
or the Company was required to do prior to the date hereof. Further, it is the
express intent and desire of the parties for each provision of this Section 6 to
be enforced to the fullest extent permitted by law. If any part of Section 6
above, or any provision thereof, is deemed illegal, void unenforceable or overly
broad (including as to time, scope and geography), the parties express desire is
that such provision be reformed to the fullest extent possible to ensure its
enforceability or if such reformation is deemed impossible then such provision
shall be severed from the Agreement, but the remainder of the Agreement shall
remain in full force and effect.
VII. MISCELLANEOUS
7.1 Notices. Any notice required or permitted under this Agreement shall be
given in writing and shall be deemed to have been effectively made or given if
personally delivered, or if telegraphed, telexed, cabled or sent via confirmed
e-mail or facsimile to the other party at its address set forth below in this
Section 7.1, or at such other address as such party may designate by written
notice to the other party hereto. Any effective notice hereunder shall be deemed
given on the date personally delivered or on the date telegraphed, telexed,
cabled or sent via confirmed e-mail or facsimile, as the case may be, to the
following address:
(i) If to the Company or Parent:
Orthofix Inc.
Attn: General Counsel
The Storrs Building
Suite 250
10115 Kincey Ave.
Huntersville, NC 28078
Facsimile: 704-948-2690
E-mail: ___________________
(ii) If to the Executive:
Mr. Charles W. Federico
19323 Peninsula Shores Drive
Cornelius, NC 28031
Facsimile:____________________________
E-mail:_______________________________
7.2 Disputes. Any dispute arising out of or in connection with this
Agreement, including any question regarding its existence, validity, or
termination, shall be referred to and finally resolved by arbitration. In such
arbitration, the parties shall follow the American Arbitration Association's
National Rules for the Resolution of Employment Disputes to the extent that
those Rules are not inconsistent with the terms of this provision. Nothing
contained in this Section shall preclude the Executive from pursuing proceedings
that are mandatory for him to submit to any federal or state administrative
body, including, but not limited to, claims required to brought first before the
EEOC, the DOL, OSHA, the Workers' Compensation Commission, or the Employment
Security Commission; provided, however, the parties agree that their intent is
to have any disputes submitted to arbitration to the fullest extent permitted by
law and not to use any of the above listed items as an attempt to avoid
arbitration. The parties further agree that: (1) no claim may be pursued by any
party in arbitration which is barred by the applicable statute of limitations;
(2) the arbitration shall be private and any award rendered by the arbitrator(s)
shall be kept confidential by the parties (subject to disclosure under
applicable securities laws or stock exchange rules), it being agreed that any
claims arising out of or relating to this obligation, or the breach thereof by
any party, shall be settled by arbitration in accordance with the terms of this
Agreement; (3) if the arbitration involves claims or counterclaims, either of
which exceed $100,000, the dispute shall be heard by three arbitrators: one
party arbitrator selected by the Executive, one party arbitrator selected by the
Company, and the third neutral selected by the two party arbitrators; (4)
hearsay evidence shall not be presented by the parties or considered by the
arbitrator(s), except that which would be permissible by the North Carolina
Rules of Evidence in effect at the time of the arbitration; (5) the parties
shall have the right at least sixty days in advance of the arbitration hearing
to inspect originals and receive copies of all documents to be relied upon by
the other party at the arbitration and shall also have the right, upon thirty
days notice in writing to the other party, to request and then inspect and copy
all relevant documents, it being agreed that the arbitrator(s) shall resolve any
disputes concerning the relevance of documents to be produced and that the
documents produced or relied upon by any party shall be subject to the same
obligation
of confidentiality as set forth above; (6) the parties shall have the right to
take the deposition of any other party to the arbitration or the
representative(s) of any party who have knowledge of any facts relating to the
claims or counterclaims asserted or the defenses related thereto, provided that
the number of depositions by any one party shall not exceed three in the
aggregate; (7) where one party intends to rely upon the testimony of an expert
or experts, the expert(s) must be disclosed at least ninety days in advance of
the arbitration and the other party shall have the right within thirty days
thereafter to take the deposition of the expert upon payment of the expert's
reasonable fees for the in-deposition time of the expert, it being agreed that
the other party who did not intend to use an expert until this disclosure
occurred shall have thirty days after the deposition of the expert to disclose
that party's expert and the other party shall be entitled to a deposition of the
expert upon payment of the expert's reasonable fee for the in-deposition time of
the expert; (8) the arbitrators may rule on pre-hearing disputes, but may only
entertain motions for summary judgment and motions to dismiss to the extent
agreed to by the parties in writing at the time of the arbitration; and (9)
testimony by affidavit shall not be permitted at the arbitration. Before
proceeding with arbitration as set forth in this Agreement, the parties agree
first to try in good faith to settle any dispute covered by this Agreement in
mediation, which mediation shall be in accordance with procedures agreed to by
the parties, or if no agreement can be reached, then as administered by the
American Arbitration Association under its Employment Mediation Rules then in
effect. The arbitration shall take place in or near Charlotte, North Carolina.
The language to be used in the arbitral proceedings shall be English. The
decision in such arbitration shall be final, conclusive and binding on the
parties and judgment upon such decision may be entered in any court having
jurisdiction thereof. All payments due under the portions of this Agreement not
the subject of the arbitration proceedings shall be paid when due.
Notwithstanding the above, nothing in this Agreement shall prevent the Company
or the Parent from immediately seeking injunctive relief, specific performance
or other remedies to enforce and protect its or their rights under Section 6 of
this Agreement, expressly including without limitation any breach or violation
of Sections 6.1, 6.2, 6.3 or 6.4 by the Executive.
7.3 Severability. If an arbitrator or a court of competent jurisdiction
determines that any term or provision hereof is invalid or unenforceable, (a)
the remaining terms and provisions hereof shall be unimpaired and (b) such
arbitrator or court shall have the authority to replace such invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision. For the avoidance of doubt, the parties
expressly intend that this provision extend to Sections 4.6 and 6 of this
Agreement.
7.4 Entire Agreement. This Agreement represents the entire agreement of the
parties and shall supersede any and all previous contracts, arrangements or
understandings between the Company, the Parent and the Executive relating to the
Executive's employment by the Company or the Parent, expressly including the
2001 Agreement, which 2001 Agreement is hereby terminated in its entirety and of
no further force and effect, provided however, that this Agreement shall not
alter or impair any of
the Executive's rights under awards made to him pursuant to the Plans or the
Award Agreements. Except as expressly set forth in Section 2.2 with respect to
Options, in the event of any conflict between this Agreement and any other
agreement between the Executive and the Company or any of its affiliates, this
Agreement shall control. The Executive expressly acknowledges that he has no
further rights, and hereby waives or forfeits any and all rights he may have or
may have had, under the 2001 Agreement as a result of its termination hereby,
and neither the Company nor the Parent shall have any obligation to make any
payments or satisfy any other liability to him thereunder. This Agreement may be
amended at any time only by mutual written agreement of the parties hereto,
provided, however, that, notwithstanding any other provision of this Agreement
to the contrary, the parties shall in good faith amend this Agreement to the
limited extent necessary to comply with the requirements under Section 409A of
the IRC in order to ensure that any amounts paid or payable hereunder are not
subject to the additional 20% income tax thereunder (including, without
limitation, any amendment instituting a six-month waiting period before a
distribution) upon separation from service, if required) while maintaining to
the maximum extent practicable the original intent of this Agreement.
Notwithstanding anything in this Agreement to the contrary, nothing in this
Agreement shall alter, modify or amend that certain full recourse promissory
note executed by the Executive on January 10, 2002, in favor of the Parent.
7.5 Withholding. The Company shall be entitled to withhold, or cause to be
withheld, from payment any amount of withholding taxes required by law with
respect to payments made to the Executive in connection with his employment or
his rights hereunder.
7.6 Governing Law. This Agreement shall be construed, interpreted, and
governed in accordance with the laws of the State of North Carolina without
regard to any provision of that State's rules on the conflicts of law that might
make applicable the law of a jurisdiction other than that of the State of North
Carolina; provided, however, nothing in this Agreement shall be deemed to
require application of North Carolina law to the extent a federal law, rule or
regulation is mandatorily to be applied to an employment dispute.
7.7 Assignment and Successors. This Agreement shall be binding upon and
inure to the benefit of, and shall be enforceable by the Executive, the Company,
the Parent, and their respective heirs, executors, administrators, legal
representatives, successors, and assigns. In the event the Company sells
substantially all of its assets or is merged, consolidated, liquidated by a
parent corporation, or otherwise combined into one or more corporations, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parent corporation or the corporation resulting from such merger or to which
the assets shall be sold or transferred, which corporation from and after the
date of such merger, consolidation, sale or transfer shall be deemed to be the
Company for purposes of this Agreement. In the event of any other assignment of
this Agreement by the Company, by operation of law or otherwise, the Company
shall remain primarily liable for its obligations hereunder; provided, however,
if the Company is financially unable to meet its obligations hereunder, the
Parent shall assume responsibility for the
Company's obligations hereunder. This Agreement shall not be assignable by the
Executive. The Executive expressly acknowledges that the Parent (and its
successors and assigns) is a third party beneficiary of this Agreement and may
enforce this Agreement on behalf of itself or the Company or its affiliates.
Both parties agree that there are no other third party beneficiaries to this
Agreement other than as expressly set forth in this Section 7.7.
7.8 Headings. The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
7.9 Counterparts. This Agreement may be executed by any of the parties
hereto in counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
7.10 Survival. This Section 7 shall survive the termination or expiration
of this Agreement for any reason.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ORTHOFIX INTERNATIONAL N.V. ORTHOFIX INC.
By: /s/ Thomas J. Kester By: /s/ Raymond C. Kolls
--------------------- ----------------------
Name: Thomas J. Kester Name: Raymond C. Kolls
--------------------- ----------------------
Title: Chairman-Compensation Title: Secretary
Committee ----------------------
---------------------
EXECUTIVE
/s/ Charles W. Federico
---------------------------------------
Charles W. Federico
EXHIBIT A
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1. Orthofix Inc. Medical Plan through Blue Cross Blue Shield
2. Orthofix Inc. Dental Plan through Fortis Benefits Insurance Company
3. Superior Vision Plan through Reliastar Life Insurance Company
4. Orthofix Life and Accidental Death and Dismemberment Plan through Unum Life
Insurance Company of America
5. Executive Long Term Disability Income Policy through Unum Life Insurance
Company of America
6. Renewable and Convertible Term Life Insurance Policy through Banner Life
Insurance Company