UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter ended September 30, 1998
Commission File Number 0-19943
PROTOCOL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Oregon 93-0913130
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8500 SW Creekside Place, Beaverton, OR 97008
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(Address of principal executive offices) (Zip Code)
(503) 526-8500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of common stock outstanding as of
October 30, 1998:
8,335,799 shares, $.01 par value per share
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<PAGE>2
PROTOCOL SYSTEMS, INC.
Index to Form 10-Q
PART I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Condensed Consolidated Statements of
Operations for the three and nine months
ended September 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
PART II OTHER INFORMATION
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Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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<PAGE>3
<TABLE>
PROTOCOL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $17,530 $17,158 $49,410 $46,460
Cost of sales 8,052 8,095 24,052 22,824
------- ------- ------- -------
Gross profit 9,478 9,063 25,358 23,636
Operating expenses:
Research and development
expenses 2,514 2,244 6,425 6,408
Selling, general and
Administrative expenses 5,759 5,292 16,967 15,158
Relocation costs 2,246 - 2,246 -
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Total operating expenses 10,519 7,536 25,638 21,566
------- ------- ------- -------
Income (loss) from
operations (1,041) 1,527 (280) 2,070
Other income 225 291 718 803
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Income (loss) before
income taxes (816) 1,818 438 2,873
Provision (benefit) for income
taxes (259) 441 92 747
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Net income (loss) $ (557) $ 1,377 $ 346 $ 2,126
======= ======= ======= =======
Comprehensive income (loss) $ (372) $ 1,448 $ 520 $ 2,038
======= ======= ======= =======
Basic earnings (loss)
per share $ (0.07) $ 0.15 $ 0.04 $ 0.24
======= ======= ======= =======
Diluted earnings (loss)
per share $ (0.07) $ 0.15 $ 0.04 $ 0.23
======= ======= ======= =======
Weighted average number of shares
used in the computation of:
Basic earnings per share 8,389 8,887 8,562 8,838
Diluted earnings per share 8,389 9,337 8,886 9,210
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>4
<TABLE>
PROTOCOL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,458 $12,257
Short-term investments 9,304 6,524
Accounts receivable - net 16,555 16,106
Inventories 13,160 13,507
Deferred taxes 1,443 1,474
Prepaid expenses and other 410 276
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Total current assets 47,330 50,144
Long-term investments 4,711 6,789
Property and equipment - net 3,968 4,575
Other assets 2,125 2,247
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$58,134 $63,755
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,293 $ 2,806
Accrued salaries, wages and related liabilities 2,581 2,375
Other accrued liabilities 1,209 606
Income taxes payable (384) 676
Reserve for warranties 1,136 1,084
Deferred revenue and customer deposits 117 122
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Total current liabilities 7,952 7,669
Deferred taxes 413 408
Shareholders' equity:
Common stock, $.01 par value. Authorized 30,000 shares;
issued and outstanding 8,313 at 1998 and 8,935 at 1997 83 89
Additional paid-in capital 29,088 35,414
Unearned compensation (96) -
Accumulated other comprehensive income:
Unrealized holding gain on investments 71 33
Foreign currency translation adjustment 200 65
Retained earnings 20,423 20,077
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Total shareholders' equity 49,769 55,678
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$58,134 $63,755
======= =======
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>5
<TABLE>
PROTOCOL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended September 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 346 $ 2,126
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,743 1,813
Write-off of assets 719 -
Amortization of bond premium 77 267
Provision for deferred taxes 23 (9)
Other non-cash items 96 -
Increase (decrease) in cash resulting from
changes in:
Accounts receivable (409) (129)
Inventories 391 (879)
Prepaid expenses and other assets (113) (11)
Accounts payable and accrued liabilities 1,084 (22)
Income taxes payable (1,038) 358
Reserve for warranties 52 3
Deferred revenue and customer deposits (5) (37)
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Net cash provided by operating activities 2,966 3,480
Cash flows from investing activities:
Purchase of investments (8,855) (12,024)
Proceeds from maturity of investments 8,115 14,715
Acquisition of property and equipment (1,410) (1,722)
Capitalization of software development costs (191) -
Acquisition of intangible assets (74) (10)
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Net cash provided by (used in) investing activities (2,415) 959
Cash flows from financing activities:
Proceeds from exercise of stock options
and stock purchase plan 974 888
Repurchase of common stock (7,498) -
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Net cash provided by (used in) financing activities (6,524) 888
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Effect of exchange rates on cash and cash equivalents 174 (24)
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Net increase (decrease) in cash and cash equivalents (5,799) 5,303
Cash and cash equivalents at beginning of period 12,257 6,903
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Cash and cash equivalents at end of period $ 6,458 $12,206
======= =======
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 1,024 $ 295
Supplemental schedule of noncash transactions:
Increase in investment in Protocol Medical Systems Ltd.
due to release of compensatory shares of common
stock from escrow $ 91 $ 91
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>6
PROTOCOL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit and in conformity with generally
accepted accounting principles for interim financial information.
Accordingly, certain financial information and footnotes have been omitted or
condensed. In the opinion of management, the condensed consolidated financial
statements include all necessary adjustments (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year
ended December 31, 1997. The results of operations for the interim period
shown in this report are not necessarily indicative of results for any future
interim period or the entire fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out basis (FIFO). The components of inventories are as
follows:
September 30, December 31,
(in thousands) 1998 1997
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Raw materials $ 4,949 $ 5,521
Work in process 2,575 2,460
Finished goods 3,306 3,569
Demonstration instruments 2,330 1,957
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Total inventories $13,160 $13,507
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PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and includes the following:
September 30, December 31,
(in thousands) 1998 1997
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Equipment $11,920 $11,732
Furniture and fixtures 1,886 1,757
Leasehold improvements 252 683
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14,058 14,172
Less accumulated depreciation and amortization 10,090 9,597
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Property and equipment - net $ 3,968 $ 4,575
====== ======
<PAGE>7
INCOME TAXES
The provision for income taxes has been recorded based on the current estimate
of the Company's annual effective tax rate. This rate differs from the
Federal statutory rate primarily because of the provision for state income
taxes, the benefit of the Company's research and experimentation tax credits
and tax-exempt interest income earned on investments. See Management's
Discussion and Analysis of Financial Condition and Results of Operations for
further discussion of income taxes.
BASIC AND DILUTED EARNINGS PER SHARE
In accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" both basic earnings per share
and diluted earnings per share are presented. Basic earnings per share is
computed using the weighted average number of common shares outstanding and
diluted earnings per share is computed using the weighted average number of
common shares outstanding and dilutive potential common shares assumed to be
outstanding during the period using the treasury stock method. Dilutive
potential common shares consist of options to purchase common stock.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income" which
establishes standards for the reporting and display of comprehensive income
and its components. The following is a reconciliation of net income to
comprehensive income:
<TABLE>
Three months ended September 30, Nine months ended September 30,
(in thousands) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net income (loss) $ (557) $ 1,377 $ 346 $ 2,126
Other comprehensive
income, net of tax
Foreign currency
translation adjustments 147 55 136 (88)
Unrealized holding
gain arising during
the period 38 16 38 -
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Other comprehensive
income (loss) 185 71 174 (88)
------- ------- ------- -------
Comprehensive income (loss) $ (372) $ 1,448 $ 520 $ 2,038
======= ======= ======= =======
</TABLE>
<PAGE>8
RELOCATION OF SUBSIDIARY
During the third quarter of 1998 the Company relocated its wholly-owned
subsidiary, Pryon Corporation, from Menomonee Falls, Wisconsin to the
Company's Beaverton, Oregon facility in order to improve operating
efficiencies. This relocation included moving all Pryon operations including
key management personnel and was complete by the end of the third quarter of
1998. The relocation resulted in a reduction of 56 employees from
manufacturing, engineering and administrative functions.
The Company incurred $2.2 million ($1.8 million after tax) in relocation costs
in the third quarter of 1998. These costs include employee severance benefits,
lease and other contract terminations, key employee, inventory and equipment
relocation costs as well as a write-off of $482,000 of fixed assets and
capitalized software development costs related to assets that will not be
utilized by the Company's Beaverton facility. At the end of the third quarter
of 1998, relocation costs of $779,000 were not disbursed. The Company
anticipates that these remaining balances will be expended by the end of 1998,
except for amounts related to longer term lease and other contract
terminations.
PENDING LITIGATION
In 1990, the Company entered into a development and supply agreement with
Gensia, Inc. to develop and supply a closed-loop drug delivery and monitoring
device ("GenESA device"). This agreement was amended in December 1997. Gensia
began shipments of the GenESA device to Europe in 1995 and received FDA
clearance to market the product in the United States in the third quarter of
1997. In April 1998, the Company was informed that Gensia plans no additional
purchases of the GenESA device under the supply agreement with the Company
which provided for the purchase of devices through the year 2002. In July
1998, the Company commenced litigation against Gensia Sicor, Inc. and Gensia
Automedics alleging that they have breached the supply agreement and is
seeking damages of approximately $10 million.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
Statement changes the way public companies report segment information in
annual financial statements and also requires those companies to report
selected segment information in interim financial reports to shareholders.
The Company plans to adopt the statement for the quarter ending December 31,
1998.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2, "Software
Revenue Recognition", which supercedes SOP 91-1. The Company adopted SOP 97-2
for software transactions entered into beginning January 1, 1998. SOP 97-2
generally requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values of
the elements. The revenue allocated to software products generally is
recognized upon delivery of the products. The revenue allocated to post-
contract customer support generally is recognized ratably over the term of the
support and revenue allocated to service elements generally is recognized as
the services are performed. The impact on the Company's Consolidated Financial
Statements is not material.
<PAGE>9
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not expect SFAS No. 133 to have a material
impact on its Consolidated Financial Statements.
<PAGE>10
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Third Quarter 1998 vs. Third Quarter 1997
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Sales. Sales for the third quarter of 1998 increased 2.2% to $17.5 million
from $17.2 million for the third quarter of 1997.
U.S. military revenues increased 360.9% to $2.8 million (16.0% of total sales)
in the third quarter of 1998 from $609,000(3.5% of total sales) in the third
quarter of 1997. Several large military orders were shipped during the third
quarter of 1998.
Domestic sales, excluding military revenues and Original Equipment
Manufacturer ("OEM") sales of Pryon OEM products and GenESA devices, decreased
11.4% to $9.8 million (56.1% of total sales) in the third quarter of 1998 from
$11.1 million (64.6% of total sales) in the third quarter of 1997. The
decrease in domestic sales in the third quarter of 1998 was primarily due to a
reduction in the average sales price of monitors caused by fewer highly
configured monitors. This reduction was partially offset by an increase in
the unit sales of Flexible Monitoring systems including the Acuity central
workstation.
International sales, excluding international OEM sales of Pryon OEM products
and GenESA devices, decreased 6.6% to $3.2 million (18.3% of total sales) in
the third quarter of 1998 from $3.4 million (20.0% of total sales) in the
third quarter of 1997. This decrease in international sales was principally
due to the continuing strength of the U.S. dollar against foreign currencies
and soft economic conditions particularly in Europe and Asia.
OEM sales decreased 16.7% to $1.7 million (9.7% of total sales) in the third
quarter of 1998 from $2.0 million (11.8% of total sales) in the third quarter
of 1997 primarily due to a $317,000 decrease in sales to certain of its OEM
customers.
Gross profit. As a percentage of sales, gross profit increased to 54.1% in
the third quarter of 1998 from 52.8% in the third quarter of 1997. The
increase in gross margin was primarily due to improved manufacturing
efficiencies in the third quarter of 1998.
Research and development. Research and development expenses increased 12.0%
to $2.5 million in the third quarter of 1998 from $2.2 million in the third
quarter of 1997. The increase in research and development expenses resulted
primarily from the write-off of an engineering software license and related
fixed assets as the Company no longer intends use these assets in future
product development. As a percentage of sales, research and development
expenses increased to 14.3% in the third quarter of 1998 from 13.1% in the
third quarter of 1997.
<PAGE>11
Selling, general and administrative. Selling, general and administrative
expenses increased 8.8% to $5.8 million in the third quarter of 1998 from $5.3
million in the third quarter of 1997. This increase resulted primarily from
the establishment of direct sales organizations in Germany and France in 1998
and an increase in the number of direct sales representatives and clinical
application specialists employed by the Company to expand the field sales and
service operations. As a percentage of sales, selling, general and
administrative expenses increased to 32.9% in the third quarter of 1998 from
30.8% in the third quarter of 1997.
Relocation costs. In the third quarter of 1998, the Company incurred $2.2
million ($1.8 million after tax) of relocation costs related to the relocation
of the operations of its Pryon subsidiary from Wisconsin to Oregon. These
costs include employee severance, write-off of assets that will not be
utilized in Oregon, lease and other contract terminations, and costs to
relocate key employees as well as inventory and equipment. The relocation
resulted in a reduction of 56 employees from manufacturing, engineering and
administrative functions.
Other income. Other income decreased 22.8% to $225,000 in the third quarter
of 1998 from $291,000 in the third quarter of 1997 primarily due to a decrease
in interest income. Cash and investments decreased as the Company repurchased
common stock during 1998 under a previously announced buy-back program.
Provision for (benefit from) income taxes. The benefit from income taxes was
$259,000 in the third quarter of 1998 compared to a provision for income taxes
of $441,000 in the third quarter of 1997. The annual effective tax rates used
in 1998 and 1997 were 21% and 26%, respectively, the decrease being primarily
due to greater expected percentage benefits from tax-exempt interest and
research and experimentation credits. Tax rates in the third quarters were
also beneficially impacted by the effects of a reduction of the tax rates used
in the first six months of each year, resulting in effective tax rates of
31.7% and 24.3% in the third quarter of 1998 and 1997, respectively.
Net income (loss). The net loss in the third quarter of 1998 was $557,000 or
$0.07 per diluted share compared to net income of $1.4 million or $0.15 per
diluted share in the third quarter of 1997. Excluding costs associated with
the relocation of Pryon, net income for the third quarter of 1998 would have
been $1.2 million or $0.15 per diluted share.
The Company expects net income in 1998, excluding costs associated with the
relocation of Pryon, to remain relatively flat compared to 1997 as a result of
increases in its marketing and sales efforts in 1998, including increases in
the number of direct sales representatives, clinical application specialists,
field service engineers, and the establishment of direct sales organizations
in France and Germany during 1998.
Net income exclusive of relocation costs is a non-GAAP measure and investors
should not rely on it as a substitute for GAAP measures. Because the
relocation of the Pryon subsidiary was unusual in nature, management believes
that a measure of net income excluding the relocation is meaningful and useful
to investors as it provides an alternative basis with which management and
investors can assess the profitability of the Company's core operations.
<PAGE>12
Nine Months Ended September 30, 1998 vs. Nine Months Ended September 30, 1997
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Sales. Sales for the first nine months of 1998 increased 6.3% to $49.4
million from $46.5 million for the first nine months of 1997.
U.S. military revenues increased 221.3% to $6.5 million (13.2% of total sales)
in the first nine months of 1998 from $2.0 million (4.4% of total sales) in
the first nine months of 1997 due to several large military orders shipped
during the first nine months of 1998.
Domestic sales, excluding military revenues and Original Equipment
Manufacturer ("OEM") sales of Pryon OEM products and GenESA devices, increased
5.5% to $26.7 million (54.1% of total sales) in the first nine months of 1998
from $25.3 million (54.5% of total sales) in the first nine months of 1997.
The growth in domestic sales was primarily due to an increase in the unit
sales of Flexible Monitoring systems including the Acuity central stations.
International sales, excluding international OEM sales of Pryon OEM products
and GenESA devices, decreased 17.8% to $10.7 million (21.8% of total sales) in
the first nine months of 1998 from $13.1 million (28.1% of total sales) in the
first nine months of 1997. This decrease in international sales was
principally due to the continuing strength of the U.S. dollar against foreign
currencies and soft economic conditions particularly in Europe and Asia.
OEM sales of Pryon OEM products and GenESA devices decreased 10.5% to $5.4
million (10.9% of total sales) in the first nine months of 1998 from $6.0
million (12.9% of total sales) in the first nine months of 1997. Pryon OEM
sales decreased by $1.1 million primarily as a result of a decrease in sales
to certain of its OEM customers. This decrease was partially offset by an
increase of $437,000 in sales of the GenESA device to Gensia Automedics, Inc.
Gensia received clearance from the Food and Drug Administration (FDA) to
market the GenESA device in the United States in 1997. In April 1998, the
Company was informed that Gensia plans no additional purchases of the GenESA
device under a supply agreement with the Company which provided for the
purchase of devices through the year 2002. In July 1998, the Company
commenced litigation against Gensia Sicor, Inc. and Gensia Automedics alleging
that they have breached the supply agreement and seeking damages of
approximately $10 million.
Gross profit. As a percentage of sales, gross profit increased slightly to
51.3% in the first nine months of 1998 from 50.9% in the first nine months of
1997 primarily due to an improvement in gross margins of Pryon OEM products.
Research and development. Research and development expenses remained level at
$6.4 million in the first nine months of 1998 compared to the first nine
months of 1997. As a percentage of sales, research and development expenses
decreased to 13.0% in the first nine months of 1998 from 13.8% in the first
nine months of 1997.
Selling, general and administrative. Selling, general and administrative
expenses increased 11.9% to $17.0 million in the first nine months of 1998
compared to $15.2 million in the first nine months of 1997. This increase
resulted primarily from the establishment of direct sales organizations in
Germany and France in 1998 and an increase in the number of direct sales
representatives and clinical application specialists employed by the Company
to expand the field sales and service operations. As a percentage of sales,
selling, general and administrative expenses increased to 34.3% in the first
nine months of 1998 from 32.6% in the first nine months of 1997.
<PAGE>13
Relocation costs. In the third quarter of 1998, the Company incurred $2.2
million ($1.8 million after tax) of relocation costs related to the relocation
of the operations of its Pryon subsidiary from Wisconsin to Oregon. These
costs include employee severance, write-off of assets that will not be
utilized in Oregon, lease and other contract terminations, and costs to
relocate key employees as well as inventory and equipment. The relocation
resulted in a reduction of 56 employees from manufacturing, engineering and
administrative functions.
Other income. Other income decreased 10.6% to $718,000 in the first nine
months of 1998 from $803,000 in the first nine months of 1997 as interest
income decreased due to a reduction in the cash and investments balance as the
Company repurchased shares of common stock in 1998. This decrease was
partially offset by a higher rate of return on investments in 1998.
Provision for income taxes. The provision for income taxes decreased to
$92,000 in the first nine months of 1998 from $747,000 in the first nine
months of 1997, representing effective tax rates of 21.0% and 26.0%,
respectively. The effective tax rate, which reflects the estimate of the
Company's annual effective tax rate, decreased primarily due to a reduction in
the estimate of net taxable income for 1998 and the corresponding greater
percentage benefits from tax-exempt interest and research and experimentation
credits.
Net income. Net income decreased 83.7% to $346,000 or $0.04 per diluted share
in first nine months of 1998 from $2.1 million or $0.23 per diluted share in
the first nine months of 1997 primarily due to costs associated with the
relocation of the Pryon subsidiary. Excluding the costs associated with the
relocation of the Pryon subsidiary, net income for the first nine months of
1998 would have been $2.1 million or $0.24 per diluted share.
The Company expects net income in 1998, excluding costs associated with the
relocation of Pryon, to remain relatively flat compared to 1997 as a result of
increases in its marketing and sales efforts in 1998, including increases in
the number of direct sales representatives, clinical application specialists,
field service engineers, and the establishment of direct sales organizations
in France and Germany during 1998.
Net income exclusive of relocation costs is a non-GAAP measure and investors
should not rely on it as a substitute for GAAP measures. Because the
relocation of the Pryon subsidiary was unusual in nature, management believes
that a measure of net income excluding the relocation is meaningful and useful
to investors as it provides an alternative basis with which management and
investors can assess the profitability of the Company's core operations.
<PAGE>14
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained its strong financial position as of September 30, 1998
with working capital balances of $39.4 million and a current ratio of 6.0:1 as
compared to working capital of $42.5 million and a current ratio of 6.5:1 at
December 31, 1997. Cash flow from operating activities for the first nine
months of 1998 was $3.0 million as compared to cash flow from operating
activities of $3.5 million for the first nine months of 1997. In January 1998
the Company's Board of Directors adopted a resolution authorizing the
repurchase of up to 1,000,000 outstanding shares of the Company's common stock
over a 12 month period. During the first nine months of 1998, the Company
repurchased 822,000 shares. Management believes that current cash and
investment balances and future cash flows from operations will be sufficient
to meet the Company's liquidity and capital needs for the foreseeable future.
YEAR 2000 ISSUES
The Company is in the process of assessing its computer software programs and
operating systems used in its internal operations, including applications used
in its financial, manufacturing equipment, and engineering design tools to
determine its readiness for the Year 2000. The inability of computer software
programs and operating systems to accurately recognize, interpret and process
date codes designating the year 2000 and beyond could result in a system
failure or miscalculations which could have a material impact on the Company's
ability to conduct its business. The Company estimates that its internal
assessment of its computer software programs and operating systems is
approximately 50% complete and will be completed in the first quarter of 1999.
Costs incurred by the Company to date in its assessment of internal systems
have not been material, and future costs to complete this assessment are not
anticipated to be material.
The Company has completed its assessment of Year 2000 compliance of each of
its product lines. All configurations of instruments (instruments include
Propaq and Propaq Encore monitors and all options) and their component parts
have been tested and are Year 2000 compliant. Acuity software versions
3.15.05 and all Networked Acuity software versions have been tested and are
Year 2000 compliant. Acuity software versions prior to 3.15.05 have a minor
connectivity issue related to the Year 2000 between the Acuity central station
and the monitors that can be fixed through an upgrade to the Acuity system
provided by the Company. The operation of the Acuity system and the monitor
in the year 2000 and beyond should not be adversely affected by this
connectivity issue.
The Company has also contacted most critical suppliers of products and
services to determine that the suppliers' operations and the products and
services they provide are Year 2000 compliant. The Company has received
responses from approximately 70% of the suppliers contacted, all of which have
indicated that their products and operations either are, or expect to be, Year
2000 compliant. The Company will continue to follow up with suppliers who
have not yet responded to determine if there are any critical suppliers who
may not be Year 2000 compliant.
<PAGE>15
Based on its assessments to date, the Company believes it will not experience
any material disruption as a result of Year 2000 issues in its computer
software programs and other systems used in its operations. However, there
can be no assurances that unanticipated Year 2000 issues will not have a
material adverse effect on the Company's business, financial condition or
results of operations. Furthermore, there can be no assurance that Year 2000
issues of certain critical third party suppliers, including those supplying
electricity, water or telephone service will not experience difficulties
resulting in the disruption of service or delivery of supplies to the Company,
which could adversely affect the Company's business, financial condition or
results of operations. The Company has not developed contingency plans for
dealing with the most reasonably likely worst case scenario that would occur
in the event that the Company and critical third parties fail to complete
efforts to achieve Year 2000 compliance on a timely basis, and such a scenario
has not been clearly identified. The Company intends to determine whether to
develop a contingency plan by the end of the first quarter of 1999.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains statements, including statements regarding the
Company's expectations as to net income for 1998, the anticipated operating
efficiencies associated with the relocation of Pryon Corporation, and the
anticipated effects of the Year 2000 issue, that are forward-looking
statements within the meaning of the Securities Litigation Reform Act of 1995
that are based on current expectations, estimates and projections about the
Company's business, management's beliefs and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates" and variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements due to numerous factors, including, but not limited
to factors that could cause unforeseen increases or decreases in the expenses
expected to be incurred in connection with the operations of the Pryon
subsidiary in Oregon, the Company's increased marketing and sales efforts in
1998, the establishment of direct sales organizations in France and Germany
during 1998, the Company's ability to identify and remediate Year 2000 issues
or the reliability of third party assessments and certifications relating to
Year 2000 issues. In addition, such statements could be affected by other
factors discussed in this Quarterly Report and from time to time in the
Company's other Securities and Exchange Commission filings and reports and by
general industry and market conditions and growth rates, and general domestic
and international economic conditions.
<PAGE>16
The Company's quarterly operating results have fluctuated in the past and may
continue to fluctuate in the future depending on factors such as increased
competition, timing of new product announcements, pricing changes by the
Company or its competitors, length of sales cycles, market acceptance or
delays in the introduction of new products or enhanced versions of existing
products, timing of significant orders, regulatory approval requirements,
product mix and economic factors and conditions generally and in the market
for the Company's products specifically. In particular, the Company's
quarterly operating results have fluctuated as a result of the unpredictable
size and timing of military patient monitoring equipment procurements, and
seasonal or other changes in customer buying patterns. A substantial portion
of the Company's revenue in each quarter results from orders booked in that
quarter. Accordingly, revenue from quarter to quarter is difficult to
forecast. The Company's expense levels are based, in part, on its
expectations as to future revenue. If revenue levels are below expectations,
operating results are likely to be adversely affected. In particular, net
income may be disproportionately affected by a reduction in revenue because
only a small portion of expenses vary with revenue. Results of operations in
any period should not be considered indicative of the result to be expected
for any future period, and fluctuations in operating results may also result
in fluctuations in the price of the Company's common stock. No assurance can
be given that the Company will be able to grow in future periods or that its
operations will remain profitable.
<PAGE>17
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the quarter ended September 30, 1998, the Company sold securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act") upon the exercise of certain stock options granted under the
Company's stock option plans. An aggregate of 15,519 shares of Common Stock
were issued at an exercise prices ranging from $1.32 to $6.00. These
transactions were effected in reliance upon the exemption from registration
under the Securities Act provided by Rule 701 promulgated by the Securities
and Exchange Commission pursuant to authority granted under Section 3 (b) of
the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Sublease between NIKE, Inc. and Protocol Systems, Inc.
dated August 13, 1998
10.2 Executive Employment Agreement between Protocol Systems,
Inc. and Allen L. Oyler dated July 1, 1998
10.3 Executive Employment Agreement between Protocol Systems,
Inc. and Carl P. Hollstein dated July 1, 1998
10.4 Executive Employment Agreement between Protocol Systems,
Inc. and Craig M. Swanson dated July 1, 1998
10.5 Executive Employment Agreement between Protocol Systems,
Inc. and James P. Fee dated July 1, 1998
10.6 Executive Employment Agreement between Protocol Systems,
Inc. and James B. Moon dated July 1, 1998
10.7 Executive Employment Agreement between Protocol Systems,
Inc. and James P. Welch dated July 1, 1998
10.8 Executive Employment Agreement between Protocol Systems,
Inc. and Richard L. Roa dated July 1, 1998
10.9 Executive Employment Agreement between Protocol Systems,
Inc. and Donald M. Abbey dated July 1, 1998
27.1 Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter for which
this report is filed.
<PAGE>18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROTOCOL SYSTEMS, INC.
(Registrant)
Date: November 12, 1998 By /s/ David F. Bolender
---------------------
David F. Bolender
Chief Executive Officer
and Chairman of the
Board of Directors
By /s/ Craig M. Swanson
---------------------
Craig M. Swanson
Vice-President and
Chief Financial Officer
SUBLEASE
1. PARTIES
This Sublease is entered into this 13th day of August, 1998, by and
between NIKE, Sublessor, and Protocol Systems, Inc., Sublessee, as a
Sublease under the Master Lease dated December 13, 1990, as amended by
documents dated 12/3/92 and 2/13/96, entered into by NIKE as Lessor,
and Sublessor under this Sublease as Lessee; a copy of the Master is
attached hereto as Exhibit 'A'.
2. PROVISIONS CONSTITUTING SUBLEASE
A. This Sublease is subject to all of the terms and conditions of
the Master Lease in Exhibit 'A' and Sublessee shall assume and
perform the obligations of the Lessee in said Master Lease, to the
extent said terms and conditions are applicable to the Premises
subleased pursuant to this Sublease. Sublessee shall not commit or
permit to be committed on the Premises any act or omission which
shall violate any term or conditions of the Master Lease. In the
event of termination of Sublessor's interest as Lessee under the
Master Lease for any reason, then this Sublease shall terminate
coincidentally therewith without any liability of Sublessor to
Sublessee.
B. All of the terms and conditions contained in the Master Lease
are incorporated herein except for paragraphs 1, 2, 3, 4A, 4B, 29
and 30 as terms and conditions of this Sublease (with each reference
therein to Lessor and Lessee to be deemed to refer to Sublessor and
Sublessee) and along with all of the following paragraphs set out in
this Sublease, shall be complete terms and conditions of this
Sublease.
3. PREMISES
Sublessor leases to Sublessee and Sublessee hires from Sublessor
the following described Premises together with the appurtenances,
situated in the City of Beaverton, County of Washington, State of
Oregon, commonly known and described as 8605 SW Creekside Place, and
consisting of approximately 14,000 sq. feet in southwest portion of
building consisting of portions of the first and second floors shown on
the drawing attached as Exhibit B.
4. RENTAL
Sublessee shall pay to Sublessor as rent for the Premises in
advance on the first day of calendar month of the term of this Sublease
without deduction, offset, prior notice or demand, in lawful money of
the United States the sum of thirteen thousand five hundred and eighty
dollars ($13,580.00). If the commencement date is not the first of the
month, or if the Sublease termination date is not the last day of the
month, a prorata monthly installment shall be paid at the then current
rate for the fractional month during which the Sublease commences
and/or terminates. Receipt of $6,133.00 is hereby acknowledged for
rental for the first partial month (14/31), and the additional amount
of N/A as non-interest bearing security for performance under this
Sublease. In this event, Sublessee has performed all of the terms and
conditions of this Sublease throughout the term, upon Sublessee
vacating the Premises, the amount paid as a security deposit shall be
returned to Sublessee after first deducting any sums owing to
Sublessor. Monthly payment includes full cost of physical space and
proportionate share of common area charges; Sublessee to pay all
directly billed utility charges. The rent component is the sum of
$10,640 per month (computed at the rate of $.76 per rentable square
foot) and CAM charges of $2,940 per month (computed at the rate of .21
per rentable square foot per month).
5. TERM
A. The term of this Sublease shall be for a period of approximately
eight (8) months, commencing on August 17, 1998, and ending on March
31, 1999.
B. In the event Sublessor is unable to deliver possession of the
Premises at the commencement of the term, Sublessor shall not be
liable for any damage caused thereby, nor shall this Sublease be
void or voidable but Sublessee shall not be liable for rent until
such time as Sublessor offers to deliver possession of the Premises
to Sublessee, but the term hereof shall not be extended by such
delay. If Sublessee, with Sublessor's consent, takes possession
prior to commencement of the term, Sublessee shall do so subject to
all covenants and conditions hereof and shall pay rent for the
period ending with the commencement of the term at the same rental
as that prescribed for the first month of the term prorated at the
rate of 1/30th thereof per day.
6. USE
Sublessee shall use the Premises for general office and for no
other purpose without written consent of Sublessor.
7. NOTICES
All notices or demands of any kind required or desired to be given by
Sublessor or Sublessee hereunder shall be in writing and shall be in
the United States mail, certified and registered, postage prepaid,
addressed to the Sublessor, or Sublessee, respectively, at the address
set forth after their signatures at the end of this Sublease.
Addresses of the parties may be changed by notice as provided herein.
Notices may also be sent by private courier service or facsimile
transmission and all notices shall be effective when received during
business hours. Notice addresses are as follows: Sublessor: Jim
Robison, Director of Administration Services, NIKE, Inc., One Bowerman
Drive, Beaverton, OR 97005-6453; FAX (503) 671-4715; Sublessee: 8500
S.W. Creekside Place Beaverton, OR 97008, Attn: Craig Swanson, Vice
President of Finance, FAX (503) 526-4299. All rent and other payments
due under this Sublease or the Master Lease shall be made to Sublessor
at the same address.
8. ACCESS TO TELEPHONE ROOM
Sublessee shall be entitled to access and use of the central
telephone room serving the Premises for installation of its telephone
switching equipment, such access and installation to be done in a way
which does not interfere with use of such room and equipment by
Sublessor.
9. COMMON AREA MAINTENANCE CHARGES
Sublessee shall pay common area maintenance charges attributable
to the Subleased Premises which are currently $.21 per rentable square
foot per month and paid together with rent. Sublessee shall also pay
all utility charges billed to the Master Lease premises during the term
of the Sublease, so long as there are no other tenants occupying the
building.
10. ACCESS TO CARD KEY SYSTEM
Sublessee shall be given access to and use of the existing card
key security access system and shall be allowed to connect the system
to Sublessee's card key computer system. Sublessor's property
management personnel will be allowed access to the subleased premises
for purposes of inspection and repair.
11. PURCHASE OF PERSONAL PROPERTY
Sublessee agrees that upon execution of this Sublease, it shall
purchase those items of furniture listed on the attached Exhibit C from
Sublessor for the sum of $50,000, and such sum shall be paid upon
signing of this Sublease in addition to rent for the month of August.
Sublessor will give a bill of sale warranting its ownership of such
items, which Sublessee will accept AS IS with no warranties as to
condition.
12. EARLY POSSESSION
Sublessee may take possession of the Premises upon execution
hereof for purposes of doing work in preparation for occupancy. Such
early occupancy shall be subject to all terms and conditions of this
Sublease, except that rent will not commence until the date stated
herein.
13. Paragraphs 8 through 14 are attached hereto and made a part hereof
prior to the execution of the Lease.
SUBLESSOR: NIKE, INC. SUBLESSEE: PROTOCOL SYSTEMS, INC.
By: Tim Robinson By: Craig M. Swanson
Address: One Bowerman Drive Address: 8500 SW Creekside Place
Beaverton, OR 97005 Beaverton, OR 97008
The undersigned Landlord under the Master Lease attached as Exhibit
'A', hereby consents to the subletting of the Premises described herein
on the terms and conditions contained in this Sublease. This consent
shall apply only to the Sublease and shall not be deemed to be a
consent to any other Sublease.
Dated: September 11, 1998 Landlord:
By: Eileen Newkirk
Regional Manager
PS Business Parks, L.P.
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
ALLEN L. OYLER ("Executive")
12288 SW 131st Ave.
Tigard, Oregon 97223
DATE: July 1, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to
the Company in terms of the Executive's personal and professional career
and a foregoing of present and future career options by the Executive,
for all of which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 26 August 1993 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President,
Human Resources & Administration, and the Executive accepts such employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b) misrepresentation, (c) theft or embezzlement of the Company assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 TERMINATION WITHOUT CAUSE. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition
to any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to one (1) year's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1
then, in addition to the payments specified in said Section, the Company
shall pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the
annual bonus or annual incentive, if any, to which the Executive
would otherwise have become entitled under any Company bonus or
incentive plan in effect at the time of termination of this
Agreement had the Executive remained continuously employed for the
full fiscal year in which termination occurred and continued to
perform his duties in the same manner as they were performed
immediately prior to termination; provided, however, that such
bonus or incentive amount shall be pro-rated to the date of
termination. The amount payable pursuant to this Section 4.3.2.1
shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the
Executive remained employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to six (6) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 PROPRIETARY INFORMATION. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 OTHER OBLIGATIONS. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a
party if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or
6.1.1.3 the sale of all or substantially all of the assets of
the Company to any person or entity which is not a subsidiary of
the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the
Company for any reason other than for Cause, as Cause is defined in
Section 4.2 of this Agreement.
6.1.2.2.Termination of employment with the Company by the
Executive pursuant to Section 6.2 of this Article 6. A Change of
Control Termination shall not, however, include termination by
reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, which has the
effect of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base
Salary as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be
based anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue
Code of 1986, or to the corresponding section of such Code, as from time
to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a
termination pursuant to Section 6.2, without further action by the
Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) two (2) times
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained
with the Company based on the Company's actual performance, for the
fiscal year in which termination occurs, whichever is greater. The
amount provided by this Section 6.2.2 shall be earned and payable on the
date that is fifteen (15) days after the date Executive would have been
paid an annual incentive bonus had he remained with the Company for the
fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2
shall be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control
shall constitute an excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and each
subsidiary, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is
taken to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled, including fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- -------------------------- ------------------------------
Allen L. Oyler David Bolender, Chairman & CEO
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
CARL P. HOLLSTEIN ("Executive")
10880 SW Avocet Court
Beaverton, OR 97007
DATE: July 1, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to
the Company in terms of the Executive's personal and professional career
and a foregoing of present and future career options by the Executive,
for all of which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 17 May 1993 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President,
Manufacturing, and the Executive accepts such employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b) misrepresentation, (c) theft or embezzlement of the Company assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 TERMINATION WITHOUT CAUSE. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition
to any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to one (1) year's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1
then, in addition to the payments specified in said Section, the Company
shall pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the
annual bonus or annual incentive, if any, to which the Executive
would otherwise have become entitled under any Company bonus or
incentive plan in effect at the time of termination of this
Agreement had the Executive remained continuously employed for the
full fiscal year in which termination occurred and continued to
perform his duties in the same manner as they were performed
immediately prior to termination; provided, however, that such
bonus or incentive amount shall be pro-rated to the date of
termination. The amount payable pursuant to this Section 4.3.2.1
shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the
Executive remained employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to six (6) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 PROPRIETARY INFORMATION. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 OTHER OBLIGATIONS. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a
party if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or
6.1.1.3 the sale of all or substantially all of the assets of
the Company to any person or entity which is not a subsidiary of
the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the
Company for any reason other than for Cause, as Cause is defined in
Section 4.2 of this Agreement.
6.1.2.2.Termination of employment with the Company by the
Executive pursuant to Section 6.2 of this Article 6. A Change of
Control Termination shall not, however, include termination by
reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, which has the
effect of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base
Salary as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be
based anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue
Code of 1986, or to the corresponding section of such Code, as from time
to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a
termination pursuant to Section 6.2, without further action by the
Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) two (2) times
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained
with the Company based on the Company's actual performance, for the
fiscal year in which termination occurs, whichever is greater. The
amount provided by this Section 6.2.2 shall be earned and payable on the
date that is fifteen (15) days after the date Executive would have been
paid an annual incentive bonus had he remained with the Company for the
fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2
shall be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control
shall constitute an excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and each
subsidiary, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is
taken to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled, including fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- -------------------------- ------------------------------
Carl P. Hollstein David Bolender, Chairman & CEO
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
CRAIG M. SWANSON ("Executive")
17580 Tree Top Way
Lake Oswego, Oregon 97034
DATE: July 1, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to
the Company in terms of the Executive's personal and professional career
and a foregoing of present and future career options by the Executive,
for all of which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 3 October 1988 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President,
Finance & Chief Financial Officer, and the Executive accepts such employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b) misrepresentation, (c) theft or embezzlement of the Company assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 TERMINATION WITHOUT CAUSE. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition
to any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to one (1) year's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1
then, in addition to the payments specified in said Section, the Company
shall pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the
annual bonus or annual incentive, if any, to which the Executive
would otherwise have become entitled under any Company bonus or
incentive plan in effect at the time of termination of this
Agreement had the Executive remained continuously employed for the
full fiscal year in which termination occurred and continued to
perform his duties in the same manner as they were performed
immediately prior to termination; provided, however, that such
bonus or incentive amount shall be pro-rated to the date of
termination. The amount payable pursuant to this Section 4.3.2.1
shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the
Executive remained employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to six (6) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 PROPRIETARY INFORMATION. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 OTHER OBLIGATIONS. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a
party if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or
6.1.1.3 the sale of all or substantially all of the assets of
the Company to any person or entity which is not a subsidiary of
the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the
Company for any reason other than for Cause, as Cause is defined in
Section 4.2 of this Agreement.
6.1.2.2.Termination of employment with the Company by the
Executive pursuant to Section 6.2 of this Article 6. A Change of
Control Termination shall not, however, include termination by
reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, which has the
effect of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base
Salary as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be
based anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue
Code of 1986, or to the corresponding section of such Code, as from time
to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a
termination pursuant to Section 6.2, without further action by the
Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) two (2) times
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained
with the Company based on the Company's actual performance, for the
fiscal year in which termination occurs, whichever is greater. The
amount provided by this Section 6.2.2 shall be earned and payable on the
date that is fifteen (15) days after the date Executive would have been
paid an annual incentive bonus had he remained with the Company for the
fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2
shall be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control
shall constitute an excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and each
subsidiary, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is
taken to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled, including fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- -------------------------- ------------------------------
Craig M. Swanson David Bolender, Chairman & CEO
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
JAMES P. FEE ("Executive")
13645 NW Lariat Court
Portland, Oregon 97229
DATE: July 1, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to
the Company in terms of the Executive's personal and professional career
and a foregoing of present and future career options by the Executive,
for all of which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 31 October 1988 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President,
Sales, Service & Communications, and the Executive accepts such employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b) misrepresentation, (c) theft or embezzlement of the Company assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 TERMINATION WITHOUT CAUSE. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition
to any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to one (1) year's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1
then, in addition to the payments specified in said Section, the Company
shall pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the
annual bonus or annual incentive, if any, to which the Executive
would otherwise have become entitled under any Company bonus or
incentive plan in effect at the time of termination of this
Agreement had the Executive remained continuously employed for the
full fiscal year in which termination occurred and continued to
perform his duties in the same manner as they were performed
immediately prior to termination; provided, however, that such
bonus or incentive amount shall be pro-rated to the date of
termination. The amount payable pursuant to this Section 4.3.2.1
shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the
Executive remained employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to six (6) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 PROPRIETARY INFORMATION. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 OTHER OBLIGATIONS. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a
party if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or
6.1.1.3 the sale of all or substantially all of the assets of
the Company to any person or entity which is not a subsidiary of
the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the
Company for any reason other than for Cause, as Cause is defined in
Section 4.2 of this Agreement.
6.1.2.2.Termination of employment with the Company by the
Executive pursuant to Section 6.2 of this Article 6. A Change of
Control Termination shall not, however, include termination by
reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, which has the
effect of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base
Salary as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be
based anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue
Code of 1986, or to the corresponding section of such Code, as from time
to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a
termination pursuant to Section 6.2, without further action by the
Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) two (2) times
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained
with the Company based on the Company's actual performance, for the
fiscal year in which termination occurs, whichever is greater. The
amount provided by this Section 6.2.2 shall be earned and payable on the
date that is fifteen (15) days after the date Executive would have been
paid an annual incentive bonus had he remained with the Company for the
fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2
shall be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control
shall constitute an excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and each
subsidiary, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is
taken to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled, including fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- -------------------------- ------------------------------
James P. Fee David Bolender, Chairman & CEO
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
JAMES B. MOON ("Executive")
11280 SW Pintail Loop
Beaverton, Oregon 97007
DATE: July 1, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to
the Company in terms of the Executive's personal and professional career
and a foregoing of present and future career options by the Executive,
for all of which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 28 July 1987 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Senior Vice
President and Chief Technology Officer, and the Executive accepts such
employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b) misrepresentation, (c) theft or embezzlement of the Company assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 TERMINATION WITHOUT CAUSE. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition
to any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to one (1) year's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1
then, in addition to the payments specified in said Section, the Company
shall pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the
annual bonus or annual incentive, if any, to which the Executive
would otherwise have become entitled under any Company bonus or
incentive plan in effect at the time of termination of this
Agreement had the Executive remained continuously employed for the
full fiscal year in which termination occurred and continued to
perform his duties in the same manner as they were performed
immediately prior to termination; provided, however, that such
bonus or incentive amount shall be pro-rated to the date of
termination. The amount payable pursuant to this Section 4.3.2.1
shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the
Executive remained employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to six (6) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 PROPRIETARY INFORMATION. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 OTHER OBLIGATIONS. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a
party if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or
6.1.1.3 the sale of all or substantially all of the assets of
the Company to any person or entity which is not a subsidiary of
the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the
Company for any reason other than for Cause, as Cause is defined in
Section 4.2 of this Agreement.
6.1.2.2.Termination of employment with the Company by the
Executive pursuant to Section 6.2 of this Article 6. A Change of
Control Termination shall not, however, include termination by
reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, which has the
effect of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base
Salary as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be
based anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue
Code of 1986, or to the corresponding section of such Code, as from time
to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a
termination pursuant to Section 6.2, without further action by the
Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) two (2) times
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained
with the Company based on the Company's actual performance, for the
fiscal year in which termination occurs, whichever is greater. The
amount provided by this Section 6.2.2 shall be earned and payable on the
date that is fifteen (15) days after the date Executive would have been
paid an annual incentive bonus had he remained with the Company for the
fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2
shall be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control
shall constitute an excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and each
subsidiary, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is
taken to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled, including fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- -------------------------- ------------------------------
James B. Moon David Bolender, Chairman & CEO
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
JAMES P. WELCH ("Executive")
14340 SW Hazelhill
Tigard, Oregon 97224
DATE: July 1, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement
to be bound by the terms of this Agreement represents a substantial
commitment to the Company in terms of the Executive's personal and
professional career and a foregoing of present and future career options
by the Executive, for all of which the Company receives substantial
value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 18 March 1991 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
---------------------------
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President
Systems, Marketing & Business Development,, and the Executive accepts such
employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
-------------------------
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
-----------------
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b)misrepresentation, (c) theft or embezzlement of the Company assets, (d)
intentional violations of law involving moral turpitude, (e) the continued
failure by the Executive to satisfactorily perform his duties as reasonably
assigned to the Executive pursuant to Section 2.2 of this Agreement for a
period of sixty (60) days after a written demand for such satisfactory
performance which specifically and with reasonable detail identifies the manner
in which it is alleged the Executive has not satisfactorily performed such
duties, and (f) any material breach of the Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2, the
Executive shall be paid his Base Salary through the date of termination
specified in any notice of termination. The Executive will not be entitled to
any bonuses or incentives which are not earned and payable at the time of the
termination.
4.3 Termination Without Cause. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition to
any other amounts payable to Executive, under this Section 4.3, the Company
shall pay Executive within fifteen (15) days following termination, a lump sum
amount equal to one (1) year's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1 then, in
addition to the payments specified in said Section, the Company shall pay to
the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the annual bonus or
annual incentive, if any, to which the Executive would otherwise have become
entitled under any Company bonus or incentive plan in effect at the time of
termination of this Agreement had the Executive remained continuously employed
for the full fiscal year in which termination occurred and continued to perform
his duties in the same manner as they were performed immediately prior to
termination; provided, however, that such bonus or incentive amount shall be
pro-rated to the date of termination. The amount payable pursuant to this
Section 4.3.2.1 shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the Executive remained
employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a quarterly
bonus or quarterly incentive payment had he remained employed for the entire
quarter in which Executive was terminated, the Company shall pay Executive such
quarterly bonus or incentive amount pro-rated to the date of termination,
payable as of the date that is fifteen (15) days after the date such bonus
would have been paid had the Executive remained employed for the full quarter.
4.4 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an amount
equal to six (6) month's Base Salary to the executor, administrator or other
personal representative of the Executive's estate. The amount shall be paid as
a lump sum as soon as practicable following Company's receipt of notice of the
Executive's death. All such payments shall be in addition to any payments due
pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base Salary
shall be terminated as of the final day of the fifth month referenced in the
definition of "Disability." Unless otherwise disqualified by the disability
benefit program provider, this Section is not intended to limit the Executive
from qualifying for and claiming disability benefits from any other disability
program in which the Executive may be enrolled or otherwise for which he is
qualified at the time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the year
in which termination occurred had "target" goals been achieved, provided,
however, that such amount shall be pro-rated to the date of termination. This
amount shall be earned and payable as of the date that is fifteen (15) days
after the date such bonus would have been paid had the Executive remained
employed for the full fiscal year in which termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
-------------------------------------
PROPRIETARY INFORMATION. Executive shall keep confidential, except as the
Company may otherwise consent in writing, and not disclose or make any use of
except for the benefit of the Company, at any time either during or subsequent
to his employment by the Company, any Proprietary Information which he may
produce, obtain or otherwise acquire during the course of his employment. As
used herein, "Proprietary Information" shall include any trade secrets,
confidential information, knowledge, data, or other information of the Company
relating to products, processes, know-how, designs, formulae, test procedures
and results, customer lists, business plans, marketing plans and strategies,
and pricing strategies, or other subject matter pertaining to any business of
the Company for any of its clients, customers, consultants, licensees of
affiliates, which information is not in the public domain at the time of the
alleged breach. In the event of the termination of the Executive's employment
for any reason whatsoever, Executive shall promptly return all records,
materials, equipment, drawings and the like pertaining to any Proprietary
Information.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the Board
of Directors of the Company, with a copy to the President, regardless of
whether he believes the invention is protected by applicable state law, in
order to permit the Company to claim rights to which it may be entitled under
this Agreement. Such disclosure shall be received in confidence by the
Company.
5.6.2 Executive will, at the Company's request, promptly execute a written
assignment of title to the Company for any invention required to be assigned by
Section 5.5 ("assignable invention") and Executive will preserve any such
assignable invention as confidential information of the Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee (at
its expense) during and at any time subsequent to his employment in every
reasonable way to obtain for its own benefit patents and copyrights for such
assignable inventions in any and all countries, which inventions shall be and
remain the sole and exclusive property of the Company or its nominee, whether
or not patented or copyrighted. Executive agrees to execute such papers and
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title, and interest in such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated by
reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 OTHER OBLIGATIONS. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
-----------------
6.1 DEFINITIONS. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a party if the
individuals and entities who were stockholders of the Company immediately
prior to the effective date of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of less than fifty percent (50%) of the total combined voting power for
election of directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), in the aggregate, of
securities of the Company, representing twenty percent (20%) or more of the
total combined voting power of the Company's then issued and outstanding
securities, by any person or entity, or group of associated persons or
entities acting in concert; or
6.1.1.3 the sale of all or substantially all of the assets of the Company
to any person or entity which is not a subsidiary of the Company; or
6.1.1.4 the stockholders of the Company approve any plan or proposal for
the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time during any
consecutive 24-month period such that the Continuity Directors cease for any
reason to constitute at least a seventy percent (70%) majority of the Board.
For purposes of this clause, "Continuity Directors" means those members of the
Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive 24-month
period; or
6.1.1.5.2 were elected by, or on the nomination or recommendation of, at
least a two-thirds (2/3) majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years after a
Change of Control:
6.1.2.1 Termination of the Executive's employment by the Company for any
reason other than for Cause, as Cause is defined in Section 4.2 of this
Agreement.
6.1.2.2 Termination of employment with the Company by the Executive
pursuant to Section 6.2 of this Article 6. A Change of Control Termination
shall not, however, include termination by reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the Executive,
in the Executive's reasonable judgment, that any one or more of the following
events has occurred without the Executive's express written consent, after a
Change of Control, and the Company's failure to correct such occurrence for a
period of thirty (30) days following Executive's written notice to Company
identifying the event alleged to provide Good Reason and stating Executive's
intent to invoke Section 6.2 of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities, titles or
offices as in effect immediately prior to the Change of Control, or any
removal of the Executive from, or any failure to re-elect the Executive to,
any of such positions, which has the effect of materially diminishing the
Executive's responsibility or authority;
6.1.3.2 A reduction by the Company in the Executive's Base Salary as in
effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be based anywhere
other than within twenty-five (25) miles of the Executive's job location at
the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus, incentive,
stock ownership, purchase, option, life insurance, health, accident,
disability, or any other employee compensation or benefit plan, program or
arrangement and/or any membership (collectively, "Benefit Plans"), in which
the Executive is participating immediately prior to a Change of Control; or
the taking of any action by the Company that would materially adversely affect
the Executive's participation or materially reduce the Executive's benefits
under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the Internal
Revenue Code shall mean that section of the Internal Revenue Code of 1986, or
to the corresponding section of such Code, as from time to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a termination
pursuant to Section 6.2, without further action by the Board, the Company
shall, within thirty (30) days of such termination, make a lump sum payment to
the Executive, equal to two (2) years' Base Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the Company
shall pay to the Executive an amount equal to (a) two (2) times what the
Executive would have received in incentive plan bonus for the year in which
termination occurs as if the "target" goals had been achieved for that fiscal
year, or (b) the actual amount of the incentive bonus to which the Executive
would have been entitled had he remained with the Company based on the
Company's actual performance, for the fiscal year in which termination occurs,
whichever is greater. The amount provided by this Section 6.2.2 shall be
earned and payable on the date that is fifteen (15) days after the date
Executive would have been paid an annual incentive bonus had he remained with
the Company for the fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2 shall be
reduced by the minimum amount necessary such that none of the compensation
payable to Executive as a result of a Change in Control shall constitute an
excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
------------------
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Company and each subsidiary,
whether by way of merger, consolidation, operation of law, assignment, purchase
or other acquisition of substantially all of the assets or business of the
Company, and any such successor or assign shall absolutely and unconditionally
assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is taken
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled, including
fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- ---------------------- ----------------------------
James P. Welch David Bolender, Chairman & CEO
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
RICHARD ROA ("Executive")
7918 SW 189th Ave
Beaverton, OR 97007
DATE: July 13, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to
the Company in terms of the Executive's personal and professional career
and a foregoing of present and future career options by the Executive,
for all of which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 13 July 1998 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President -
Engineering, and the Executive accepts such employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b) misrepresentation, (c) theft or embezzlement of the Company assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 TERMINATION WITHOUT CAUSE. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition
to any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to six (6) month's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1
then, in addition to the payments specified in said Section, the Company
shall pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the
annual bonus or annual incentive, if any, to which the Executive
would otherwise have become entitled under any Company bonus or
incentive plan in effect at the time of termination of this
Agreement had the Executive remained continuously employed for the
full fiscal year in which termination occurred and continued to
perform his duties in the same manner as they were performed
immediately prior to termination; provided, however, that such
bonus or incentive amount shall be pro-rated to the date of
termination. The amount payable pursuant to this Section 4.3.2.1
shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the
Executive remained employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to three (3) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 PROPRIETARY INFORMATION. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 OTHER OBLIGATIONS. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 DEFINITIONS. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a
party if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or
6.1.1.3 the sale of all or substantially all of the assets of
the Company to any person or entity which is not a subsidiary of
the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the
Company for any reason other than for Cause, as Cause is defined in
Section 4.2 of this Agreement.
6.1.2.2.Termination of employment with the Company by the
Executive pursuant to Section 6.2 of this Article 6. A Change of
Control Termination shall not, however, include termination by
reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, which has the
effect of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base
Salary as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be
based anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue
Code of 1986, or to the corresponding section of such Code, as from time
to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a
termination pursuant to Section 6.2, without further action by the
Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to one (1) year's Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) one (1) time
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained
with the Company based on the Company's actual performance, for the
fiscal year in which termination occurs, whichever is greater. The
amount provided by this Section 6.2.2 shall be earned and payable on the
date that is fifteen (15) days after the date Executive would have been
paid an annual incentive bonus had he remained with the Company for the
fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2
shall be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control
shall constitute an excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and each
subsidiary, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is
taken to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled, including fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- -------------------------- ------------------------------
Richard Roa David Bolender, Chairman & CEO
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
DON ABBEY ("Executive")
13975 SW Chinn Lane #236
Tigard, OR 97224
DATE: June 29, 1998
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in
this Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to
the Company in terms of the Executive's personal and professional career
and a foregoing of present and future career options by the Executive,
for all of which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's
position and responsibilities and substantially frustrate the purpose of
the Executive's commitment to the Company and forbearance of career
options.
D. The parties recognize that in light of the above-described commitment
and forbearance of career options, it is essential that, for the benefit
of the Company and its stockholders, provision be made for a Change of
Control Termination (as defined below) in order to enable the Executive
to accept and effectively continue in the Executive's position in the
face of inherently disruptive circumstances arising from the possibility
of a Change of Control, although no such change is now contemplated or
foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated 29 June 1998 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President -
Quality Systems, and the Executive accepts such employment.
2.2 DUTIES. The Executive shall devote his full-time and best efforts to
the Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Chief Executive
Officer, provided that such duties are reasonably consistent with the
Executive's position. The Executive shall comply with the Company's policies
and procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change
in Control occurs within two (2) years from the date of this Agreement, then
this Agreement shall remain in effect for two (2) years from the date of the
first Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 BASE SALARY. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 BUSINESS EXPENSES. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 EARLY TERMINATION. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the
provisions of Article 6.
4.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud,
(b) misrepresentation, (c) theft or embezzlement of the Company assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 TERMINATION WITHOUT CAUSE. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition
to any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to six (6) month's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1
then, in addition to the payments specified in said Section, the Company
shall pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the
annual bonus or annual incentive, if any, to which the Executive
would otherwise have become entitled under any Company bonus or
incentive plan in effect at the time of termination of this
Agreement had the Executive remained continuously employed for the
full fiscal year in which termination occurred and continued to
perform his duties in the same manner as they were performed
immediately prior to termination; provided, however, that such
bonus or incentive amount shall be pro-rated to the date of
termination. The amount payable pursuant to this Section 4.3.2.1
shall be earned and payable as of the date that is fifteen (15)
days after the date such bonus would have been paid had the
Executive remained employed for the full fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to three (3) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination pursuant
to this Article. The Executive shall not be entitled to any other termination
or severance payment which may be payable to the Executive under any other
agreement between the Executive and the Company preceding or following the date
of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 PROPRIETARY INFORMATION. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 COVENANT NOT TO COMPETE. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 CONSENT TO INJUNCTION. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 SEVERABILITY. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 ASSIGNMENT OF INVENTIONS. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 DISCLOSURE OF INVENTIONS, PATENTS. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 EXECUTION OF DOCUMENTATION. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 Other Obligations. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 TRADE SECRETS OF OTHERS. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 CONFLICT OF INTEREST. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 PREVIOUS AGREEMENTS. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 SURVIVAL OF OBLIGATIONS. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a
party if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or
6.1.1.3 the sale of all or substantially all of the assets of
the Company to any person or entity which is not a subsidiary of
the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority of the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the
Company for any reason other than for Cause, as Cause is defined in
Section 4.2 of this Agreement.
6.1.2.2.Termination of employment with the Company by the
Executive pursuant to Section 6.2 of this Article 6. A Change of
Control Termination shall not, however, include termination by
reason of death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, which has the
effect of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base
Salary as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be
based anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue
Code of 1986, or to the corresponding section of such Code, as from time
to time amended.
6.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any
time, to terminate employment with the Company for Good Reason. Such
termination shall be accomplished by, and effective upon, the Executive giving
written notice to the Company of the Executive's decision to terminate.
Except as otherwise expressly provided in this Agreement, upon the exercise of
said right, all obligations and duties of the Executive under this Agreement
shall be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a
termination pursuant to Section 6.2, without further action by the
Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to one (1) year's Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) one (1) time
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained
with the Company based on the Company's actual performance, for the
fiscal year in which termination occurs, whichever is greater. The
amount provided by this Section 6.2.2 shall be earned and payable on the
date that is fifteen (15) days after the date Executive would have been
paid an annual incentive bonus had he remained with the Company for the
fiscal year in which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2
shall be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control
shall constitute an excess parachute payment.
6.3 INTEREST. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 CONTINUATION OF BENEFITS. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the
applicable premiums for such group health plan continuation as Executive is
entitled to under COBRA and such payment shall continue for the period of time
the Executive is entitled to continue such coverage under COBRA.
6.5 VESTING OF STOCK OPTIONS. All unvested stock options held by Executive,
if any, shall vest immediately upon a Change in Control Termination as defined
in paragraph 6.1.2.1. Executive may exercise such options in accordance with
the terms and conditions of the stock option plan and the agreement pursuant
to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and each
subsidiary, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
7.2 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 CAPTION. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 MEDIATION. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 ARBITRATION. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is
taken to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled, including fees and expenses on appeal.
7.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
7.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and shall be binding
upon the Executive, his administrators, executors, legatees, and heirs. In
that this Agreement is a personal services contract, it shall not be assigned
by the Executive.
7.11 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 ENTIRE AGREEMENT. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
By
- -------------------------- ------------------------------
Don Abbey David Bolender, Chairman & CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Protocol
Systems, Inc. Condensed Consolidated Balance Sheet as of September 30, 1998 and
Condensed Consolidated Statement of Operations for the nine months ended
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,458
<SECURITIES> 14,015
<RECEIVABLES> 16,555<F1>
<ALLOWANCES> 418
<INVENTORY> 13,160
<CURRENT-ASSETS> 47,330
<PP&E> 14,058
<DEPRECIATION> 10,090
<TOTAL-ASSETS> 58,134
<CURRENT-LIABILITIES> 7,952
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 49,686
<TOTAL-LIABILITY-AND-EQUITY> 58,134
<SALES> 49,410
<TOTAL-REVENUES> 49,410
<CGS> 24,052
<TOTAL-COSTS> 24,052
<OTHER-EXPENSES> 24,920
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 438
<INCOME-TAX> 92
<INCOME-CONTINUING> 346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 346
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
<FN>
<F1>Net of allowance
<F2>The amount of loss provision is not significant and has been included with
other expenses.
</FN>
</TABLE>
