EMPLOYMENT AGREEMENT
DATED APRIL 6, 1998
BETWEEN C3, INC. AND ▇▇▇▇ ▇▇▇▇▇▇
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of April 6, 1998 by and between C3, Inc., a North Carolina company
with its principal office at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ (the "Company), and ▇▇▇▇ ▇▇▇▇▇▇, an individual currently
residing at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
("Employee").
Statement of Purpose
The Company wishes to obtain the services of Employee on the terms and
conditions and with the benefits set forth in this Agreement. Employee desires
to be employed by the Company on such terms and conditions and to receive such
additional consideration as set out herein.
Therefore, in consideration of the mutual covenants contained in this
Agreement, the grant of certain options to purchase common stock of the Company
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Employee agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and Employee
hereby accepts such employment, on the terms and conditions set forth in this
Agreement.
2. Term of Employment. The term of Employee's employment under this
Agreement shall commence as of the date of this Agreement and shall continue on
and through December 31, 1998. Termination of employment shall be governed by
Paragraph 7 of this Agreement, and unless terminated by either party as provided
in Paragraph 7, this Agreement shall automatically, at the expiration of each
then existing term, renew for successive one year terms.
3. Position and Duties. The Employee shall serve as Director of
Technology of the Company. Employee will, under the direction of the President
and CEO of the Company, faithfully and to the best of his ability perform the
duties as set out on Exhibit A hereto and such additional duties as may be
reasonably assigned by the President and Board of Directors. Employee agrees to
devote his entire working time, energy and skills to the Company while so
employed.
4. Compensation and Benefits. Employee shall receive compensation and
benefits for the services performed for the Company under this Agreement as
follows:
(a) Base Salary. Employee shall receive a base salary of $104,000 per
year, payable in regular and equal monthly installments ("Base Salary").
(b) Employee Benefits. Employee shall receive such benefits as are made
available to the other employees of the Company, including, but not limited to,
life, medical and disability insurance, retirement benefits and such vacation as
is provided to the other employees of the Company (the "Employee Benefits").
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(c) Incentive Compensation. Employee shall participate in such
incentive plans as may be approved by the Board of Directors from time-to-time.
The specific incentive compensation plans for 1998 are as set out on Exhibit B
hereto.
5. Reimbursement of Expenses. The Company shall reimburse Employee for all
reasonable out-of-pocket expenses incurred by Employee specifically and directly
related to the performance by Employee of the services under this Agreement.
6. Withholding. The Company may withhold from any payments or benefits
under this Agreement all federal, state or local taxes or other amounts as may
be required pursuant to applicable law, government regulation or ruling.
7. Termination of Employment.
(a) Death of Employee. If the Employee shall die during the Term, this
Agreement and the employment relationship hereunder will automatically terminate
on the date of death, which date shall be the last day of the Term.
(b) Termination of Just Cause. The Company shall have the right to
terminate the Employee's employment under this Agreement at any time for Just
Cause, which termination shall be effective immediately. Termination for "Just
Cause" shall include termination for the Employee's personal dishonesty, gross
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses),
written Company policy or final cease-and-desist order, conviction of a felony
or of a misdemeanor involving moral turpitude, unethical business practices in
connection with the Company's business, misappropriation of the Company's assets
(determined on a reasonable basis), disability or material breach of any other
provision of this Agreement, provided that the Employee has received written
notice from the Company of such material breach and such breach remains uncured
thirty days after the delivery of such notice. For purposes of this subsection,
the term "disability" means the inability of Employee, due to the condition of
his physical, mental or emotional health, to satisfactorily perform the duties
of his employment hereunder for a continuous three month period; provided
further that if the Company furnishes long term disability insurance for the
Employee, the term "disability" shall mean that continuous period sufficient to
allow for the long term disability payments to commence pursuant to the
Company's long term disability insurance policy. In the event the Employee's
employment under this Agreement is terminated for Just Cause, the Employee shall
have no right to receive compensation or other benefits under this Agreement for
any period after such termination.
(c) Termination Without Cause. The Company may terminate the
Employee's employment other than for "Just Cause," as described in Subsection
(b) above, at any time upon written notice to the Employee, which termination
shall be effective immediately. In the event the Company terminates Employee
pursuant to this Subsection (c), (i) the Employee will receive the Base Salary
for the remainder of the then existing term ("Termination Compensation"), so
long as the Employee complies with Sections 8, 9 and 10 of the Agreement and
(ii) the Company shall take such action as may be required to vest any unvested
benefits of the Employee under any employee stock-based or other benefit plan or
arrangement for those options which are scheduled to vest within 180 of the
termination date. Such amounts shall be payable at the times such amounts would
have been paid in accordance with Section 4. In addition, Employee shall
continue to participate in the same group hospitalization plan, health care
plan, dental care plan, life or other insurance or death benefit plan, and any
other present or
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future similar group employee benefit plan or program for which officers of the
Company generally are eligible, on the same terms as were in effect prior to
Employee's termination, either under the Company's plans or comparable coverage,
for all periods Employee receives Termination Compensation. Notwithstanding
anything in this Agreement to the contrary, if Employee breaches Sections 8, 9
or 10 of this Agreement, the Employee will not be entitled to receive any
further compensation or benefits pursuant to this Section 7(c).
(d) Change of Control Situations. In the event of a Change of Control
of Company at any time after the date hereof, Employee may voluntarily terminate
employment with Company up until twelve (12) months after the Change of Control
for "Good Reason" and, subject to Section 7(f), (y) be entitled to receive in a
lump sum (i) any compensation due but not yet paid through the date of
termination and (ii) in lieu of any further salary payments from the date of
termination to the end of the then existing term, an amount equal to the
Termination Compensation times 2, and (z) shall continue to participate in the
same group hospitalization plan, health care plan, dental care plan, life or
other insurance or death benefit plan, and any other present or future similar
group employee benefit plan or program for which officers of the Company
generally are eligible, or comparable plans or coverage, for a period of two
years following termination of employment by the Employee, on the same terms as
were in effect either (A) at the date of such termination, or (B) if such plans
and programs in effect prior to the Change of Control of Company are, considered
together as a whole, materially more generous to the officers of Company, then
at the date of the Change of Control. Any equity based incentive compensation
(including but not limited to stock options, SARs, etc.) shall fully vest and be
immediately exercisable in full upon a Change in Control, not withstanding any
provision in any applicable plan. Any such benefits shall be paid by the Company
to the same extent as they were so paid prior to the termination or the Change
of Control of Company.
"Good Reason" shall mean the occurrence of any of the following
events without the Employee's express written consent:
(i) the assignment to the Employee of duties inconsistent with
the position and status of the Employee with the Company immediately
prior to the Change of Control;
(ii) a reduction by the Company in the Employee's pay grade or
base salary as then in effect, or the exclusion of Employee from
participation in Company's benefit plans in which he previously
participated as in effect at the date hereof or as the same may be
increased from time to time during the Term, or Company's failure to
increase (within twelve (12) months of the Employee's last increase
in base salary) the Employee's base salary in an amount which at
least equals, on a percentage basis, the average percentage increase
in base salary for all executives entitled to participate in
Company's executive incentive plans for which Employee was eligible
in the preceding 12 months; or
(iii) an involuntary relocation of the Employee more than 50
miles from the location where the Employee worked immediately prior
to the Change in Control or the breach by the Company of any
material provision of this Agreement; or
(iv) any purported termination of the employment of Employee
by Company which is not effected in accordance with this Agreement.
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A "Change of Control" shall be deemed to have occurred if (i) any
person or group of persons (as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934) together with its affiliates, excluding
employee benefit plans of Company, becomes, directly or indirectly, the
"beneficial owner" (as defined in Rule l3d-3 promulgated under the Securities
Exchange Act of 1934) of securities of Company representing 20% or more of the
combined voting power of Company's then outstanding securities; or (ii) during
the then existing term of the Agreement, as a result of a tender offer or
exchange offer for the purchase of securities of Company (other than such an
offer by the Company for its own securities), or as a result of a proxy contest,
merger, consolidation or sale of assets, or as a result of any combination of
the foregoing, individuals who at the beginning of any year period during such
term constitute the Company's Board of Directors, plus new directors whose
election by Company's shareholders is approved by a vote of at least two thirds
of the outstanding voting shares of the Company, cease for any reason during
such year period to constitute at least two-thirds of the members of such Board
of Directors; or (iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation or entity regardless of
which entity is the survivor, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or being
converted into voting securities of the surviving entity) at least 60% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or (iv) the
shareholders of the Company approve a plan of complete liquidation or winding-up
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets; or (v) any event which the
Company's Board of Directors determines should constitute a Change of Control.
(e) Employee's Right to Payment. In receiving any payments pursuant
to this Section 7, Employee shall not be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee hereunder, and such amounts shall not be reduced or terminated whether
or not the Employee obtains other employment.
(f) Reduction in Agreement Payment. Notwithstanding anything in this
Agreement to the contrary, if any of the payments provided for under this
Agreement (the "Agreement Payments"), together with any other payments that the
Employee has the right to receive (such other payments together with the
Agreement Payments are referred to as the "Total Payments"), would constitute a
"parachute payment" as defined in Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Code") (a "Parachute Payment"), the Agreement
Payments shall be reduced by the smallest amount necessary so that no portion of
such Total Payments would be Parachute Payments. In the event the Company shall
make an Agreement Payment to the Employee that would constitute a Parachute
Payment, the Employee shall return such payment to the Company (together with
interest at the rate set forth in Section 1274(b)(2)(B) of the Code). For
purposes of determining whether and the extent to which the Total Payments
constitute Parachute Payments, no portion of the Total Payments the receipt of
which Employee has effectively waived in writing shall be taken into account.
8. Covenant Not to Compete. Employee agrees that during his employment
with the Company and for a period of one (1) year following the termination of
his employment with the Company, for whatever reason:
(a) Employee shall not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render advisory services to, or
participate in the management or control of any business that operates in the
same business as the Company, which Employee and the Company specifically agree
as the business of fabricating (wafering, preforming and faceting), marketing
and
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distributing moissanite gemstones or other diamond simulants to the gem and
jewelry industry (the "Business"), unless Employee's duties, responsibilities
and activities for and on behalf of such other business are not related in any
way to such other business's products which are in competition with the
Company's products. For purposes of this section, "competition with the Company"
shall mean competition for customers in the United States and in any country in
which the Company is selling the Company's products at the time of termination.
Employee's ownership of less than one percent of the issued and outstanding
stock of a corporation engaged in the Business shall not by itself be deemed to
be a violation of this Agreement. Employee recognizes that the possible
restriction on his activities which may occur as a result of his performance of
his obligations under Paragraph 8(a) are substantial, but that such restriction
is require for the reasonable protection of the Company.
(b) Employee shall not, directly or indirectly, influence or attempt
to influence any customer of the Company to discontinue its purchase of any
product of the Company which is manufactured or sold by the Company at the time
of termination of Employee's employment or to divert such purchases to any other
person, firm or employer.
(c) Employee shall not, directly or indirectly, interfere with,
disrupt or attempt to disrupt the relationship, contractual or otherwise,
between the Company and any of its suppliers.
(d) Employee shall not, directly or indirectly, solicit any employee
of the Company to work for any other person, firm or employer.
9. Confidentiality. In the course of his employment with the Company,
Employee will have access to confidential information, records, data, customer
lists, lists of product sources, specifications, trade secrets and other
information which is not generally available to the public and which the Company
and Employee hereby agree is proprietary information of the Company
("Confidential Information"). During and after his employment by the Company,
Employee shall not, directly or indirectly, disclose the Confidential
Information to any person or use any Confidential Information, except as is
required in the course of his employment under this Agreement. All Confidential
Information as well as records, files, memoranda, reports, plans, drawings,
documents, models, equipment and the like, including copies thereof, relating to
the Company's business, which Employee shall prepare or use or come into contact
with during the course of his employment, shall be and remain the Company's sole
property, and upon termination of Employee's employment with the Company,
Employee shall return all such materials to the Company.
10. Proprietary Information. Employee shall assign to the Company, its
successors or assigns, all of Employee's rights to copyrightable works and
inventions which, during the period of Employee's employment by the Company or
its successors in business, Employee makes or conceives, either solely or
jointly with others, relating to any subject matter with which Employee's work
for the Company is or may be concerned ("Proprietary Information"). Employee
shall promptly disclose in writing to the Company such copyrightable works and
inventions and, without charge to the Company, to execute, acknowledge and
deliver all such further papers, including applications for copyrights and
patents for such copyrightable works and inventions, if any, in all countries
and to vest title thereto in the Company, its successors, assigns or nominees.
Upon termination of Employee's employment hereunder, Employee shall return to
the Company or its successors or assigns, as the case may be, any Proprietary
Information. The obligation of Employee to assign the rights to such
copyrightable works and inventions shall survive the discontinuance or
termination of this Agreement for any reason.
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11. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by the Company and supersedes any
prior agreements between them, whether written or oral.
12. Waiver. The failure of either party to insist in any one or more
instance, upon performance of the terms and conditions of this Agreement, shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any such term or condition.
13. Notices. Any notice to be given under this Agreement shall be deemed
sufficient if addressed in writing and delivered personally, by telefax with
receipt acknowledged, or by registered or certified U.S. mail to the address
first above appearing, or to such other address as a party may designate by
notice from time to time.
14. Severability. In the event that any provision of any paragraph of
this Agreement shall be deemed to be invalid or unenforceable for any reason
whatsoever, it is agreed such invalidity or unenforceability shall not affect
any other provision of such paragraph or of this Agreement, and the remaining
terms, covenants, restrictions or provisions in such paragraph and in this
Agreement shall remain in full force and effect and any court of competent
jurisdiction may so modify the objectionable provision as to make it valid,
reasonable and enforceable.
15. Amendment. This Agreement may be amended only by an agreement in
writing signed by each of the parties hereto.
16. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or breach thereof, shall be settled by arbitration in Raleigh,
North Carolina in accordance with the expedited procedures of the Rules of the
American Arbitration Association, and judgment upon the award may be rendered by
the arbitrator and may be entered in any court having jurisdiction thereof.
17. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina. Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the courts located
in North Carolina for the purposes of any suit, action or other proceeding
contemplated hereby or any transaction contemplated hereby.
18. Benefit. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against the Company, its successors
and assigns, and Employee, his heirs, beneficiaries and legal representatives.
It is agreed that the rights and obligations of Employee may not be delegated or
assigned except as may be specifically agreed to by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
C3, Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, President
/s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇
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Position Description
▇▇▇▇ ▇▇▇▇▇▇ - Director of Technology Exhibit A
Purpose:
The Director of Technology is responsible for all research and product
development activities at the Company including, but not limited to, interfacing
with Cree Research on moissanite development programs, developing methods to
maximize gemstone yields and identifying effective test instrument technologies.
This position reports to the President.
Responsibilities:
1. Lead the research and product development activities for the Company,
including planning, budgeting and policy setting.
2. Interface with Cree Research on silicon carbide development programs working
closely with the Director of Manufacturing at the Company.
3. Identify and implement solutions, working closely with the Director of
Manufacturing, to maximize gemstone yields and improve the efficiency and
effectiveness of manufacturing processes.
4. Develop effective test instrument technologies for distinguishing gemstones
from diamond and similar gemstones.
5. Serve on company-wide project teams and perform such other responsibilities
as may be assigned by the President or Board of Directors from time to time.
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Incentive Compensation Plans Exhibit B
▇▇▇▇ ▇▇▇▇▇▇
Background
Each member of the management team can have a significant impact on the
Company's ability to meet and exceed its goals. The Company has established an
Annual Incentive Compensation Plan and a Long-term Incentive Compensation Plan
to provide management and key employees with incentives to not only achieve the
performance goals outlined in the business plan, but to exceed those goals.
New goals and targets will be established each year for the Annual Incentive
Compensation Plan and goals and targets for the Long-term Incentive Plan will be
established from time-to-time.
1998 Annual Incentive Compensation Plan
The 1998 Annual Incentive Compensation Plan (Annual Plan) provides for a "target
bonus" which is based on a percentage of base compensation. Your specific
"target bonus" is outlined below. Each person that participates in the Annual
Plan has the ability to earn far in excess of their "target bonus" if the
Company exceeds its performance goals.
I. Your "Target Bonus". Your 1998 "target bonus" is 35% of your base
compensation, or $36,400.
2. Performance Goals. The Annual Plan performance goals for 1998 have been
separated into several categories based on the Company's performance relative to
net revenue and pre-tax income. Based upon the Company achieving different
performance levels, as outlined in the chart below, the participating employee
can earn different percentages of their "target bonus".
Net Revenue
------------------------------------------------------
Target Target + Optimum Outstanding
Pre-tax Income > $31.7 M >$35.6 M >$42.2 M >$48.5 M
------------------------------------------------------
--------------------------------------------------------------------------
Target > $12.4 M 100% 110% 120% 130%
--------------------------------------------------------------------------
Target + > $16.3 M 150% 165% 180% 195%
--------------------------------------------------------------------------
Optimum > $22.9 M 225% 245% 270% 290%
--------------------------------------------------------------------------
Outstanding > $29.2 M 325% 360% 390% 425%
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The actual net revenue and pre-tax income from the Company's 1998 audited
financial statements will be used to determine the appropriate percentage in the
table above. For example, net revenue of $34 million with pre-tax income of $14
million would lead to a bonus equal to 100% of the participant's "target bonus";
net revenue of $35.6 million with pre-tax income of $16.3 million would lead to
a bonus equal to 165% of the participants "target bonus", etc.
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If the performance of the Company exceeds the criteria above, the percentages
will increase on a similar basis to those used above. If however, the Company
does not meet the criteria above, the bonus structure will be modified as
follows:
(a) As long as the $12.4 million pre-tax income target is met the bonuses will
be awarded at the 100% level.
(b) If pre-tax income is below $12.4 million, so long as the Company achieves a
positive pre-tax income, the percentage of the "target bonus" bonus would be
reduced on a linear basis. Therefore, the percentage will be calculated by
dividing the actual pre-tax net income by the $12.4 million target. No
bonuses will be earned or paid if the Company does not achieve positive
pre-tax net income.
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