EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made and entered into and is effective
as of October 1, 1999, between ChipPAC, Inc., a California corporation (the
"Company") and Dennis McKenna ("Executive"). This Agreement amends, restates and
replaces that certain (i) Employment Agreement, dated as of October 1, 1997, as
the same may have been amended or modified from time to time, by and between the
Company and Executive and (ii) Chief Executive Officer Management Incentive
Agreement, dated as of August 1, 1998, as the same may have been amended or
modified from time to time, by and between the Company and Executive (other than
that certain Mutual Release of Claims attached as Exhibit A thereto).
WHEREAS, Executive is currently employed by the Company as its President
and Chief Executive Officer; and
WHEREAS, the Company desires to continue the services of Executive as
President and Chief Executive Officer of the Company and Executive desires to
perform such services for the Company, on the terms and conditions as set forth
herein.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. Effective Date, Term and Duties. The term of employment of Executive
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by the Company hereunder shall commence upon the date hereof (the "Effective
Date") and end on December 31, 2001, and shall continue thereafter on the same
terms and conditions (such term being hereinafter referred to as the "Employment
Period") unless earlier terminated pursuant to Section 4. The Employment Period
shall be extended automatically without further action of either party, on
January 1, 2001, and on each succeeding January 1st, for terms of one year,
unless prior to each such date the Company or the Executive shall notify the
other in writing of its or his intention not to renew this Agreement, in which
case the Agreement shall terminate at the end of the original term or any
extension thereof, unless earlier terminated pursuant to Section 4 (such
extended period being hereinafter referred to as the "Extended Employment
Period").
Executive shall have such duties as the Company may from time to time
prescribe consistent with his position as President and Chief Executive Officer
of the Company (the "Services"). Executive shall report directly to the Board
of Directors of the Company. Executive shall devote his full time, attention,
energies and best efforts to the business of the Company and its subsidiaries.
During the Employment Period and the Extended Employment Period, the Company
shall maintain an office for Executive at its chief executive office.
2. Compensation. The Company shall pay and Executive shall accept as
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full consideration for the Services compensation consisting of the following:
2.1 Base Salary. $400,000 per year base salary ("Base Salary"),
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payable in installments in accordance with the Company's normal payroll
practices, less such deductions or withholdings required by law. Base Salary
shall be reviewed annually by the Board of Directors of the Company (or its
Compensation Committee) to evaluate the performance of Executive and his duties
hereunder.
2.2 Annual Bonus. A target bonus of up to 80% of the Base Salary at
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100% performance per year ("Target Annual Bonus"), which shall be payable based
on the attainment by the Company of the Short-Term Bonus Plan Objectives under
the Company's Executive Bonus Plan for each such year, which such Short-Term
Bonus Plan Objectives shall be agreed upon by the Executive and the Board of
Directors of the Company (or its Compensation Committee) annually and shall be
consistent with the Company's business plan for the relevant year.
Notwithstanding the foregoing, Executive's 1999 Target Annual Bonus shall be pro
rated as set forth in Exhibit A attached hereto. The mutually agreed upon bonus
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targets for 1999 are detailed in Exhibit A attached hereto. The bonus targets
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for 2000 and 2001 listed in Exhibit A are provided as reference points only at
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this time and will be subsequently agreed upon as set forth above in this
Section 2.2.
2.3 Stock Based Compensation. On or about the Effective Date of this
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Agreement, the Company and Executive have entered into a Key Employee Purchased
Stock Agreement, a Tranche I Stock Option Agreement and a Tranche II Stock
Option Agreement (the "Stock Based Incentive Agreements") pursuant to which (i)
the Company will sell, and Executive will purchase, certain shares of the
Company's capital stock and (ii) the Company will grant Executive options to
acquire certain shares of the Company's capital stock.
2.4 Indemnification. In the event Executive is made, or threatened
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to be made, a party to any legal action or proceeding, whether civil or
criminal, by reason of the fact that Executive is or was a director or officer
of the Company or serves or served any other corporation fifty percent (50%) or
more owned or controlled by the Company in any capacity at the Company's
request, Executive shall be indemnified by the Company, and the Company shall
pay Executive's related actual and reasonably incurred expenses, when and as
incurred, all to the fullest extent permitted by law, so long as Executive acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company or any of its subsidiaries, and, with respect
to any criminal action or proceeding, Executive had no reasonable cause to
believe his conduct was unlawful.
3. Benefits. Executive will be eligible to participate in the Company's
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employee benefit plans of general application, including, without limitation,
those plans covering medical, disability and life insurance in accordance with
the rules established for individual participation in any such plan and under
applicable law. Executive will be eligible for vacation and sick leave in
accordance with the policies in effect during the term of this Agreement and
will receive such other benefits as the Company generally provides to its other
employees of comparable position and experience. Executive will be provided
with term life insurance in a principal amount that is no less than $5,000,000
payable to Executive's designated beneficiary, to the extent that Executive is
insurable. Executive shall be entitled to continue any medical, disability and
life insurance benefits at his cost
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after termination of the Employment Period or the Extended Employment Period,
provided that such cost shall not exceed the cost to the Company of providing
similar benefits to employees of the Company who are in active employment with
the Company.
4. Benefits Upon Termination of Employment Period. Executive's
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employment by the Company shall terminate immediately upon Executive's receipt
of written notice by the Company, immediately upon the Company's receipt of
written notice by Executive, or immediately upon Executive's death or Disability
(as defined below). In the event of Executive's termination without Cause (as
defined in Subsection 4.2) or Executive's termination of the Employment Period
or the Extended Employment Period for Good Reason (as defined in Subsection
4.3), the Company shall provide Executive with termination benefits upon
termination of the Employment Period or Extended Employment Period, as follows:
4.1 Termination Benefits. Executive shall be entitled to receive an
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amount ("Termination Pay") equal to (i) two (2) times Executive's Base Salary as
of the date of Executive's termination and (ii) Executive's bonus described in
Subsection 2.2 above for the year of termination if Executive would have
otherwise been entitled (as determined in good faith by the Board of Directors
of the Company (or its Compensation Committee)) to receive such bonus had he not
been terminated; provided that if the date of such termination occurs prior to
the last day of the calendar year in which such bonus is awarded, then such
bonus shall be prorated based upon the number of days elapsed prior to
Executive's date of termination. Such Termination Pay shall be payable in two
lump sums, the first payment consisting of 50% of the amount payable pursuant to
clause (i) of the preceding sentence plus the amount payable pursuant to clause
(ii) of the preceding sentence (which payment shall be made within 30 days of
the termination date) and the second payment consisting of the balance of the
Termination Pay (which payment shall be made on the first anniversary of the
termination date). Such Termination Pay shall be in lieu of any claims
Executive may have had with respect to termination benefits and, as a condition
to the Company's obligations (if any) to pay the Termination Pay, Executive will
execute and deliver the Company a general release of claims in form and
substance reasonably satisfactory to the Company. Notwithstanding any provision
in this Agreement to the contrary, the Company shall have no obligation to pay
any amounts which would otherwise be payable pursuant to Section 4 or Section 5
hereof during such times as Executive is in material breach of any material
covenant or agreement of this Agreement or the Stock Based Incentive Agreements.
4.2 Circumstances Under Which Termination Benefits Would Not Be Paid.
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The Company shall not be obligated to pay Executive the termination benefits
pursuant to Subsection 4.1 if the Executive's employment is terminated for Cause
or if Executive terminates the Employment Period or the Extended Employment
Period other than for Good Reason. For purposes of this Agreement, "Cause"
shall be limited to (1) Executive's gross misconduct or fraud, in the
performance of his employment; (2) Executive's conviction or guilty plea with
respect to any felony (except for motor vehicle violations); or (3) Executive's
material breach of this Agreement or any of the Stock Based Incentive
Agreements.
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4.3 Constructive Termination. Notwithstanding anything in this
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Section 4 or Section 5 to the contrary, the Employment Period and the Extended
Employment Period will be deemed to have been terminated (a "Constructive
Termination") and Executive will be deemed to have Good Reason for termination
of the Employment Period and the Extended Employment Period ("Good Reason"), if
there should occur:
(A) a material adverse change in Executive's position causing it to
be of materially less responsibility without Executive's written consent,
and such a materially adverse change shall in all events be deemed to occur
if Executive no longer serves as President and Chief Executive Officer
reporting to the Board of Directors, unless Executive consents in writing
to such change;
(B) a reduction, without Executive's written consent, in his level of
Base Salary by more than ten percent (10%) or a reduction by more than ten
percent (10%) in the Target Annual Bonus opportunity as compared to the
Target Annual Bonus opportunity of the prior year; or
(C) a relocation of the Company's chief executive offices from their
current location by more than 50 miles without Executive's consent.
4.4 Termination by Reason of Death or Disability. In the event of
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Executive's death during the Employment Period or the Extended Employment
Period, the Company shall pay to Executive's estate the bonus described in
Subsection 2.2 above for the year of Executive's death if Executive would have
otherwise been entitled (as determined in good faith by the Board of Directors
of the Company (or its Compensation Committee)) to receive such bonus had he not
died; provided that if Executive dies prior to the last day of the calendar year
in which such bonus is awarded, then such bonus shall be prorated based upon the
number of days elapsed prior to Executive's death. In addition, Executive's
estate will receive payment for all Base Salary and all other earned and unpaid
compensation which become payable by reason of Executive's death and any other
benefits which become payable under the Company's then existing benefit plans
and policies in accordance with such plans and policies in effect on the date of
death and in accordance with applicable law. In the event that, during the term
of this Agreement, Executive is unable to perform his job due to Disability (as
defined below), the Company may, at its election, terminate Executive's
employment with the Company and such termination shall be deemed to be a
termination by the Company other than for Cause and Executive shall be entitled
to receive the benefits set forth in Subsection 4.1 hereof. "Disability" (i)
shall mean any physical or mental incapacitation which results in Executive's
inability to perform his duties and responsibilities for the Company for a total
of 120 days during any twelve-month period, as determined by the Board of
Directors of the Company in its good faith judgment and (ii) shall be deemed to
have occurred on the 120th day of such inability to perform.
5. Change in Control. Should there occur a Change in Control (as defined
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below), then during the period (if any) following a Change in Control that
Executive shall continue to provide the Services, then the terms and provisions
of this Agreement shall continue in full force and effect.
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For purposes of this Section 5, a Change of Control shall be deemed to
occur upon:
(I) the sale, lease, conveyance or other disposition of all or
substantially all of the Company's assets as an entirety or substantially as an
entirety to any person, entity or group of persons acting in concert other than
in the ordinary course of business (it being agreed that for purposes hereof,
"all or substantially all" shall have the meaning accorded to such term in the
Revised Model Business Corporation Act); or
(II) the first date that the Investors collectively cease to own at
least 35% of the aggregate number of shares of common stock of the Company that
they own on the date hereof (as adjusted for stock splits, stock dividends and
recapitalization and for exchanges in connection with a merger, consolidation,
reorganization or sale). "Investors" means Bain Capital Fund VI, L.P., BCIP
Associates II, BCIP Associates II-B, BCIP Associates II-C, BCIP Trust Associates
II, BCIP Trust Associates II-B, PEP Investments Pty., Ltd., Randolph Street
Partners 1998 DIF, LLC, Randolph Street Partners II and SXI Group LLC and any of
their affiliates.
In the event that the severance and other benefits provided to Executive
(i) constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 5, such severance and benefits would be subject to the excise tax
imposed by Section 4999 of the Code, then Executive's severance benefits under
this Section 5 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no portion of such
severance and other benefits being subject to excise tax under Section 4999 of
the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by Executive on an after-tax basis, of the greatest amount of
severance benefits under Section 5. Unless the Company and Executive otherwise
agree in writing, any determination required under this Section 5 shall be made
in writing by independent public accountants agreed to by the Company and
Executive (the "Accountants"), whose determination shall be conclusive and
binding upon Executive and the Company for all purposes. For purposes of making
the calculations required by this Section 5, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and Executive shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.
6. Dispute Resolution. The Company and Executive agree that any dispute
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regarding the interpretation or enforcement of this Agreement shall be decided
by confidential, final and binding arbitration conducted by Judicial Arbitration
and Mediation Services ("JAMS") under the
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then-existing JAMS rules, rather than by litigation in court, trial by jury,
administrative proceeding, or in any other forum.
7. Cooperation with the Company After Termination of the Employment
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Period. Following termination of the Employment Period or the Extended
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Employment Period for any reason, Executive shall fully cooperate with the
Company in all matters relating to the winding up of his pending work on behalf
of the Company and the orderly transfer of any such pending work to other
employees of the Company or other persons as may be designated by the Company.
8. Confidentiality; Return of Property. Executive agrees to continue
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to abide by the terms and conditions of any confidentiality and/or proprietary
rights agreement previously entered into by the Executive, on the one hand, and
the Company or any of its affiliates, on the other hand.
9. General.
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9.1 Waiver. Neither party shall, by mere lapse of time, without
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giving notice or taking other action hereunder, be deemed to have waived any
breach by the other party of any of the provisions of this Agreement. Further,
the waiver by either party of a particular breach of this Agreement by the other
shall neither be construed as, nor constitute a, continuing waiver of such
breach or of other breaches by the same or any other provision of this
Agreement.
9.2 Severability. If for any reason a court of competent
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jurisdiction or arbitrator finds any provision of this Agreement to be
unenforceable, the provision shall be deemed amended as necessary to conform to
applicable laws or regulations, or if it cannot be so amended without materially
altering the intention of the parties, the remainder of the Agreement shall
continue in full force and effect as if the offending provision were not
contained herein.
9.3 Notices. All notices and other communications required or
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permitted to be given under this Agreement shall be in writing and shall be
considered effective upon personal service or upon depositing such notice in the
U.S. Mail, postage prepaid, return receipt requested and addressed to Executive
at his most recent address shown on the Company's corporate records, or at any
other address which he may specify in any appropriate notice to the Company and
to the Company, c/o Bain Capital, Inc., One Embarcadero Place, San Francisco, CA
94111, Attention: David Dominik or to such other address as may be specified by
the Board of Directors of the Company.
9.4 Counterparts. This Agreement may be executed in any number of
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counterparts (any one or more of which may be executed by facsimile delivery),
each of which shall be deemed an original and all of which taken together
constitutes one and the same instrument and in making proof hereof it shall not
be necessary to produce or account for more than one such counterpart.
9.5 Entire Agreement. The parties hereto acknowledge that each has
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read this Agreement, understands it, and agrees to be bound by its terms. The
parties further agree that this
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Agreement constitutes the complete and exclusive statement of the agreement
between the parties and supersedes all proposals (oral or written),
understandings, representations, conditions, covenants, and all other
communications between the parties relating to the subject matter hereof. The
parties further agree that this Agreement supersedes the prior agreements
referred to in the recitals to this Agreement except as provided in said
recitals.
9.6 Governing Law. This Agreement shall be governed by the law
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of the State of California.
9.7 Assignment and Successors. The Company shall have the right to
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assign its rights and obligations under this Agreement. Executive may not
assign any of his rights or delegate any of his duties hereunder without the
prior written consent of the Board of Directors of the Company. The rights and
obligations of each party under this Agreement shall inure to the benefit and
shall be binding upon the successors and permitted assigns of each such party.
9.8 Amendment. The provisions of this Agreement may be amended or
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waived only with the prior written consent of the Board of Directors of the
Company and Executive, and no course of conduct or failure or delay in enforcing
the provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
CHIPPAC, INC. EXECUTIVE
By: /s/ Tony Lin /s/ Dennis McKenna
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Name: Tony Lin
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Title: Chief Financial Officer
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