EMPLOYMENT
AGREEMENT
This
Employment Agreement, dated as of July 27, 2007, is entered into between
Tegal
Corporation (the “Company”) and Thomas R. Mika (“Employee”).
WHEREAS,
Employee is the President and Chief Executive Officer of the
Company;
WHEREAS,
Employee and the Company entered into an Employment Agreement dated as of
August
12, 2002, which Employment Agreement expired by its terms;
WHEREAS,
the
Company desires to continue to employ and retain the services of Employee,
and
Employee wishes to continue employment by the Company, on the terms set forth
in
this Agreement;
NOW,
THEREFORE,
in
consideration of the promises and the mutual covenants set forth in this
Agreement, the Company and Employee agree as follows:
1. Term
of Employment.
Subject
to the termination provisions hereinafter set forth, the Company will employ
the
Employee, and the Employee accepts employment with the Company, for a period
of
two years (the “Initial Term”) commencing as of the date first set forth above.
The Initial Term shall be automatically renewed for successive one year periods
(“Successive Terms”) unless either party gives ninety (90) calendar days written
notice of nonrenewal. The giving by the Company of a notice of nonrenewal
shall
be deemed to be a notice of termination without Cause given by the Company
to
Employee for the purposes of Section 8(a) hereof; provided,
however,
that
the giving by the Company of a notice of nonrenewal within twelve (12) months
following a “change of control” shall be deemed to be a notice of termination
without Cause given by the Company to Employee for the purposes of Section
8(c)
hereof.
2. Duties.
The
Employee will serve as President and Chief Executive Officer, reporting to
the
Company’s Board of Directors (the “Board
of Directors”).
The
Employee will discharge such duties and responsibilities as are customary
for
such position or are prescribed from time to time by the Company. The Employee
will devote his full time and attention to the affairs of the Company and
will
not enter the employ of or serve as a consultant to, or in any way perform
any
services for, with or without compensation, any other person, business or
organization without the prior approval of the Board of Directors. In no
event
may any such service be inconsistent with, or prevent Employee from carrying
out, his duties under this Agreement, as determined at the sole discretion
of
the Board of Directors.
3. Maintaining
Confidential Information/Property Rights.
Employee agrees to sign and abide by all Company policies regarding confidential
information and ethics including, but not limited to the Confidential &
Proprietary Information and Intellectual Property/Property Rights policy,
as
attached hereto.
4. Non-Competition;
Non-Solicitation.
During
the Initial Term, any Successive Term, and for any Salary Continuation Period
as
provided in Section 8(a) Employee shall not, directly or
indirectly:
(a) own,
manage, operate, advise, consult, join, control or participate in the ownership,
management, operation or control of, be employed by, perform services for,
or be
connected in any manner with, any enterprise which is engaged in providing:
i)
any plasma etch system or any other system capable of etching “new materials”;
ii) any PVD (physical vapor deposition) system competitive with the Company’s
products; iii) any ALD (atomic level deposition) system or NLD (nano layer
deposition) or MOCVD (metal organic deposition systems), or their equivalents,
to any semiconductor, thin film head, MEMS or other device manufacturers
anywhere in the world; provided,
however,
that
such restriction shall not apply to Employee’s ownership of any passive
investment representing an interest of less than five percent (5%) of an
outstanding class of publicly traded securities; or
(b) recruit,
encourage or solicit any person who is an employee or contractor of the Company
or any entity affiliated with the Company (the “Affiliated Entity”) to leave the
Company’s or Affiliated Entity’s employ or service for any reason, or interfere
in any material manner with employment or service relationships at the time
existing between the Company or Affiliated Entity and the subject employee
or
contractor (except as may be required in any bona fide termination decision
during the Term or any Successive Term regarding any Company or Affiliated
Entity employee) in order to induce such employee or contractor of the Company
to accept other employment or a consulting agreement with any other person
or
entity.
Employee
acknowledges that the services that he shall provide to the Company under
this
Agreement are unique and that irreparable harm shall be suffered by the Company
in the event of the breach by Employee of any of his obligations under this
Section 4, and that the Company shall be entitled, in addition to its other
rights and remedies, whether legal or equitable, to enforce such obligations
by
an injunction or decree of specific performance. If any restriction set forth
in
this non-competition section is found by a court to be unreasonable, then
Employee agrees, and hereby submits, to the reduction and limitation of such
prohibition to such area or period as shall be deemed reasonable by such
court.
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5. Salary
and Incentives.
(a) Salary. During
the Term, the Company will pay the Employee an annual salary of two hundred
and
eighty-four thousand dollars ($284,000) (the “Base Salary”); provided that
Employee’s Base Salary may be reduced to the extent that the Employee elects to
defer any portion thereof under the terms of any deferred compensation or
savings plan maintained by the Company. During the Initial Term and any
Successive Term, Employee shall be entitled to merit increases of his Base
Salary, from time to time, in accordance with Company policy. Employee’s Base
Salary may also be reduced during the Initial Term or any Successive Term,
consistent with reductions made to the salaries of other employees or groups
of
employees of the Company.
(b) Incentive
Payment.
Employee will be eligible to receive incentive bonus payments from time to
time
in accordance with any incentive bonus program then in effect. Employee will
be
entitled to receive an annual
cash incentive bonus under such program at a target level of 50% of Base
Salary
upon the achievement of targets and other objectives for each fiscal year
as
approved annually on behalf of the Company by the Board of Directors. Such
a
plan will be administered on the Company’s fiscal year basis (currently fiscal
year ending March 31). For the fiscal year ending March 31, 2008, the Board
of
Directors and Employee shall mutually agree upon the targets and other
objectives to be achieved for Employee’s entitlement to an incentive payment for
such fiscal year as soon as reasonably practicable after execution of this
Agreement. For subsequent fiscal years (beginning with the fiscal year ending
March 31, 2009), the Board of Directors and Employee shall mutually agree
upon
the targets and other objectives to be achieved for Employee’s entitlement to an
incentive payment for such fiscal year no later than the end of the first
quarter of each fiscal year, provided that the completion and approval by
the
Board of Directors of the Company’s audited financial statements for the prior
fiscal year has occurred. In the event that an incentive payment is earned
by
Employee under such a plan for any fiscal year, such payment shall be made
to
Employee in a lump sum all-cash amount as earned on or before the later of
(1)
the end of the first fiscal quarter of the subsequent fiscal year, or (2)
the
completion and approval by the Board of Directors of the Company’s audited
financial statements for the prior fiscal year has occurred, provided that
Employee has remained continuously employed in the Company’s service through the
end of the fiscal year for which the payment is being made.
(c) Expenses.
The
Company will reimburse the Employee for all reasonable travel, entertainment
and
miscellaneous expenses actually and necessarily incurred in connection with
the
performance of his duties under this Agreement, provided that the Employee’s
expenses are in accordance with the Company’s current practices and that
Employee properly accounts for such expenses.
6. Benefits.
The
Employee will be entitled during the Term or any Successive Term of this
Agreement to participate in any vacation, pension, insurance or other benefit
plan that is maintained by the Company for its employees to the extent and
in
the manner prescribed by the applicable plan documents.
7. Long-term
Incentives.
Employee will be eligible to receive annual long-term incentive awards from
time
to time in accordance with the terms and conditions of long-term incentive
compensation plans and programs as in effect from time to time as approved
by
the Company’s
Compensation Committee and the Board
of
Directors.
The
Company will provide for annual target level award(s) pursuant to such program
with a fair market value on the date of grant equal to 100% of Base
Salary.
8. Termination.
(a) Termination
by the Company Without Cause.
The
Company may terminate the Employee’s employment under this Agreement without
Cause at any time by giving no less than ninety (90) calendar days’ written
notice to the Employee. However, in the event that the Company desires to
terminate Employee’s employment without Cause, the Company agrees that it will
pay to Employee the following:
1. Employee’s
then-prevailing Base Salary for a period of twenty-four months from the date
of
termination (the “Salary
Continuation Period”);
and
2. an
amount
equal to two times the average annual incentive bonus paid to Employee by
the
Company for the three most recently completed fiscal years in which a cash
bonus
program covering the Employee was in effect or a cash bonus was otherwise
paid,
payable in equal installments over the Salary Continuation Period. For the
avoidance of doubt, in the event there are less than three years in which
a cash
bonus program covering the Employee was in effect, the average annual incentive
bonus shall be determined solely with respect to such lesser number of
years.
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(b) Termination
by Employee for Good Reason.
Employee may voluntarily elect to resign his employment with the Company
prior
to the end of the Initial Term or any Successive Term for Good Reason (as
hereinafter defined) upon giving the Company ninety (90) calendar days’ advance
notice in writing of such termination. If Employee terminates his employment
for
Good Reason, it shall be equivalent to a “Termination Without Cause”, and the
Employee shall be entitled to receive the payments or benefits subject to
the
terms and conditions of Section 8(a). "Good Reason" shall mean any of the
following that are undertaken without the Employee’s express written consent:
(i) the assignment to the Employee of principal duties or responsibilities,
or
the substantial reduction of Employee’s duties and responsibilities, either of
which is inconsistent with Employee’s position as President and Chief Executive
Officer of the Company; (ii) a material reduction by the Company in Employee’s
annual base salary, except to the extent the salaries of other executive
employees of the Company are similarly reduced; (iii) Employee’s principal place
of business is, without his consent, relocated by a distance of more than
fifty
(50) miles from either of its current facilities located in Petaluma or San
Jose, California; and (iv) any material breach by the Company of any provision
of this Agreement that is not cured within forty-five (45) calendar days’
written notice to the Company.
(c) Termination
in Connection With a Change in Control.
In the
event that Employee’s employment is terminated without Cause by the Company or
Employee terminates his employment for Good Reason within twelve (12) months
following a “change of control”, in lieu of any amounts payable under Sections
8(a) or (b), the Company agrees that it will pay Employee a lump sum amount
equal to the sum of:
1. two
(2)
times the sum of Employee’s then-prevailing Base Salary, plus
2. two
(2)
times the average annual incentive bonus paid to Employee by the Company
for the
three most recently completed fiscal years in which a cash bonus program
covering the Employee was in effect. For the avoidance of doubt, in the event
there are less than three years in which a cash bonus program covering the
Employee was in effect or a cash bonus was otherwise paid, the average annual
incentive bonus shall be determined solely with respect to such lesser number
of
years.
In
addition, and notwithstanding any provision to the contrary in any long-term
incentive award agreement or long-term incentive compensation plan, the Company
shall cause all outstanding long-term incentive awards then held by the
Employee, to the extent that such awards are earned or “in the money,” as
applicable, (including, without limitation, stock options, stock appreciation
rights, phantom shares, restricted stock or similar awards) to become fully
vested and, if applicable, exercisable with respect to all the shares subject
thereto effective immediately prior to the date of termination. In all other
respects, such awards will continue to be subject to the terms and conditions
of
the plans, if any, under which they were granted and any applicable agreements
between the Company and Employee. A “change of control” shall be defined as and
include each of the following: (i) the sale of substantially all of the assets
of the Company, (ii) an event of a merger of the Company with or into another
corporation in which the holders of at least 50% of the Company's outstanding
voting power hold less than 50% of the outstanding voting power immediately
after such merger, or (iii) during
any period of two consecutive years, individuals who, at the beginning of
such
period, constitute the Board of Directors together with any new director(s)
whose election by the Board or nomination for election by the Company’s
stockholders was approved by a vote of at least two-thirds of the directors
then
still in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof. Any
unvested long-term incentive awards at the date of termination shall revert
to
the Company. If Employee breaches Section 4 during the Salary Continuation
Period, the Company’s obligation to pay Employee’s salary and benefits shall
cease immediately.
(d) Termination
by the Company for Cause.
The
Company may immediately terminate Employee’s employment at any time for Cause by
giving written notice to Employee. Upon any such termination for Cause, Employee
shall have no right to compensation or benefits for any period subsequent
to the
date of termination. For the purposes of this Agreement, “Cause” shall mean:
Employee willfully engages in an act or omission which is in bad faith and
to
the detriment of the Company, engages in misconduct, gross negligence, or
willful malfeasance, in each case that causes material harm to the Company,
breaches this Agreement, habitually neglects or materially fails to perform
his
duties (other
than any such failure resulting solely from Employee’s physical or mental
disability or incapacity) after a written demand for substantial performance
is
delivered to Employee which identifies the manner in which the Company believes
that the Employee has not performed Employee’s duties,
is
convicted of a felony or any crime involving moral turpitude, uses drugs
or
alcohol in a way that either interferes with the performance of his duties
or
compromises the integrity or reputation of the Company, or engages in any
act of
dishonesty involving the Company, disclosure of Company confidential information
not required by the duties of Employee, commercial bribery, or perpetration
of
fraud; provided, however, that Employee shall have at least forty-five (45)
calendar days to cure, if curable, any of the events which could lead to
Employee’s termination for Cause.
(e) Termination
by Death or Disability. In
the
event that Employee dies or becomes completely disabled from performing his
duties during the Initial Term or any Successive Term of this Agreement,
the
Company shall be relieved of all obligations under this Agreement, except
for
payment of salary and bonuses to Employee or Employee’s heirs as if the Employee
had been terminated without Cause in accordance with Section 8(a)
herein.
(f) Termination
by Employee. Employee
may terminate his employment under this Agreement at any time by giving written
notice to the Company. Such termination will become effective upon the date
specified in such notice, provided that such date is at least ninety (90)
calendar days after the date of delivery of the notice. Upon any such
termination, the Company shall be relieved of all of its obligations under
this
Agreement, except for payment of salary and the provision of benefits through
the effective date of termination.
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9. Limitations
on Payment.
(a) Section
409A.
Notwithstanding anything contained in this Agreement to the contrary, however,
to the extent required to comply with Section 409A of the Internal Revenue
Code
of 1986, as amended (the “Code”), if Employee is deemed to be a “specified
employee” for purposes of Section 409A(a)(2)(B) of the Code, payments due to
Employee under Section 8 of this Agreement in connection with a termination
of
employment that would otherwise have been payable at any time during the
six-month period immediately following such termination of employment shall
not
be paid prior to, and shall instead be payable in a lump sum as soon as
practicable following, the expiration of such six-month period. In the event
of
Employee’s death during such six-month period, upon provision to the Company of
a signed general release of all claims against the Company and its affiliates
in
a form acceptable to the Company, Employee’s estate will receive the severance
benefits described in this Agreement.
(b) Parachute
Payments.
Notwithstanding anything contained in this Agreement to the contrary, to
the
extent that payments and benefits provided under this Agreement to Employee
(such payments or benefits are collectively referred to as the “Payments”) would
be subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of
the Code, the Payments shall be reduced (but not below zero) to the extent
necessary so that no Payment to be made or benefit to be provided to Employee
shall be subject to the Excise Tax, but only if, by reason of such reduction,
the net after-tax benefit received by such Employee shall exceed the net
after-tax benefit received by him if no such reduction was made. For purposes
of
this Section 9(b), “net after-tax benefit” shall mean (i) the Payments which
such Employee receives or is then entitled to receive from the Company that
would constitute “parachute payments” within the meaning of Section 280G of the
Code, less (ii) the amount of all federal, state and local income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax
rate
for each year in which the foregoing shall be paid such Employee (based on
the
rate in effect for such year as set forth in the Code as in effect at the
time
of the first payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i) above
by
Section 4999 of the Code. The foregoing determination will be made by a
nationally recognized accounting firm (the “Accounting Firm”) selected by
Employee and reasonably acceptable to the Company (which may be, but will
not be
required to be, the Company's independent auditors). The Company will direct
the
Accounting Firm to submit its determination and detailed supporting calculations
to both the affected Employee and the Company within fifteen (15) calendar
days
after Employee’s date of termination. If the Accounting Firm determines that
such reduction is required by this Section 9(b), Employee, in Employee’s sole
and absolute discretion, may determine which Payments shall be reduced to
the
extent necessary so that no portion thereof shall be subject to the excise
tax
imposed by Section 4999 of the Code, and the Company shall pay such reduced
amount to him.
10. Arbitration.
Employee
and the Company agree to submit any and all disputes, controversies, or claims
between them based upon, relating to, or arising from Employee’s employment by
the Company or the terms of this Agreement (other than workers’ compensation
claims) to final and binding arbitration before a single neutral arbitrator
in
Petaluma, California. Subject to the terms of this paragraph, the arbitration
proceedings shall be initiated in accordance with, and governed by, the National
Rules for the Resolution of Employment Disputes (“Rules”) of the American
Arbitration Association (“AAA”). The arbitrator shall be appointed by agreement
of the parties hereto or, if no agreement can be reached, by the AAA pursuant
to
its Rules. Notwithstanding the Rules, the parties may take discovery in
accordance with Sections 1283.05(a)-(d) of the California Code of Civil
Procedure (but not subject to the restrictions of Section 1283.05(e)), and
prior
to the arbitration hearing the parties may file, and the arbitrator shall
rule
on, pre-trial motions such as demurrers and motions for summary judgment
(applying the procedural standard embodied in Rule 56 of the Federal Rules
of
Civil Procedure). The time for filing such motions shall be determined by
the
arbitrator. The arbitrator will rule on all pre-trial motions at least ten
(10)
business days prior to the scheduled hearing date. Arbitration may be compelled,
the arbitration award shall be enforced, and judgment thereon shall be entered,
pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280
et
seq.).
The
prevailing party in any such arbitration shall be entitled to recover from
the
other, and the arbitrator is instructed to award to the prevailing party,
an
amount equal to the reasonable attorneys’ fees and costs (including expert
witness fees) incurred in connection with the arbitration, except that the
Company shall bear AAA’s administrative fees and the arbitrator’s fees and
costs. If any party is required to compel arbitration of a dispute governed
by
this paragraph, the party prevailing in that proceeding shall be entitled
to
recover from the other party its reasonable costs and attorneys’ fees and
expenses incurred to compel arbitration. This paragraph is intended to be
the
exclusive method for resolving any and all claims by the parties against
each
other for payment of damages under this Agreement or relating to Employee’s
employment; provided, however, that neither this Agreement nor the submission
to
arbitration shall limit the parties’ right to seek provisional relief, including
without limitation injunctive relief, in any court of competent jurisdiction.
Both Employee and the Company expressly waive their right to a jury trial.
This
paragraph shall survive the expiration or termination of this Agreement.
If any
part of this paragraph is found to be void as a matter of law or public policy,
the remainder of the paragraph will continue to be in full force and
effect.
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11. Miscellaneous.
(a) Assignment.
The
rights and obligations of the parties under this Agreement shall inure to
the
benefit of and be binding upon their respective successors and assigns. Employee
agrees that the Company may assign its rights and obligations under this
Agreement or any successor-in-interest. Employee may assign his rights and
obligations hereunder only with the express written consent of the Company,
except that the rights under this Agreement shall inure to the benefit of
the
Employee’s heirs or assigns in the event of his death. Except as expressly
provided in this paragraph, no party may assign its/his rights and obligations
hereunder; and any attempt to do so will be void.
(b) Severability. If
any
provision of this Agreement otherwise is deemed to be invalid or unenforceable
or is prohibited by the laws of the state or jurisdiction where it is to
be
performed, this Agreement shall be considered divisible as to such provision,
and such provision shall be inoperative in such state or jurisdiction and
shall
not be part of the consideration moving from any of the parties to any other.
The remaining provisions of this Agreement shall be valid and binding and
of
like effect as though such provision were not included.
(c) Notice.
Notices
given pursuant to the provisions of this Agreement shall be delivered personally
or sent by certified mail, postage pre-paid, or by overnight courier, or
by fax,
to the Company’s then-current business address or, in the event the notice is to
Employee, to the address that Employee has represented to the Company as
current.
(d) Governing
Law.
This
Agreement shall be governed by and construed and enforced in accordance with
the
laws of the State of Delaware, without giving effect to the conflict of laws
rules thereof.
(e) Waiver;
Amendment. The
waiver by any party to this Agreement of a breach of any provision hereof
by any
other party shall not be construed as a waiver of any subsequent breach.
No
provision of this Agreement may be terminated, amended, supplemented, waived
or
modified other than by an instrument in writing, signed by the party against
whom the enforcement of the termination, amendment, supplement, waiver or
modification is sought.
(f) Entire
Agreement.
This
Agreement represents the entire agreement between the parties with respect
to
the subject matter of this Agreement and supersedes any previous agreement
or
understanding.
(g) Execution
in Counterparts. This
Agreement may be executed in counterparts with the same force and effectiveness
as though executed as a single document.
(h) Section
409A.
The
parties acknowledge and agree that, to the extent applicable, this Agreement
shall be interpreted in accordance with, and the parties agree to use their
best
efforts to achieve timely compliance with, Section 409A of the Code, and
the
Department of Treasury Regulations and other interpretive guidance issued
thereunder, including, without limitation, any such regulations or other
guidance that may be issued after the date hereof. Notwithstanding any provision
of this Agreement to the contrary, in the event that the Company determines
that
any amounts payable hereunder would otherwise be taxable to Employee under
Section 409A, the Company may adopt such limited amendments to this Agreement
and appropriate policies and procedures, including amendments and policies
with
retroactive effect, that the Company reasonably determines are necessary
or
appropriate to comply with the requirements of Section 409A and thereby avoid
the application of penalty taxes under such Section.
[signature
page follows]
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IN WITNESS WHEREOF,
the
Company and the Employee have executed this Agreement as of the day and year
first written above.
TEGAL CORPORATION
EMPLOYEE
_____________________________ _______________________________________
Ed
Dohring Thomas
R.
Mika
Chairman
of the Compensation
Committee
President and Chief Executive Officer
of
Tegal Corporation