CHIEF EXECUTIVE OFFICER AGREEMENT

 

This Chief Executive Officer Agreement (“Agreement”) is made and entered into on
August 26, 2020, for services commencing as of August 26, 2020 (“Commencement
Date”), by and between Schmitt Industries, Inc., an Oregon corporation
(“Company”), and Michael R. Zapata, an individual (“Michael” or “CEO”).

 

1.   Term. The initial term of this Agreement shall begin on the Commencement
Date and continue for a period of three years (“Initial Term”). At the
conclusion of the Initial Term, and each successive term thereafter, the
Agreement shall be automatically renewed for an additional one-year term, unless
either party gives written notice of its intention to terminate the Agreement
pursuant to the termination provision in Sections 4(b) and (c), below at least
30-days’ prior to the automatic renewal date (collectively, the “Term”).

 

2.   Services.

 

(a)   CEO, President of Schmitt Industries. During the Term Michael shall serve
as Chief Executive Officer (“CEO”) and President of the Company. Michael shall,
to the extent appointed or elected and subject to the terms of this Agreement,
continue to serve as Chairman of the Board throughout the Term.

 

(b)   Position and Duties. Michael shall have the general powers, duties and
responsibilities usually vested in the office of the CEO and President of the
Company, as such powers, duties, and responsibilities are defined in the
Company’s Bylaws (the “Bylaws”) and such other additional powers as may be
prescribed from time to time by the Board.

 

(c)   Other Services. Company acknowledges and approves Michael’s current
responsibilities as Founder of Sententia Capital Management, LLC (“Sententia”).
In addition, Company acknowledges that Michael may do charity work and conduct
personal business, as long as such activities do not materially interfere with
the performance of Michael’s duties hereunder.

 

3.   Compensation. During the term of this Agreement, Company shall pay the
amounts and provide the benefits described in this section, and Michael agrees
to accept such amounts and benefits in full payment for Michael’s services under
this Agreement.

 

(a)   Annual Salary. The CEO’s annual salary shall be Two Hundred and Fifty
Thousand Dollars ($250,000) (the “Annual Salary”). The Annual Salary shall be
paid in accordance with the then-prevailing payroll practices of the Company,
less applicable taxes, payroll deductions and withholdings required by law. The
Board shall review the Annual Salary on an annual basis and make appropriate
adjustments thereto from time to time; provided that the Annual Salary shall not
be reduced below $200,000 without the Michael’s prior written consent. At the
end of fiscal year 2021, the Company agrees that the Board shall review the
Annual Salary to make any appropriate adjustments, in its sole discretion, based
on anticipated improvements in the Company’s cost structure and business
outlook.

 

(b)   Bonuses.

 

(i) Subject to the foregoing and any restrictions under federal or state law of
the rules of any exchange upon which the shares of Company’s common stock are
then traded, Michael shall be eligible to receive a bonus target of 50% of
annual salary, paid as half cash and half stock, as determined in the reasonable
discretion of the Board or its Compensation Committee based on financial
objectives as determined by the Board. The financial objectives will be
established as soon as reasonably practicable and reevaluated on an annual basis
by mutual agreement of CEO and the Board or its Compensation Committee. The
bonus will be based on a fiscal year and paid no later than one hundred five
(105) calendar days after the end of the fiscal year.

 

(ii) The Board, in its sole discretion, may also determine to pay Michael a
discretionary cash bonus from time to time (the “Discretionary Bonus”) based on
factors determined in its sole discretion.

 

 

 

(c)   Annual Review. Upon each anniversary of the Commencement Date, Michael’s
cash compensation and bonus target shall be reevaluated by the Board or its
Compensation Committee and, if appropriate, increased to ensure appropriate
compensation in the competitive marketplace based on the position and level of
service of CEO.

 

(d)   Reimbursement of Expenses. Company shall pay to or reimburse Michael for
all reasonable and ordinary out-of-pocket business, travel, promotional and
similar expenditures incurred by Michael.

 

(e)   Deductions. Company shall deduct and withhold from all compensation
payable to Michael all amounts required to be deducted or withheld pursuant to
any present or future law, ordinance, regulation, order, writ, judgment or
decree requiring such deduction and withholding. To the extent legally
permissible, the Company shall not treat any fringe benefits or expense
reimbursement as income to Michael.

 

4.   Termination

 

(a)   Termination for Cause. The Company may immediately terminate Michael for
Cause (as defined below) by giving written notice to Michael. In the event of a
termination for Cause, Michael shall be entitled to payment of (i) that portion
of any of Michael’s Annual Salary that Michael earned through and including the
Termination Date, at the rate of the Annual Salary in effect at that time, (ii)
any Termination Vacation Pay, and (iii) any bonus earned prior to the
Termination Date that remains unpaid, subject to any offset or recoupment rights
of the Company and any other rights or remedies applicable to any breach of this
Agreement by Michael prior to the Termination Date.

 

Except as provided herein or required by applicable law, Michael shall not be
entitled to any other compensation or benefits. Termination for “Cause” shall
mean termination by the Board of Michael’s employment with the Company, after a
good faith determination by the Board at a meeting called and held for that
purpose, or in a written consent to resolutions signed by all members of the
Board (except the CEO), and after reasonable notice to Michael, that the CEO:

 

(i) has willfully engaged in misconduct materially and adversely affecting the
Company;

 

(ii) engaged in theft, fraud, embezzlement or similar behavior;

 

(iii) has been indicted or convicted of a felony;

 

(iv) Materially violated the Company’s written Codes of Ethics as adopted by the
Board under the Sarbanes-Oxley Act or its Directors’ Confidentiality Policy
dated October 12, 2018 (the “Confidentiality Policy”);

 

(v) Refused to comply with a relevant and material obligation assumable and
chargeable to an executive of CEO’s corporate rank and responsibilities under
the Sarbanes-Oxley Act and the regulations of the Securities and Exchange
Commission promulgated thereunder; or

 

(vi) has willfully continued, after a correction period, to fail to
substantially perform the material duties of CEO’s position with the Company
(other than failure resulting from incapacity due to physical or mental
illness). The correction period shall last not less than ten (10) days after the
Company provides Michael with written notice of CEO’s failure to substantially
perform CEO’s material duties.

 

(b)   Termination Without Cause. The Company may, in its sole discretion,
terminate Michael without Cause, by providing written notice to Michael (the
“Termination Notice”) at least thirty (30) calendar days prior to the
Termination Date. In the event of a termination without Cause, and subject to
Michael’s signature to a Separation and Release Agreement, in the form attached
to this Agreement as Exhibit A, Michael shall be entitled to: (i) payment of
that portion of any of Michael’s Annual Salary that Michael earned through and
including the Termination Date, at the rate of the Annual Salary in effect at
that time; (ii) any Termination Vacation Pay; (iii) any bonus earned prior to
the Termination Date that remains unpaid; (iv) payment of Michael’s Annual
Salary, at the rate of the Annual Salary in effect at that time, commencing on
the Termination Date and continuing for the twelve (12) month period thereafter;
(v) immediate vesting of any RSUs granted

 

 

 

pursuant to Section 3(c) and (vi) if such termination occurs on or before
January 01, 2021, a cash payment of $200,000; provided, however, in each case
(i)-(vi) that Michael executes and delivers to the Company a complete release
agreement in form and substance reasonably acceptable to the Company, but
excluding payments set forth in this paragraph 4(b). In addition, the Company
shall be obligated to continue any health and welfare benefits provided to the
CEO under Section 3(d) throughout the period commencing on the Termination Date
and continuing for a twelve (12) month period thereafter. Except as provided
herein or required by applicable law, Michael shall not be entitled to any other
compensation or benefits. With respect to Section 4(b)(iv) above, such payments
shall be paid in accordance with the then-prevailing payroll practices of the
Company, less applicable taxes, payroll deductions and withholdings required by
law.

 

(c)   Resignation. Michael may resign from his employment with the Company at
any time by providing written notice to the Company thirty (30) calendar days
prior to the Resignation Date. In the event of resignation other than any
resignation for Good Reason covered by paragraph (d) below: (i) Michael shall be
entitled to payment of that portion of Michael’s Annual Salary that Michael
earned through and including the Resignation Date, at the rate of the Annual
Salary in effect at that time, any Termination Vacation Pay and any bonus earned
prior to the Resignation Date that remains unpaid.

 

Except as provided herein (including, without limitation, in Section 4(d)) or
required by applicable law, Michael shall not be entitled to any other
compensation or benefits. 

 

(d)   Resignation for Good Reason. Notwithstanding Section 4(c), Michael may
terminate his employment by the Company for Good Reason (as defined below) by
providing written notice thereof to the Company (the “Resignation Notice”) at
least thirty (30) days prior to the Resignation Date, which notice shall set
forth in reasonable detail the nature of the facts and circumstances which
constitute “Good Reason” (as defined below) and Company shall have thirty (30)
days after receipt of the Resignation Notice to cure in all material respects
the facts and circumstances which constitute Good Reason. Subject to Michael’s
signature to a Separation Agreement and Release, in the form provided in Exhibit
A, in the event of a termination for Good Reason, Michael shall be entitled to:
(i) payment of that portion of Michael‘s Annual Salary that Michael earned
through and including the Resignation Date, at the rate of the Annual Salary in
effect at that time; (ii) any Termination Vacation Pay; (iii) any bonus earned
prior to the Resignation Date that remains unpaid; (iv) payment of CEO’s Annual
Salary, at the rate of the Annual Salary in effect at that time, commencing on
the Resignation Date and continuing for the twelve (12) month period thereafter;
(v) immediate vesting of any RSUs granted pursuant to Section 3(c) and (vi) if
such termination occurs on or before January 01, 2021, a cash payment of
$200,000; in each case (i)-(vi) provided, however, that Michael executes and
delivers to the Company a complete release agreement in form and substance
reasonably acceptable to the Company. In addition, the Company shall be
obligated to continue any health and welfare benefits provided to Michael under
Section 3(d) throughout the period commencing on the Termination Date and
continuing for a twelve (12) month period thereafter. Except as provided herein
or required by applicable law, Michael shall not be entitled to any other
compensation or benefits. With respect to Section 4(d)(iv) above, such payments
shall be paid in accordance with the then-prevailing payroll practices of the
Company, less applicable taxes, payroll deductions and withholdings required by
law.

 

For purposes of this Agreement, “Good Reason” means the resignation of Michael’s
employment by the Company by Michael, because of (A) any reduction in Michael’s
Annual Salary then in effect in a manner that is not permitted under Section
3(a) hereof, (B) a substantial diminution in the duties, responsibilities or
titles of Michael (including, without limitation, duties and responsibilities as
a director of the Company), but only if uncured in accordance with the foregoing
provisions hereof, or (C) being required by the Board to work in the Company’s
office located in any place other than in the Los Angeles area for more than 12
days in any one month in order to maintain employment with the Company pursuant
to this Agreement. 

 

(e)    Death. If Michael dies, his employment with the Company and this
Agreement shall automatically terminate on the date of his death. Michael’s
estate or personal representative shall be entitled to receive that portion of
the Annual Salary that Michael earned through and including the date of the
Michael’s death, at the rate of the Annual Salary in effect at that time, any
Termination Vacation Pay and any bonus earned prior to the date of Michael’s
death that remains unpaid. All restricted stock and/or restricted stock units
(or comparable forms of equity compensation, if any) held by Michael which, as
of the date of the death of Michael, are not then subject to any performance
conditions for vesting, shall be fully vested and shall not be subject to any
risk of forfeiture or repurchase as of the date of Michael’s death. The payment
described in this Section, if payable, will be paid within ten (10) days after
Michael’s death. Except as provided herein or required by applicable law,
neither Michael’s estate nor his personal representative shall be entitled to
any other compensation or benefits.

 

 

 

(f)    Disability. Michael shall be deemed “Permanently Disabled” when he has
suffered any medically determinable physical or mental illness, injury or
infirmity that prevents Michael from performing his responsibilities under this
Agreement and which disability has lasted or that the Board in good faith has
determined can be expected to last for a continuous period of not less than 120
calendar days. The Board has the discretion to determine whether Michael is
disabled and that determination shall be binding and conclusive on Michael (and
any guardians or representatives for him). If Michael becomes Permanently
Disabled, the Company may terminate the Michael’s employment with the Company as
a result of the Permanent Disability by providing written notice to Michael
thirty (30) calendar days prior to the Termination Date, or Michael may resign
from his employment with the Company by providing written notice to the Company
thirty (30) calendar days prior to the Resignation Date. In the event Michael’s
employment under this Agreement is terminated as a result of Michael’s
disability, or Michael resigns from employment as a result of a Permanent
Disability, Michael shall be entitled to receive that portion of the Annual
Salary, at the rate in effect when he became Permanently Disabled, that he
earned through and including the Termination Date or Resignation Date, as
applicable, less any amounts Michael is entitled to receive under any disability
insurance policy maintained by the Company, any Termination Vacation Pay and any
bonus earned prior to the Termination Date or Resignation Date, as applicable,
that remains unpaid. All restricted stock and/or restricted stock units (or
comparable forms of equity compensation, if any) held by Michael which, as of
the date of the disability of Michael, are not then subject to any performance
conditions for vesting, shall be fully vested and shall not be subject to any
risk of forfeiture or repurchase as of the date of Michael’s termination due to
disability (as defined in this paragraph). Except as provided herein or required
by applicable law, Michael shall not be entitled to any other compensation or
benefits.

 

Section 5.    Confidentiality. For purposes of this Section 5, the term
“Company” shall include, in addition to the Company, its affiliates,
subsidiaries and any of their respective predecessors, successors and assigns.

 

(a)    Confidential Information. As used in this Agreement, “Confidential
Information” means any and all confidential, proprietary or other information,
whether or not originated by the CEO or the Company, which is in any way related
to the past or present Company’s business and is either designated as
confidential or not generally known by or available to the public. Confidential
Information includes, but is not limited to (whether or not reduced to writing
or designated as confidential) (i) information regarding the Company’s existing
and potential customers and vendors; (ii) any contracts (including the existence
and contents thereof and parties thereto) to which the Company is a party or is
bound; (iii) information regarding products and services being purchased or
leased by or provided to the Company; (iv) information received by the Company
from third parties under an obligation of confidentiality, restricted disclosure
or restricted use; (v) personnel and financial information of the Company;
(vi) information with respect to the Company’s products, services, facilities,
business methods, systems, trade secrets, technical know-how, and other
intellectual property; and (vii) marketing and developmental plans and
techniques, price and cost data, forecasts and forecast assumptions, and
potential strategies of the Company.

 

(b)    Non-Disclosure and Non-Use of Confidential Information. The CEO
acknowledges that the Confidential Information of the Company is a valuable,
unique asset of the Company and the CEO’s use or disclosure thereof could cause
irreparable harm to the Company for which no remedy at law could be adequate.
Accordingly, the CEO agrees that he shall hold all Confidential Information of
the Company in strict confidence and solely for the benefit of the Company, and
that, except as necessary in the course of CEO’s duties as an employee of the
Company, he shall not, directly or indirectly, disclose or use or authorize any
third party to disclose or use any Confidential Information. The CEO shall
follow all the Company policies and procedures to protect all Confidential
Information and take any additional precautions necessary to preserve and
protect the use or disclosure of any Confidential Information at all times.

 

(c)    Ownership of Confidential Information. The CEO acknowledges and agrees
that all Confidential Information is and shall remain the exclusive property of
the Company, whether or not prepared in whole or in part by the CEO and whether
or not disclosed to or entrusted to the custody of the CEO. Upon the termination
or resignation of his employment by the Company, or at any other time at the
request of the Company, the CEO shall promptly deliver to the Company all
documents, tapes, disks, or other storage media and any other materials, and all
copies thereof in whatever form, in the possession of the CEO pertaining to the
Company’s Business, including, but not limited to, any containing Confidential
Information.

 

 

 

(d)  Confidentiality Policy. The CEO’s obligations under this Section 5 are in
addition to those imposed by the Confidentiality Policy.

 

(e) Defend Trade Secret Act Disclosure. Notwithstanding anything to the contrary
in this Section 5(e) or elsewhere in this Agreement, CEO has the right to
disclose in confidence Company’s trade secrets to government officials, or to
any attorney for the sole purpose of reporting or investigating a suspected
violation of law. CEO also has the right to disclose Company’s trade secrets in
a document filed in a lawsuit or other proceeding but only if the filing is
under seal and protected from public disclosure. CEO will not be held criminally
or civilly liable for disclosure of a Company’s trade secret under those limited
circumstances. Nothing in this Agreement is intended to create liability for
disclosure of Company’s trade secrets that are expressly allowed by 18 U.S.C. §
1833(b). Company requests that CEO inform it of any disclosure that will be made
under this Section 5(e).

 

(f)    Survival. The CEO’s obligations set forth in this Section 5, and the
Company’s rights and remedies with respect hereto, shall indefinitely survive
the termination of this Agreement and the CEO’s employment by the Company,
regardless of the reason therefor.

 

Section 6.    Restrictive Covenants. For purposes of this Section 6, the term
“Company” shall include, in addition to the Company, its affiliates,
subsidiaries and any of their respective predecessors, successors and assigns.

 

(a)    Non-Competition. The CEO shall not, during the Restricted Period and
within the Restricted Area (each as defined in subsection (c) below), directly
or indirectly, perform on behalf of any Competitor (as defined in subsection
(c) below) the same or similar services as those that CEO performed for the
Company during the CEO’s employment by the Company or otherwise. In addition,
the CEO shall not, during the Restricted Period or within the Restricted Area,
directly or indirectly engage in, own, manage, operate, join, control, lend
money or other assistance to, or participate in or be connected with (as an
officer, director, member, manager, partner, shareholder, consultant, employee,
agent, or otherwise), any Competitor.

 

(b)    Non-Solicitation. During the Restricted Period, the CEO shall not,
directly or indirectly, for himself or on behalf of any Person (as defined in
subsection (c) below), (i) solicit or attempt to solicit any Customers (as
defined in subsection (c) below), or prospective Customers, with whom the CEO
had contact at any time during the CEO’s employment by the Company, or about
whom the CEO learned Confidential Information; (ii) divert or attempt to divert
any business of the Company to any other Person; (iii) solicit or attempt to
solicit for employment, endeavor to entice away from the Company, recruit, hire,
or otherwise interfere with the Company’s relationship with, any Person who is
currently employed by or otherwise engaged to perform services for the Company
(or was employed or otherwise engaged to perform services for the Company, as of
any given time, within the immediately preceding twenty-four (24) month period);
(iv) cause or assist, or attempt to cause or assist, any current employee or
other service provider to leave the Company; or (v) otherwise interfere in any
manner with the employment or business relationships of the Company or the
business or operations then being conducted by the Company.

 

(c)    Definitions. For purposes of this Section 6, the following definitions
have the following meanings:

 

(i)     “Competitor” means any Person that engages in a business that is the
same as, or similar to, the Company’s Business.

 

(ii)    “Customer” means any Person who, as of any given date, used or purchased
or contracted to use or purchase any services or products from the Company
within the immediately preceding twenty-four (24) month period.

 

(iii)    “Person” means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust, or
unincorporated organization, or any governmental agency, officer, department,
commission, board, bureau, or instrumentality thereof.

 

(iv)    “Restricted Area” means, because the market for Company’s Business is
global, or has the potential of being global, and is not dependent upon the
physical location or presence of the Company, the CEO, or any individual or
entity that may be in violation of this Agreement, the broadest geographic
region enforceable by law (excluding any location where this type of restriction
is prohibited by law) as follows: (A) everywhere in the world that has access to
Company’s Business because of the availability of the Internet; (B) everywhere
in the world that the CEO has the ability to compete with Company’s Business
through the Internet; (C) each state, commonwealth, territory, province and
other political subdivision located in North America; (D) each state,
commonwealth, territory and other political subdivision of the United States of
America; (E) any state in which the CEO has performed any services for the
Company; (F) any geographical area in which the Company has performed any
services or sold any products; (G) any geographical area in which the Company or
any of its subsidiaries have engaged in Company’s Business, which has resulted
in aggregate sales revenues of at least $25,000 during any year in the five
(5) year period immediately preceding the commencement of the Restricted Period;
(H) any state or other jurisdiction where the Company had an office at any time
during the CEO’s employment by the Company; (I) within one hundred (100) miles
of any location in which the Company had an office at any time during the CEO’s
employment by the Company; and (J) within one hundred (100) miles of any
location in which the CEO provided services for the Company.

 

 

  

(v)    “Restricted Period” means the period of time during the CEO’s employment
by the Company plus a period of twelve (12) months from the Termination Date or
Resignation Date, as applicable. In the event of a breach of this Agreement by
the CEO, the Restricted Period will be extended automatically by the period of
the breach.

 

(d)    Survival. The CEO’s obligations set forth in this Section 6, and the
Company’s rights and remedies with respect thereto, will remain in full force
and effect during the Restricted Period and until full resolution of any dispute
related to the performance of the CEO’s obligations during the Restricted
Period.

 

(e)    Public Company Exception. The prohibitions contained in this Section 6 do
not prohibit the CEO’s ownership of stock which is publicly traded, provided
that (1) the investment is passive, (2) the CEO has no other involvement with
the company, (3) the CEO’s interest is less than five (5%) percent of the shares
of the company, and (4) the CEO makes full disclosure to the Company of the
stock at the time that the CEO acquires the shares of stock.

 

Section 7.    Assignment of Inventions. Any and all inventions, improvements,
discoveries, designs, works of authorship, concepts or ideas, or expressions
thereof, whether or not subject to patents, copyrights, trademarks or service
mark protections, and whether or not reduced to practice, that are conceived or
developed by the CEO while employed with the Company and which relate to or
result from the actual or anticipated business, work, research or investigation
of the Company (collectively, “Inventions”), shall be the sole and exclusive
property of the Company. The CEO shall do all things reasonably requested by the
Company to assign to and vest in the Company the entire right, title and
interest to any such Inventions and to obtain full protection therefor.
Notwithstanding the foregoing, the provisions of this Agreement do not apply to
an Invention for which no equipment, supplies, facility, or Confidential
Information of the Company was used and which was developed entirely on the
CEO’s own time, unless (a) the Invention relates (i) to Company’s Business, or
(ii) to the Company’s actual or demonstrably anticipated research or
development, or (b) the Invention results from any work performed by the CEO for
the Company.

 

Section 8.    Reasonableness; Remedies; Claims.

 

(a)    Reasonableness. The CEO has carefully considered the nature, extent and
duration of the restrictions and obligations contained in this Agreement,
including, without limitation, the geographical coverage contained in Section 6
and the time periods contained in Section 5 and Section 6, and acknowledges and
agrees that such restrictions are fair and reasonable in all respects to protect
the legitimate interests of the Company and that these restrictions are designed
for the reasonable protection of Company’s Business.

 

(b)    Remedies/Injunctive Relief. The CEO recognizes that any breach of this
Agreement shall cause irreparable injury to the Company, inadequately
compensable in monetary damages. Accordingly, in addition to any other legal or
equitable remedies that may be available to the Company, the CEO agrees that the
Company shall be able to seek and obtain injunctive relief in the form of a
temporary restraining order, preliminary injunction, or permanent injunction, in
each case without notice or bond, against CEO to enforce this Agreement. The
Company shall not be required to demonstrate actual injury or damage to obtain
injunctive relief from the courts. To the extent that any damages are calculable
resulting from the breach of this Agreement, the Company shall also be entitled
to recover damages, including, but not limited to, any lost profits of the
Company and/or its affiliates or subsidiaries. For purposes of this Agreement,
lost profits of the Company shall be deemed to include all gross revenues
resulting from any activity of the CEO in violation of this Agreement and all
such revenues shall be held in trust for the benefit of the Company. Any
recovery of damages by the Company shall be in addition to and not in lieu of
the injunctive relief to which the Company is entitled. In no event will a
damage recovery be considered a penalty in liquidated damages. In addition, in
any action at law or in equity arising out of this Agreement, the prevailing
party shall be entitled to recover, in addition to any damages caused by a
breach of this Agreement, all costs and expenses, including, but not limited to,
reasonable attorneys’ fees, expenses, and court costs incurred by such party in
connection with such action or proceeding. Without limiting the Company’s rights
under this Section 7(b) or any other remedies of the Company, if a court of
competent jurisdiction determines that the CEO breached any of the provisions
of Section 5 or 6, the Company will have the right to cease making any payments
or providing any benefits otherwise due to the CEO under the terms and
conditions of this Agreement.

 

 

 

(c)    Claims by the CEO. The CEO acknowledges and agrees that any claim or
cause of action by the CEO against the Company shall not constitute a defense to
the enforcement of the restrictions and covenants set forth in this Agreement
and shall not be used to prohibit injunctive relief.

 

Section 9.    Nonassignability, Binding Agreement.

 

(a)    By the CEO. The CEO shall not assign, transfer or delegate this Agreement
or any right, duty, obligation, or interest under this Agreement without the
Company’s prior written consent; provided, however, that nothing shall preclude
the CEO from designating beneficiaries to receive compensation or benefits, if
any, payable under this Agreement upon his death.

 

(b)    By the Company. The Company shall not assign, transfer or delegate this
Agreement or any right, duty, obligation or intent under this Agreement without
the CEO’s prior written consent; provided, however, that the Company may assign
this Agreement and all of its rights and obligations hereunder to any person who
or entity that shall acquire all or substantially all of the assets and
properties of the Company in a bona fide sale transaction.

 

(c)    Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties, any successors or assigns of the Company and the CEO’s
heirs and the personal representative(s) or executor(s) of the CEO’s estate.

 

Section 10.    Definitions. The following capitalized terms shall have,
throughout this Agreement, the following meanings:

 

(a)     “Resignation Date” shall mean the date specified in the Resignation
Notice, or the actual date the CEO terminates employment with the Company as the
result of a resignation as provided in whichever occurs earlier.

 

(b)    “Termination Date” shall mean the actual date the CEO ceases to be
employed with the Company as a result of action taken by the Company, and not as
a result of CEO’s resignation from employment.

 

Section 11.    Judicial Modification and Severability. CEO agrees that if a
court of competent jurisdiction should determine that any phrase or provision in
this Agreement is invalid or unenforceable as written for any reason, the court
shall modify and enforce any such phrase or provision to the maximum extent
reasonably necessary to protect the Company’s legitimate business interests, so
long as the modification does not render the phrase or provision more
restrictive with regard to CEO than originally drafted. CEO further agrees that
if such modification of a phrase or provision that is invalid or unenforceable
as written is legally impossible, the Court shall sever any such phrase or
provision from this Agreement, and that the enforceability of all other
provisions of this Agreement shall not be affected, but shall otherwise remain
in full force and effect.

 

Section 12.    Amendment. This Agreement may not be modified, amended, or waived
in any manner except by a written instrument signed by both parties to this
Agreement.

 

Section 13.    Waiver. The waiver by any party of compliance by any other party
with any provision of this Agreement shall not operate or be construed as a
waiver of any other provision of this Agreement (whether or not similar), or a
continuing waiver or a waiver of any subsequent breach by a party of a provision
of this Agreement. Performance by any of the parties of any act not required of
it under the terms and conditions of this Agreement shall not constitute a
waiver of the limitations on its obligations under this Agreement, and no
performance shall estop that party from asserting those limitations as to any
further or future performance of its obligations.

 

Section 14.    Governing Law and Forum. This Agreement shall be governed,
construed and enforced in accordance with the laws of the State of Oregon,
without regard to principles of conflict of laws of such State. Any action to
enforce this Agreement shall be brought solely in the state or federal courts
located in Multnomah County, Oregon.

 

 

 

Section 15.    Notices. All notices required or desired to be given under this
Agreement shall be in writing and shall be deemed to have been given if
delivered in person and receipted

 

for by the party to whom the notice is directed; mailed by certified or
registered United States mail postage prepaid, not later than the day upon which
the notice is required to be given pursuant to this Agreement; or delivered by
expedited courier, shipping prepaid or mailed to sender, on the next business
day, after the date on which it is so sent, and addressed as follows:

 

             If to the Company, to: Board of Directors   Schmitt Industries,
Inc.   2765 N.W. Nicolai Street   Portland, OR  97210                  If to the
CEO, to: Michael Zapata   Schmitt Industries, Inc.   2765 N.W. Nicolai Street  
Portland, OR  97210

   

Either party may, by giving written notice to the other party, change the
address to which notice shall then be sent.

 

Section 16.    Prior Agreements. This Agreement is a complete and total
integration of the understanding of the parties related to the CEO’s employment
with the Company and supersedes all prior or contemporaneous negotiations,
commitments, agreements, writings, and discussions with respect to the subject
matter of this Agreement. This Agreement shall not be integrated nor supersede
any commitments, agreements, writings, and discussions with respect to the CEO’s
prior service as a member of the Company’s Board of Directors.

 

Section 17.    Headings. The headings of the sections of this Agreement are
inserted solely for convenience of reference and shall not be deemed to affect
the meaning or interpretation of this Agreement.

 

Section 18.    Counterparts. This Agreement may be executed in two
(2) counterparts, each of which shall be deemed to be an original, but both of
which together shall constitute one and the same Agreement.

 

Section 19.    Statutory and Common Law Duties. The duties the CEO owes to the
Company under this Agreement shall be deemed to include federal and state
statutory and common law obligations of the CEO, and do not in any way supersede
or limit any of the obligations or duties the CEO owes to the Company.

 

Section 20    Arbitration.

 

(a)     “Except as otherwise provided in Section 11.2, any dispute, controversy,
or claim arising out of the subject matter of this Agreement will be settled by
arbitration before a single arbitrator in Portland, Oregon.

 

(b)    “If the parties agree on an arbitrator, the arbitration will be held
before the arbitrator selected by the parties. If the parties do not agree on an
arbitrator, each party will designate an arbitrator and the arbitration will be
held before a third arbitrator selected by the designated arbitrators. Each
arbitrator will be an attorney knowledgeable in the relevant area of law.

 

(c)     “The arbitration will be initiated by filing a claim with Arbitration
Service of Portland, and will be conducted in accordance with the then-current
rules of the Arbitration Service of Portland.

 

(d)     “The resolution of any dispute, controversy, or claim as determined by
the arbitrator will be binding on the parties. Judgment on the award of the
arbitrator may be entered by any party in any court having jurisdiction.

 

 

 

(e) )    “A party may seek from a court an order to compel arbitration, or any
other interim relief or provisional remedies pending an arbitrator’s resolution
of any dispute, controversy, or claim. Any such action, suit, or proceeding – or
any action, suit, or proceeding to confirm, vacate, modify, or correct the award
of the arbitrator – will be litigated in courts located in Multnomah County,
Oregon.

 

(f)    “For the purposes set forth in Section 11.2, each party consents and
submits to the jurisdiction of any local, state, or federal court located in
Multnomah County, Oregon.

 

(g) )    “EACH PARTY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY WITH
RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO EMPLOYEE’S
EMPLOYMENT OR TERMINATION OF EMPLOYMENT OR THIS AGREEMENT.

 

I acknowledge that I have received and read or have had the opportunity to read
this arbitration agreement. I understand that this arbitration agreement
requires that disputes that involve the matters subject to the agreement be
submitted to mediation or arbitration pursuant to the arbitration agreement
rather than to a judge and jury in court. _____ Employee Initials

 

Section 21: Attorney’s Fees. If any arbitration, action, suit, or proceeding is
instituted to interpret, enforce, or rescind this Agreement, or otherwise in
connection with the subject matter of this Agreement, including but not limited
to any proceeding brought under the United States Bankruptcy Code, the
prevailing party on a claim will be entitled to recover with respect to the
claim, in addition to any other relief awarded, the prevailing party’s
reasonable attorney's fees and other fees, costs, and expenses of every kind,
including but not limited to the costs and disbursements specified in ORCP 68
A(2), incurred in connection with the arbitration, action, suit, or proceeding,
any appeal or petition for review, the collection of any award, or the
enforcement of any order, as determined by the arbitrator or court.

 

Section 22: Compliance with Code Section 409A. This Agreement and the benefits
provided hereunder are intended to either be exempt from or comply with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended
and the regulations promulgated thereunder (“Section 409A”) and should be
interpreted consistent therewith. If a benefit hereunder is subject to Section
409A, references to “termination of employment” (or similar phrases) shall be
interpreted as consistent with the definition of “separation from service” in
the regulations promulgated under Section 409A. If any other payments of money
or other benefits due to Employee hereunder could cause the application of an
accelerated or additional tax under Section 409A, the Company and Employee shall
adopt such amendments to the Agreement, including amendments with retroactive
effect, that Employee’s legal counsel shall deems appropriate to preserve the
intended tax treatments and to comply with the requirements of Section 409A.

 

Section 23.    CEO Acknowledgments.

 

(a)    The CEO Has Read the Document. The CEO acknowledges and agrees that he
has carefully read this entire Agreement and has been given sufficient
opportunity to discuss this Agreement with the Company before signing.

 

(b)    The CEO Has Had an Opportunity to Consult with Others. The CEO
acknowledges and agrees that he has been given an adequate opportunity to
consult with his lawyer, accountant, tax advisor, spouse and other persons he
deems appropriate concerning this Agreement and the terms and conditions hereof.

 

(c)    Signing is Acceptance. By signing, the CEO agrees to accept all of the
terms and conditions of this Agreement and understands that the Company is
relying upon the CEO’s stated acceptance of such terms and conditions.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.

 

“COMPANY”       “CEO”         SCHMITT INDUSTRIES, INC.                       By:
  _________________________________________       By:  
_________________________________________     Andrew Hines, President Board of
Directors           Michael R. Zapata

 

 

 

EXHIBIT A

 

[Notice: This form of Release of Claims should not be used without consulting
with legal counsel to confirm compliance with applicable laws as of the time of
signing.]

 

FORM OF RELEASE OF CLAIMS

 

This is a confidential agreement (this “Release Agreement”) between you, Michael
Zapata, and us, Schmitt Industries, Inc. (“Employer”). This Release Agreement is
dated for reference purposes __________, 20__, which is the date we delivered
this Release Agreement to you for your consideration.

 

1.       Termination of Employment. Your employment terminates [or was
terminated] on __________, 20__ (the “Separation Date”).

 

2.       Payments. In exchange for your agreeing to the release of claims and
other terms in this Release Agreement, we will pay you the Severance Benefit as
defined in Section 4(b) of the Employment Agreement between you and Employer
dated ________, 2020 (the “Employment Agreement”). Such provisions of the
Employment Agreement are incorporated herein by reference. You acknowledge that
we are not obligated to make these payments to you unless you comply with the
material terms of the Employment Agreement and of this Release Agreement.

 

3.       Insurance Continuation Coverage. Your normal employee participation in
Employer’s group health coverage, if any, will terminate on the Separation Date.
Continuation of group health coverage thereafter will be made available to you
and your dependents pursuant to federal law (COBRA). Continuation of group
health coverage after the Separation Date is entirely at your expense, as
provided under COBRA.

 

4.       Termination of Benefits. Except as provided in Section 3 hereof, your
participation in all employee or other benefit plans and programs ended on the
Separation Date. Your rights under any pension benefit or other plans in which
you may have participated will be determined in accordance with the written plan
documents governing those plans.

 

5.       Full Payment. You acknowledge having received full payment of all
compensation of any kind (including but not limited to salary, reimbursements,
PTO, commissions, bonuses and incentive compensation) that you earned as a
result of your employment by us, except the severance benefit referenced in
Section 2 hereof, which is contingent upon executing and not revoking this
Release Agreement.

 

6.       No Further Compensation. Any and all agreements to pay you
compensation, bonuses or benefits are terminated. You understand and agree that
you have no right to receive any further payments or benefits from us, except as
described in Sections 2 and 3 of this Release Agreement.

 

7.       Release of Claims.

 

(a)       You hereby release (i) Employer and its subsidiaries, affiliates, and
benefit plans, (ii) each of Employer’s past and present shareholders, officers,
directors, agents, employees, representatives, administrators, fiduciaries and
attorneys, and (iii) the predecessors, successors, transferees and assigns of
each of the persons and entities described in this sentence, from any and all
claims of any kind, known or unknown, that arose on or before the date you
signed this Release Agreement.

 

(b)       The claims you are releasing include, without limitation, claims of
wrongful termination, claims of constructive discharge, claims arising out of
employment agreements, representations or policies related to your employment,
claims arising under federal, state or local laws or ordinances prohibiting
discrimination or harassment or requiring accommodation on the basis of age,
race, color, national origin, religion, sex, disability, marital status, sexual
orientation or any other status, claims of failure to accommodate a disability
or religious practice, claims for violation of public policy, claims of
retaliation, claims of failure to assist you in applying for future position
openings, claims of failure to hire you for future position openings, claims for
wages or compensation of any kind (including overtime claims), claims of
tortious interference with contract or expectancy, claims of fraud or negligent
misrepresentation, claims of breach of privacy, defamation claims, claims of
intentional or negligent infliction of emotional distress, claims of unfair
labor practices, claims arising out of any claimed right to shares of stock or
stock options, claims for attorneys’ fees or costs, and any other claims that
are based on any legal obligations that arise out of or are related to your
employment relationship with us.

 

 

 

(c)       You specifically waive any rights or claims that you may have under
Chapters 652, 653, 654, 656, 659 and 659 A of the Oregon Revised Statutes, the
Civil Rights Act of 1964 (including Title VII of that Act), the Equal Pay Act of
1963, the Age Discrimination in Employment Act of 1967 (ADEA), the Americans
with Disabilities Act of 1990 (ADA), the Fair Labor Standards Act of 1938
(FLSA), the Family and Medical Leave Act of 1993 (FMLA), the Worker Adjustment
and Retraining Notification Act (WARN), the Employee Retirement Income Security
Act of 1974 (ER1SA), the National Labor Relations Act (NLRA), and all similar
federal, state and local laws.

 

(d)       You agree not to seek any personal recovery (of money damages,
injunctive relief or otherwise) for the claims you are releasing in this Release
Agreement, either through any complaint to any governmental agency or otherwise.
You agree never to start any lawsuit or arbitration asserting any of the claims
you are releasing in this Release Agreement. You represent and warrant that you
have not initiated any complaint, charge, lawsuit or arbitration involving any
of the claims you are releasing in this Release Agreement. Should you apply for
future employment with Employer, Employer has no obligation to consider you for
future employment.

 

(e)       You represent and warrant that you have all necessary authority to
enter into this Release Agreement (including but not limited to an agreement, if
you are married, on behalf of your marital community) and that you have not
transferred any interest in any claims to your spouse, domestic partner or to
any third party.

 

(f)       This Release Agreement does not affect your rights, if any, to receive
pension plan benefits, medical plan benefits, unemployment compensation benefits
or workers’ compensation benefits. This Release Agreement also does not affect
your rights, if any, under agreements, bylaw provisions, insurance or otherwise,
to be indemnified, defended or held harmless in connection with claims that may
be asserted against you by third parties.

 

(g)       You understand that you are releasing potentially unknown claims, and
that you have limited knowledge with respect to some of the claims being
released. You acknowledge that there is a risk that, after signing this Release
Agreement, you may learn information that might have affected your decision to
enter into this Release Agreement. You assume this risk and all other risks of
any mistake in entering into this Release Agreement. You agree that this release
is fairly and knowingly made.

 

(h)       You are giving up all rights and claims of any kind, known or unknown,
except for the rights specifically given to you in this Release Agreement.

 

8.       No Admission of Liability. Neither this Release Agreement nor the
benefits provided under this Release Agreement are an admission of liability or
wrongdoing by Employer.

 

9.       Employer Materials. You represent and warrant that you have, or by no
later than the Separation Date will have, returned all keys, credit cards,
documents and other materials and property that belong to Employer.

 

10.       No Disparagement. You may not disparage Employer or Employer’s
employees, officers, directors or affiliates, and may not encourage any third
parties to sue Employer.

 

11.       Covenants. You shall comply with the covenant in Section 4.2
(Assignment of Intellectual Property Rights) and restrictive covenants in
Sections 6 (Non-Disclosure), Section 7 (Non-competition), Section 8
(Non-Solicitation), Section 9 (Non-Recruit) and Section 10 (Post Employment
Disclosure) of the Employment Agreement, which are incorporated herein by
reference, which may be enforced pursuant to the Employment Agreement.

 

12.       Remedies for Breach. In the event you breach the terms of this Release
Agreement, in addition to any other remedies that Employer may have in law or
equity, you shall be obligated to return to Employer the full amount of any
severance benefit paid to you pursuant to Section 2 of this Release Agreement.

 

 

 

13.       Cooperation Regarding Other Claims. If any claim is asserted by or
against Employer as to which you have relevant knowledge, you will reasonably
cooperate with us in the prosecution or defense of that claim, including by
providing truthful information and testimony as reasonably requested by us.

 

14.       Independent Legal Counsel. You are advised and encouraged to consult
with an attorney before signing this Release Agreement. You acknowledge that you
have had an adequate opportunity to do so.

 

15.       Consideration Period. You have 21 days from the date this Release
Agreement is given to you to consider this Release Agreement before signing it.
You may use as much or as little of this 21-day period as you wish before
signing. If you do not sign and return this Release Agreement within this 21-day
period, you will not be eligible to receive the benefits described in this
Release Agreement.

 

16.       Revocation Period and Effective Date . You have 7 calendar days after
signing this Release Agreement to revoke it. To revoke this Release Agreement
after signing it, you must deliver a written notice of revocation to Employer’s
President before the 7-day period expires. This Release Agreement shall not
become effective until the 8th calendar day after you sign it. If you revoke
this Release Agreement it will not become effective or enforceable and you will
not be entitled to the benefits described in this Release Agreement.

 

17.       Arbitration. Any dispute or claim that arises out of, or that relates
to this Release Agreement, including any and all disputes that arise out of or
are related in any way to the employment relationship, shall be resolved by
arbitration. All such arbitration shall be conducted in accordance with the then
effective arbitration rules of the Arbitration Service of Portland, Inc. The
arbitrator shall have the authority to rule on dispositive motions. Judgment
upon the award rendered pursuant to such arbitration may be entered in any court
in Multnomah County, Oregon having jurisdiction thereof. The arbitration shall
be held within 90 days of written demand, unless the arbitration deadline is
extended by the arbitrator. The arbitrator shall issue a confidential written
decision setting forth findings of fact and conclusions of law. The decision
shall be final and binding. The arbitrator shall have no authority to add to,
subtract from, or modify any of the terms or the conditions of this Release
Agreement except as expressly provided by law. Employer shall be responsible to
the arbitrator to pay the arbitrator’s fees and costs beyond the cost of the
filing fee in Multnomah County. The arbitrator shall award the prevailing party
its reasonable costs of the arbitration and any appeal, including the
arbitrator’s fees paid by the prevailing party and expert witness expenses and
other litigation costs incurred in connection with the arbitration. The
arbitrator shall apply the law of the state of Oregon. The arbitrator may award
any equitable or legal relief he/she determines the parties are entitled to
pursuant to the terms of this Release Agreement and authorized by law. You and
acknowledge that you are voluntarily waiving your right to a trial before a
judge and a jury.

 

18.       Venue. Either you or Employer may seek from a court an order to compel
arbitration, or any other interim relief or provisional remedies pending the
arbitrators’ resolution of any dispute, controversy, or claim. Any such action,
suit, or proceeding will be litigated in courts located in Multnomah County,
Oregon.

 

19.       Expenses/Attorneys’ Fees. If any arbitration, action, suit, or
proceeding is instituted to interpret, enforce, or rescind this Release
Agreement, or otherwise in connection with the subject matter of this Release
Agreement, including but not limited to any proceeding brought under the United
States Bankruptcy Code, the prevailing party on a claim will be entitled to
recover with respect to the claim, in addition to any other relief awarded, the
prevailing party’s reasonable attorney's fees and other fees, costs, and
expenses of every kind, including but not limited to the costs and disbursements
specified in ORCP 68 A(2), incurred in connection with the arbitration, action,
suit, or proceeding, any appeal or petition for review, the collection of any
award, or the enforcement of any order, as determined by the arbitrator or
court.

 

20.       Severability. If any term or provision of this Release Agreement, the
deletion of which would not adversely affect the receipt of any material benefit
by either party hereunder, shall be held to be invalid or unenforceable to any
extent, the remainder of this Release Agreement shall be affected thereby and
each term and provision of this Release Agreement shall be valid and enforceable
to the fullest extent permitted by law.

 

 

 

21.       Final and Complete Agreement. Except for the Employment Agreement to
the extent it is expressly incorporated herein by reference, this Release
Agreement is the final and complete expression of all agreements between us on
all subjects and supersedes and replaces all prior discussions, representations,
agreements, policies and practices. You acknowledge you are not signing this
Release Agreement relying on anything not set out herein.

 

IN WITNESS WHEREOF, the Parties hereto, having been advised to consult with an
attorney, have executed this Release Agreement intending to be bound by the
terms set forth herein, effective ______________, 20__.

 

 

SCHMITT INDUSTRIES, INC

        By:

________________________________________  

Name:

________________________________________  

Title:

________________________________________               EMPLOYEE:        
_____________________________________________