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EXHIBIT 10.5 - EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of October, 2000, by and
between Check Technology Corporation, a Minnesota corporation (the "Company")
and Jay Herman ("Executive").
WHEREAS, the parties wish to replace their existing letter agreement
dated October 1, 1994, as amended September 24, 1999, with Executive concerning
the terms of his employment with this new Employment Agreement;
NOW, THEREFORE, in consideration of the premises and of the agreements
hereinafter contained, the parties agree as follows:
1. Position and Duties. The Company hereby agrees to continue to employ
Executive as its President and Chief Executive Officer during a term which shall
continue until one of the events provided in this Agreement which concludes the
term of employment. During the term of Executive's employment by the Company,
Executive shall devote his best efforts and full business time to the business
of the Company, and not engage in any active business for his own account, or
that of any person or entity other than the Company, unless he has obtained the
Company's prior written consent. Executive agrees that his activities for the
Company shall be subject to the direction of the Board of Directors of the
Company.
2. Term. Executive's employment shall continue on an at will basis
until Executive resigns or is terminated in accordance with Section 4 of this
Agreement.
3. Compensation. As compensation for his services, Executive shall
receive the following compensation, expense reimbursement and other benefits:
a. Base Salary. Executive shall continue to receive a base
salary at the current annual rate, payable in bi-weekly or semi-monthly
installments in accordance with Company payroll practices. Executive's base
salary shall be subject to annual review and possible increases or decreases by
the Board of Directors or its Compensation Committee.
b. Bonuses. Executive shall participate in any bonus plan
approved by the Board of Directors or its Compensation Committee for officers of
the Company in accordance with the terms of that plan.
c. Fringe Benefits. The Company shall include Executive in any
and all insurance, profit sharing and other fringe benefit programs that it
maintains for its full-time executive officers.
d. Reimbursement of Expenses. Executive shall be reimbursed,
upon submission of appropriate vouchers and supporting documentation, for all
travel, entertainment and other out-of-pocket expenses approved by the Company
and reasonably and necessarily incurred by Executive in the performance of his
duties hereunder.
e. Withholding. The Company shall withhold from amounts
payable to Executive any federal, state or local withholding or other taxes or
charges which the Company is from time to time required by law to withhold.
4. Term of Employment. The term of Executive's employment hereunder
(the "Term") shall continue until the earliest of the following dates (such
earliest date being the "Date of Termination"):
(i) the last day of any month in which Executive dies;
(ii) the last day of the month on which the Company terminates
Executive's employment by reason of physical or mental "Disability" (as defined
below);
(iii) the date on which the Company terminates Executive's
employment with the Company, either with or without "Cause" (as defined below);
(iv) the date on which Executive terminate Executive's
employment with the Company, either with or without "Good Reason" (as defined
below).
Notwithstanding any termination of this Agreement, Executive shall remain bound
by the provisions of this Agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Executive's
employment.
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5. Severance. In the event Executive is terminated by the Company or
resigns his employment with the Company, then Executive shall be entitled to
receive:
a. Remaining Pay. The Company shall pay Executive's base pay
at the rate then in effect through the Date of Termination. The Company shall
also pay to Executive, in a single lump sum within 30 days after the Date of
Termination, any incentive compensation allocated or awarded to Executive but
unpaid at such Date of Termination.
b. Severance Payment. In lieu of any further payments of
salary for periods subsequent to the Date of Termination, the Company shall pay
to Executive a severance payment (the "Severance Payment") as specified below:
(i) Termination by the Company for Cause. If Executive's
employment is terminated by the Company for Cause, then there shall be no
Severance Payment; provided, that if such termination by the Company for Cause
occurs prior to October 1, 2001, the Company shall pay Executive the sum of
$150,000, which shall be first applied by the Company to repay any indebtedness
of Executive to the Company under the Company's Executive Loan Program.
(ii) Termination Due to Death or Disability. If Executive's
employment is terminated by reason of Executive's death, or by either the
Company or by Executive due to Disability, then in lieu of any Severance Payment
the Company shall pay Executive or his estate any and all benefits to which
Executive is entitled under the Company's insurance programs then in effect;
provided, that if such termination by the Company due to Death or Disability
occurs prior to October 1, 2001, then in addition to the amount referred to
above the Company shall also pay Executive (or his estate) the sum of $150,000,
which shall be first applied by the Company to repay any indebtedness of
Executive to the Company under the Company's Executive Loan Program. For a
Disability (as defined below) to exist, a disability must exist for at least 26
weeks following its commencement, and the Company agrees that Executive will
continue to receive, in coordination with the Company's insurance programs, his
base salary and benefits for at least 26 weeks after the onset of the condition
which subsequently became the Disability (as defined below).
(iii) Termination by Executive not for Good Reason or
Disability. If Executive's employment is terminated by Executive other than for
Good Reason or Disability, then there shall be no Severance Payment, except that
if the termination occurs prior to October 1, 2001, the Severance Payment shall
be $150,000, which shall be first applied by the Company to repay any
indebtedness of Executive to the Company under the Company's Executive Loan
Program.
(iv) Termination by the Company Not for Cause. If Executive's
employment is terminated by the Company other than for Cause or Disability, and
no Change in Control has occurred within one year prior to the Date of
Termination, then the Severance Payment shall be an amount equal to two years of
Executive's then current annual base salary immediately prior to the Date of
Termination (without giving effect to any reduction in such compensation which
occurred prior to such termination); provided, that if such termination by the
Company other than for Cause or Disability occurs prior to October 1, 2001, then
in addition to the amount referred to above the Company shall also pay Executive
the sum of $150,000, which shall be first applied by the Company to repay any
indebtedness of Executive to the Company under the Company's Executive Loan
Program.
(v) Termination by Executive for Good Reason. If Executive's
employment is terminated by Executive for Good Reason, and no Change in Control
has occurred within one year prior to the Date of Termination, then the
Severance Payment shall be an amount equal to two years of Executive's then
current annual base salary immediately prior to the Date of Termination (without
giving effect to any reduction in such compensation which occurred prior to such
termination); provided, that if such termination for Good Reason occurs prior to
October 1, 2001, then in addition to the amount referred to above the Company
shall also pay Executive the sum of $150,000, which shall be first applied by
the Company to repay any indebtedness of Executive to the Company under the
Company's Executive Loan Program.
(vi) Termination following a Change in Control. If Executive's
employment is terminated (A) by the Company other than for Cause or Disability
within one year after a Change in Control, or (B) by Executive for Good Reason
within one year after a Change in Control, then the Severance Payment shall be
equal to three years of Executive's base salary immediately prior to the Change
in Control; provided, that if such termination by the Company following a Change
in Control occurs prior to October 1, 2001, then in addition to the amount
referred to above the Company shall also pay Executive the sum of $150,000,which
shall be first applied by the Company to repay any indebtedness of Executive to
the Company under the Company's Executive Loan Program.
In all cases where a Severance Payment is due, it shall be paid in a lump sum
within 30 days after the Date of Termination.
c. Insurance Benefits. For twelve months after the Date of
Termination, the Company shall arrange to provide Executive, at its sole
expense, with insurance benefits substantially similar to those which Executive
was receiving or entitled to receive immediately prior to the Date of
Termination. The cost of providing such benefits shall be in
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addition to (and shall not reduce) the Severance Payment. Benefits otherwise
receivable by Executive pursuant to this paragraph shall be reduced to the
extent comparable benefits are actually received by Executive during such
period, and any such benefits actually received by Executive shall be reported
to the Company.
d. Benefits Under other Company Severance Policies. The
Severance Payment shall be reduced and offset by the amount of any payment
received or to be received by Executive in connection with the termination of
employment pursuant to the provisions of any Company policy relating to
severance payments in effect at the Date of Termination.
e. Reduction if Required to Avoid Excess Parachute Payment
Treatment. If, in the opinion of tax counsel selected by the Company and
reasonably acceptable to Executive, the Severance Payment (in its full amount or
as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code exceeds the amount that is deductible by the Company by reason of
Section 280G, and in the opinion of such tax counsel, the Severance Payment (in
its full amount or as partially reduced, as the case may be) plus all other
payments or benefits which constitute "parachute payments" within the meaning of
Section 280G(b)(2) of the Code are not reasonable compensation for services
actually rendered or to be rendered, within the meaning of Section 280G(b)(4) of
the Code, the Severance Payment shall be reduced by the excess of the aggregate
"parachute payments" to be paid to Executive or for Executive's benefit over the
aggregate "parachute payments" that would be paid to Executive or for
Executive's benefit without any portion of such "parachute payments" not being
deductible by reason of Section 280G of the Code. The value of any non-cash
benefit or any deferred cash payment shall be determined by the Company in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
If it is established pursuant to a final determination of a court or an
Internal Revenue Service proceeding that, notwithstanding the good faith of
Executive and the Company in applying the terms of this subsection e., the
aggregate "parachute payments" paid to Executive or for Executive's benefit are
in an amount that would result in any portion of such "parachute payments" not
being deductible by the Company or its Affiliates by reason of Section 280G of
the Code, then Executive shall have an obligation to pay the Company upon demand
an amount equal to (A) the excess of the aggregate "parachute payments" paid to
or for Executive's benefit over the aggregate "parachute payments" that would
have been paid to or for Executive's benefit without any portion of such
"parachute payments" not being deductible by reason of Section 280G of the Code,
minus (B) the amount of any federal excise tax, state tax or interest and
penalties related to such taxes which Executive is required to pay due to such
final determination of a court or the Internal Revenue Service.
Calculations pursuant to this subsection shall be made by the Company's outside
independent auditors.
f. No Mitigation Obligation. Executive shall not be required
to mitigate the amount of any payment provided for in this Section 5 by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 5 be reduced by any compensation earned by
Executive as the result of employment by another employer or by retirement
benefits after the Date of Termination, or otherwise except as specifically
provided in this Section 5. Executive shall be entitled to receive all benefits
payable to Executive under any plan or agreement relating to retirement
benefits, which shall be in addition to, and not reduced by, any other amounts
payable to Executive under this Section 5.
g. Severance Does Not Reduce Stock Options. Executive shall be
entitled to exercise all rights and to receive all benefits accruing to
Executive under any and all stock purchase and stock plans or programs, or any
successor to any such plans or programs, which shall be in addition to, and not
reduced by, any other amounts payable to Executive under this Section 5.
6. Obligations Upon Cessation of Employment.
a. Resignation from Board of Directors. The cessation of
Executive's employment with the Company for any reason shall constitute, without
the need for any further action, Executive's resignation from the Board of
Directors of the Company and from the board of directors of any subsidiary or
Affiliate of the Company.
b. Surrender of Records and Property. Upon termination of
Executive's employment with the Company for any reason, Executive shall deliver
promptly to the Company all documents which are the property of the Company or
which relate in any way to the business, products, practices or techniques of
the Company or its affiliates, and all other property, trade secrets and
confidential information of the Company or its affiliates, including, but not
limited to, all documents which in whole or in part contain any trade secrets or
confidential information of the Company or its affiliates, which in any of these
cases are in his possession or under his control.
7. Noncompetition and Nonsolicitation. Executive agrees that throughout
the term of this Agreement, and for a period of two (2) years following the Date
of Termination of Executive's employment, Executive will not, directly or
indirectly, anywhere in the world:
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a. own, manage, operate, join, control, be employed by, render
services to, or participate in the ownership, management, operation or control
of or serve as advisor or consultant to, or otherwise be connected with in any
manner, whether as an officer, director, employee, partner, investor or
otherwise, in a business entity or undertaking which is then manufacturing or
developing products (either presently or at the Date of Termination) which
compete with the products that are marketed by the Company or its affiliates or
are under development by the Company or its affiliates as of the Date of
Termination; or
b. solicit or induce any employee of the Company or its
affiliates to leave his or her employment with the Company or its affiliates; or
c. solicit or request orders of goods or services which are
competitive with any goods or services provided by the Company or its affiliates
from any person or entity which is a customer of the Company or its affiliates.
Nothing in this Agreement shall be deemed to prohibit Executive from owning any
class of securities of any corporation if the securities are listed on a
national securities exchange or registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and traded in the over-the-counter market, if
Executive beneficially owns less than two percent (2%) of any class of
securities of such corporation.
8. Ownership of Created Works. Executive agrees that all concepts and
designs, inventions, ideas, discoveries, "know how", creations, works,
processes, methods and works of authorship created by Executive during the term
of this Agreement which relate directly or indirectly to the Company or the
business of the Company, shall be the exclusive property of the Company
(collectively, the "Created Works"). Executive shall promptly disclose to the
Company all Created Works. Executive hereby assigns all rights in the Created
Works, including without limitation, all patent rights, copyrights and trade
secret rights to the Company. Executive agrees that the Created Works shall be
considered "work for hire" under the United States Copyright Act. Executive will
not register any copyright or seek any patents covering any of the Created Works
in Executive's own name or any other name or assist others in doing so.
Executive will execute such assignments and other documents, take such other
action at the Company's reasonable request without payment of additional
consideration, as may be necessary or advisable to convey full ownership in the
Created Works to the Company and to protect the Company's interest therein.
Notice: Pursuant to Minn. Stat. 181.78, Executive is hereby notified that this
Section 8 does not apply to any invention for which no equipment, supplies,
facility or trade secret information of the Company was used and which was
developed entirely on Executive's own time, and (1) which does not relate (a)
directly to the business of the Company, or (b) to the Company's actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Executive or the Company.
9. Confidential Information. As used in this Agreement, the term
"Confidential Information" whether or not specifically identified as such, shall
include (i) all Created Works referred to in Section 8, (ii) all commercial,
technical, research, procedures, internal records and reports, books, files,
business methods, trade knowledge, proprietary rights and data, marketing
methods, trade secrets, ideas and know-how, financial information of the Company
or its affiliates, or uses or adaptations of the foregoing not generally known
publicly, and (iii) all confidential commercial, technical and financial
information of third parties which has been entrusted to the Company or its
affiliates. Unless otherwise agreed to in writing between the Company and
Executive, Executive shall not, either during or at any time after his
employment with the Company, divulge or use any Confidential Information other
than for the purpose of rendering services to the Company, and shall maintain
the security of all Confidential Information to which he is permitted access.
All records and other materials or copies thereof relating to the Company's
business which Executive shall prepare or use shall be and remain the sole
property of the Company and shall be promptly returned to the Company upon
termination of Executive's employment. Executive agrees to abide by the
Company's reasonable policies, as in effect from time to time, respecting
avoidance of interests conflicting with those of the Company.
10. Certain Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
a. "Cause" means:
(i) an act or acts of personal dishonesty purposely and
knowingly taken by Executive and intended to result in material personal
enrichment at the expense of the Company;
(ii) repeated violations of Executive's obligations to the
Company under Section 1, 8 or 9 of this Agreement which are demonstrably willful
and deliberate on Executive's part and which are not remedied in a reasonable
period of time after receipt of written notice from the Company; provided,
however, that no act or failure to act on Executive's part shall be considered
"willful and deliberate" unless Executive has acted or failed to act with an
absence of good faith and without a reasonable belief that Executive's action or
failure to act was in the best interest of the Company; or
(iii) Executive's conviction of a felony crime.
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b. "Change in Control" means the occurrence of any of the
following:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes a "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the Company's
then outstanding securities.
(ii) upon the approval by the Company's shareholders of (A) a
sale or disposition of all or substantially all of the Company's assets (in one
transaction or a series of transactions), (B) a plan of liquidation or
dissolution of the Company, or (C) a merger, consolidation or business
combination of the Company with or into another corporation where the Company is
not the surviving corporation and the board of directors of such surviving
corporation does not consist of a majority of individuals described in clauses
(A) or (B) or subparagraph (iii) below,
(iii) there ceases to be a majority of the Board of Directors
comprised of: (A) individuals who on the date hereof constituted the Board of
Directors of the Company; and (B) any new director(s) who subsequently is
elected or nominated for election by a majority of the directors who held such
office immediately prior to a Change in Control; provided, no change in the
composition of the Board of Directors shall be deemed a Change in Control unless
it is accompanied by one of the events referred to in clause (i) or (ii) above.
c. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
d. "Disability" means disability which, at least 26 weeks
after its commencement, is determined by a physician selected by the Company or
its insurers and acceptable to Executive or Executive's legal representative
(such agreement as to acceptability not to be withheld unreasonably) to be of
such a nature as to prevent Executive from performing the full-time performance
of Executive's duties hereunder.
e. "Good Reason" means any of the following occurs without
Executive's consent, and within thirty days after such occurrence the Executive
gives notice of his resignation as an officer and employee and member of the
Board of Directors of the Company, stating such occurrence as a reason for such
resignation:
(i) any reduction in Executive's base pay which, measured by
percentage, exceeds the average percentage reduction of base pay imposed at the
same time on other senior executives of the Company;
(ii) the assignment to Executive of any duties inconsistent
with Executive's status or position with the Company, or a substantial
diminution in the nature or status of Executive's responsibilities; or
(iii) the relocation of the Company's principal executive
offices to a location outside of the Minneapolis-St. Paul metropolitan area, or
the Company requiring Executive to be based anywhere other than the Company's
principal executive offices, except for required travel on the Company's
business to an extent substantially consistent with prior business travel
obligations.
11. General Provisions.
a. Successors; Assignment. This Agreement shall be binding
upon and inure to the benefit of the Company and its respective successors and
assigns, and any entity which purchases all or substantially all of the business
assets of the Company, and any such other entity shall be deemed "the Company"
hereunder.
b. Entire Agreement; Modifications. This Agreement constitutes
the entire agreement between the parties respecting the subject matter hereof,
and supersedes all prior negotiations or agreements with respect thereto,
whether written or oral, including without limitation the letter agreement dated
October 1, 1994, as amended September 24, 1999. No provision of this Agreement
may be modified or waived except by a written agreement signed by the parties
hereto.
c. Enforcement and Governing Law. The provisions of this
Agreement shall be regarded as divisible and separable. If any of said
provisions should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceablility of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the legal
relations of the parties hereto shall be determined in accordance with the laws
of the State of Minnesota.
d. Scope and Duration of Restrictions. The parties acknowledge
that the type and period of restrictions in this Agreement concerning
confidentiality, non-solicitation and non-competition are fair and reasonable
and are reasonably required for the protection of the Company. If any such
restrictions are hereafter construed by a court of competent jurisdiction to be
invalid or unenforceable because of the duration of such provision, the scope of
the activity prohibited or the geographic area
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covered thereby, the parties agree that the court making such determination
should and shall have the power to reduce the duration, scope and area covered
by such provision to the extent necessary to render such provision enforceable,
and in its reduced form such provision shall then be enforceable.
e. Injunctive Relief. The parties recognize and agree that
irreparable damage will result to the Company if Executive violates or threatens
to violate the terms of this Agreement, and that the damages resulting from any
such violation or threatened violation would be difficult to prove and quantify.
The parties therefore agree that, in the event of a breach or threatened breach
of this Agreement, the Company shall be entitled to injunctive relief (without
being required to post bond or other security) to enforce the covenant, in
addition to all other remedies in law or in equity available to it. Neither
party shall be entitled to an award of attorneys fees in bringing or defending a
legal action relating to this Agreement.
f. Waiver. No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party, shall be deemed a waiver of any
similar or dissimilar provisions or conditions at the same time or any prior or
subsequent time.
g. Notices. Notices pursuant to this Agreement shall be in
writing and shall be deemed given when received and, if mailed, shall be mailed
by United States registered or certified mail, return receipt requested, postage
prepaid. If to the Company, notices shall be addressed to Check Technology
Corporation, Attn: Chief Financial Officer, 112500 Whitewater Drive, Minnetonka,
Minnesota 55343, with a copy to each member of the Board of Directors and to
Lindquist & Vennum, Attn: Richard D. McNeil, 4200 IDS Center, Minneapolis,
Minnesota 55402, and if to the Executive to his last known address appearing in
the Company's records, with a copy to Elinor Rosenstein, P.A., 3912 IDS Center,
Minneapolis, Minnesota 55402. Either party hereto may specify another address
for notice purposes.
In Witness Whereof, this Agreement has been executed as of the date
first written above.
EXECUTIVE CHECK TECHNOLOGY, INC.
/s/ Jay A. Herman By:/s/ Thomas H. Garrett III
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Jay A. Herman Its: Secretary
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