Document:

Exhibit 10.1

 

EXECUTION COPY

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of the 1st day of March, 2016 (the “Commencement Date”), by and between SUNSHINE HEART, INC., a Delaware corporation (the “Company”) and JOHN L. ERB (the “Executive”).

 

BACKGROUND

 

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to employ the Executive.  This Agreement shall represent the entire understanding and agreement between the parties with respect to the Executive’s employment with the Company.

 

NOW, THEREFORE, in consideration of the foregoing and the terms and conditions set forth herein, the parties agree as follows:

 

TERMS AND CONDITIONS

 

1.                                      EMPLOYMENT PERIOD.  The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the Employment Period.  The “Employment Period” shall mean the period commencing on the Commencement Date and ending on the twelve (12) month anniversary of the Commencement Date, unless previously terminated in accordance with Section 3; provided, however, that commencing on the date one year after the Commencement Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), unless previously terminated in accordance with Section 3, the Employment Period shall be automatically extended so as to terminate twelve (12) months from such Renewal Date, unless at least ninety (90) days prior to the Renewal Date the Company shall give notice to the Executive that the Employment Period shall not be so extended.

 

2.                                      TERMS OF EMPLOYMENT.

 

(a)                                 Position and Duties.

 

(i)                                    During the Employment Period, the Executive shall serve as the Chief Executive Officer (CEO) and President of the Company, and in such other position or positions with the Company and its subsidiaries as are consistent with the Executive’s positions as CEO and President of the Company, and shall have such duties and responsibilities as are assigned to the Executive by the Board.  The Executive shall also continue to serve as a member of the Board for so long as he continues to serve as CEO. At such time as the Executive’s service as CEO terminates, he agrees to immediately resign as a member of the Board. The Company may require that the Executive travel interstate or overseas.

 

(ii)                                During the Employment Period, and excluding any periods of paid

 

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time off and leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company, to discharge the responsibilities assigned to the Executive hereunder, and to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities.  During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) be employed by the Company or any of its subsidiaries or affiliates, (B) serve on corporate, civic or charitable boards or committees, (C) deliver lectures, fulfill speaking engagements or teach at educational institutions, (D) serve as a non-executive outside director on the boards of directors and any board committees (or board of managers, as the case may be) of NuAx, Inc., Osprey Medical, Inc. and Vascular Solutions, Inc. or any future non-executive outside director positions that are pre-approved by the Board and (E) manage personal investments, in each case so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement.

 

(b)                                 Compensation.

 

(i)                                    Base Salary.  During the Employment Period, the Executive shall receive an annual base salary (the “Annual Base Salary”) at least equal to Four Hundred Thousand Dollars ($400,000.00), which shall be paid in accordance with the Company’s normal payroll practices for senior executive officers of the Company as in effect from time to time.  During the Employment Period, the Annual Base Salary shall be reviewed at least annually.  Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.  The Annual Base Salary shall not be reduced after any such increase (unless otherwise agreed to by the Executive) and the term “Annual Base Salary” as utilized in this Agreement shall refer to the Annual Base Salary as so increased or adjusted.

 

(ii)                                Initial Equity Awards.  On or about March 8, 2016, the Executive shall be granted the following equity awards (the “Initial Equity Awards”), subject in each case to the terms and conditions of the Company’s Second Amended and Restated 2011 Equity Incentive Plan, as amended from time to time (or its successor) (the “Plan”) and the applicable form of award agreement, execution of which shall be a condition to the award:

 

(A)                               Stock Option. The Executive shall be granted an option (the “Initial Option”) for 534,000 shares of the Company common stock. The Initial Option shall have a per share exercise price equal to the market closing price of a share of Company common stock on the grant date and the vesting terms set forth in the award agreement for the Initial Option.

 

(B)                               Initial Restricted Stock Units. The Executive shall be granted an award of restricted stock units (the “Initial RSU Award”) for 356,000 shares of Company common stock and the vesting terms set forth in the award agreement for the Initial RSU Award.

 

(iii)                            Subsequent Equity Awards. In addition to the Initial Equity Awards, the Executive shall be eligible to be granted additional equity awards by the Compensation Committee of the Board on an annual basis (the “Subsequent Equity Awards”), commencing with the first grant of annual equity awards to executive officers of the Company

 

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generally.  The Compensation Committee shall generally determine the size of Subsequent Equity Awards taking into account the Executive’s performance and commensurate with grants made to chief executive officers of companies in the Company’s compensation peer group.

 

(iv)                             Annual Bonus.  In addition to the Annual Base Salary, for each fiscal year ending during the Employment Period, the Executive shall be eligible for an annual performance bonus (the “Annual Bonus”). The Executive’s annual cash bonus shall be up to fifty percent (50%) of the Executive’s Annual Base Salary for such fiscal year, and will be based upon achievement of certain performance goals (the “Performance Goals”) to be established by the Board.  Achievement of the Performance Goals for each fiscal year during the Employment Period will be determined in good faith by the Board in its sole discretion within thirty (30) days after the end of the fiscal year.  Each such Annual Bonus awarded to the Executive shall be paid sometime during the first two months of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect, in compliance with Treasury Regulation 1.409A-2(a), to defer the receipt of such Annual Bonus.

 

(v)                                 Welfare Benefit Plans.  During the Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent available generally or to other senior executive officers of the Company.

 

(vi)                             Expenses.  During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the plans, practices, policies and programs of the Company.

 

(vii)                         PTO & Holidays.  The Executive will be entitled to twenty-two (22) days paid time off (PTO), to accrue and to be used in accordance with the Company’s policies and practices in effect from time to time, as well as all recognized Company holidays.

 

(c)                                  Recoupment of Unearned Incentive Compensation.  If (i) the Board, or an appropriate committee thereof, determines that the Executive engaged in any fraud, negligence or intentional misconduct that caused or significantly contributed to the Company having to restate all or a portion of its financial statements or (ii) the Company is required to require reimbursement by applicable laws or regulations, the Board or committee may require reimbursement of any bonus or incentive compensation paid to the Executive if and to the extent that (a) the amount of incentive compensation was calculated based upon the achievement of certain financial results that were subsequently reduced due to a restatement and (b) the amount of the bonus or incentive compensation that would have been awarded to the Executive had the financial results been properly reported would have been lower than the amount actually awarded.

 

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3.                                      TERMINATION OF EMPLOYMENT.

 

(a)                                 Early Termination of the Employment Period.  Notwithstanding Section 1, the Employment Period shall end upon the earliest to occur of (i) the Executive’s death, (ii) a Termination due to Disability, (iii) a Termination for Cause, (iv) the Termination Date specified in connection with any exercise by the Company of its Termination Right or (v) a Termination for Good Reason.  If the Employment Period terminates as of a date specified under this Section 3, the Executive agrees that, upon written request from the Company, the Executive shall resign from any and all positions the Executive holds with the Company and any of its subsidiaries and affiliates, effective immediately following receipt of such request from the Company (or at such later date as the Company may specify).  This Agreement may be terminated by the Executive at any time upon forty-five (45) days prior written notice to the Company or upon such shorter period as may be agreed upon between the Executive and the Board.

 

(b)                                 Benefits Payable Under Termination.

 

(i)                                    In the event of the Executive’s death during the Employment Period or a Termination due to Disability, the Executive or the Executive’s beneficiaries or legal representatives shall be provided the Unconditional Entitlements, including, but not limited to, any such Unconditional Entitlements that are or become payable under any Company plan, policy, practice or program or any contract or agreement with the Company by reason of the Executive’s death or Termination due to Disability.

 

(ii)                                In the event of the Executive’s Termination for Cause or the termination of the Executive’s employment as a result of the Executive’s resignation without Good Reason pursuant to Section 3(a), the Executive shall be provided the Unconditional Entitlements.

 

(iii)                            In the event of a Termination for Good Reason or the exercise by the Company of its Termination Rights, the Executive shall be provided the Unconditional Entitlements and, subject to Executive signing and delivering to the Company and not revoking a general release of claims in favor of the Company and certain related parties in substantially the form of EXHIBIT A attached hetero (the “Release”), the Company shall provide the Executive the Conditional Benefits.  Any and all amounts payable and benefits or additional rights provided to the Executive upon a termination of his employment pursuant to Section 3(b) (other than the Unconditional Entitlements) shall only be payable or provided if the Executive signs and delivers the Release within the consideration period identified in the Release and the Executive does not revoke the Release within the revocation period identified in the Release.  In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by the Executive as a result of employment by a subsequent employer.

 

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(c)                                  Unconditional Entitlements.  For purposes of this Agreement, the “Unconditional Entitlements” to which the Executive may become entitled under Section 3(b) are as follows:

 

(i)                                    Earned Amounts.  The Earned Compensation shall be paid within thirty (30) days following the termination of the Executive’s employment hereunder, or if any part thereof constitutes the Annual Bonus payable for services rendered for the previous fiscal year, such part shall be paid at the same time the Executive would have otherwise been paid such Annual Bonus in accordance with Section 3(b) but for such termination of employment.

 

(ii)                                Benefits.  All benefits payable to the Executive under any employee benefit plans (including, without limitation any pension plans or 401(k) plans) of the Company or any of its affiliates applicable to the Executive at the time of termination of the Executive’s employment with the Company and all amounts and benefits (other than the Conditional Benefits) which are vested or which the Executive is otherwise entitled to receive under the terms of or in accordance with any plan, policy, practice or program of, or any contract or agreement with, the Company, at or subsequent to the date of the Executive’s termination without regard to the performance by the Executive of further services or the resolution of a contingency, shall be paid or provided in accordance with and subject to the terms and provisions of such plans, it being understood that all such benefits shall be determined on the basis of the actual date of termination of the Executive’s employment with the Company.

 

(iii)                            Indemnities.  Any right which the Executive may have to claim a defense and/or indemnity for liabilities to or claims asserted by third parties in connection with the Executive’s activities as an officer, director or employee of the Company shall be unaffected by the Executive’s termination of employment and shall remain in effect in accordance with its terms.

 

(iv)                             Business Expenses.  The Executive shall be entitled to reimbursement, in accordance with the Company’s policies regarding expense reimbursement as in effect from time to time, for all business expenses incurred by the Executive prior to the termination of the Executive’s employment.

 

(v)                                 Stock Options/Equity Awards.  Except to the extent additional rights are provided upon the Executive’s qualifying to receive the Conditional Benefits, the Executive’s rights with respect to any stock options and/or other equity awards granted to the Executive by the Company shall be governed by the terms and provisions of the Original Award Documents.

 

(d)                                 Conditional Benefits.  For purposes of this Agreement, the “Conditional Benefits” to which the Executive may become entitled are as follows:

 

(i)                                    Severance Amount.  The Company shall pay the Executive a lump sum amount equal to the Severance Amount.  The Severance Amount shall be paid on the Company’s first regular payroll date that is more than 60 days after the Termination Date (or upon the Executive’s death, if earlier).

 

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(ii)                                Medical Coverage.  If the Executive is eligible for and properly elects to continue the Executive’s and the Executive’s dependents’ group health, medical, dental, or vision coverage, as in place immediately prior to the Termination Date, the Company shall pay for (x) the portion of the premium costs for such coverage that the Company would pay if the Executive remained employed by the Company and (y) if permitted by law, the Company’s contributions to a health savings account for Executive, each at the same level of coverage/contribution that was in effect as of the Termination Date, for a period of twelve (12) months following such termination, provided that such benefits continuation will cease if and to the extent the Executive becomes eligible for similar benefits by reason of new employment or the Executive otherwise is no longer eligible for continuation coverage pursuant to applicable laws or plans.  In the event Executive becomes eligible for health benefits by reason of new employment, the Company’s contributions to the health savings account shall also cease.

 

(iii)                            Stock Options/Equity Awards.  Notwithstanding any of the provisions of the Original Award Documents, all of the Executive’s stock options and/or other equity compensation awards shall vest and remain exercisable in accordance with the applicable Original Award Documents as if Executive remained an employee of the Company for a period of one year immediately after the Termination Date.  Except as otherwise expressly provided herein, all stock options and/or other equity awards shall continue to be subject to the Original Award Documents.

 

(iv)                             Pro-Rated Current Year Bonus.  The Company shall pay Executive a pro rata annual bonus for the year in which the Termination Date occurs, determined on the basis of an assumed full-year target bonus and the number of days in the applicable fiscal year occurring on or before the Termination Date.  Such pro-rata current year bonus shall be paid no later than the later of (i) two and a half months after the end of the Executive’s tax year in which the Termination Date occurs and (ii) two and a half months after the end of the Company’s tax year in which the Termination Date occurs.

 

(v)                                 Additional Distribution Rules.  Notwithstanding any other payment date or schedule provided in this Agreement to the contrary, if the Executive is deemed on the Termination Date to be a “specified employee” within the meaning of that term under Section 409A of the Code and the regulations thereunder (“Section 409A”), then each of the following shall apply:

 

(A)                               With regard to any payment that is considered “nonqualified deferred compensation” under Section 409A payable on account of and within six months after a “separation from service” (within the meaning of Section 409A and as provided in Section 3(g) of this Agreement), such payment shall instead be made on the date which is the earlier of (A) the expiration of the six (6) month period measured from the date of the Executive’s “separation from service,” and (B) the date of the Executive’s death (the “Delay Period”) to the extent required under Section 409A.  Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 3(d) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to the

 

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Executive in a lump sum, and all remaining payments due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein; and

 

(B)                               To the extent that benefits to be provided during the Delay Period are considered “nonqualified deferred compensation” under Section 409A provided on account of a “separation from service,” the Executive shall pay the cost of such benefits during the Delay Period, and the Company shall reimburse the Executive, to the extent that such costs would otherwise have been paid or reimbursed by the Company or to the extent that such benefits would otherwise have been provided by the Company at no cost to the Executive, for the Company’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be paid, reimbursed or provided by the Company in accordance with the procedures specified herein.

 

The foregoing provisions of this Section 3(d) shall not apply to any payments or benefits that are excluded from the definition of “nonqualified deferred compensation” under Section 409A, including, without limitation, payments excluded from the definition of “nonqualified deferred compensation” on account of being separation pay due to an involuntary separation from service under Treasury Regulation 1.409A-1(b)(9)(iii).

 

(e)                                  Definitions.  For purposes of this Agreement, the following terms shall have the meanings ascribed to them below:

 

(i)                                    “Affiliate” means any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, is under common control with, or is controlled by, the Company, or any other entity determined to be an affiliate by regulatory agencies.

 

(ii)                                “Code” means the Internal Revenue Code of 1986, as amended.

 

(iii)                            “Earned Compensation” means the sum of (a) any Annual Base Salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the Employment Period ends pursuant to Section 3(a) (but excluding any Annual Base Salary and interest accrued thereon payment of which has been deferred) and (b) if the Executive’s employment terminates due to the Executive’s death or in a Termination due to Disability or a Termination for Good Reason or due to the Company’s exercise of its Termination Right, in any case, after the end of a fiscal year, but before the Annual Bonus payable for services rendered in that fiscal year has been paid, the Annual Bonus that would have been payable to the Executive for such completed fiscal year in accordance with Section 3(b).

 

(iv)                             “Original Award Documents” means, with respect to any stock option or other equity award, the terms and provisions of the award agreement related to and the plan governing, such stock option or other equity award, each as in effect on the Executive’s termination date.

 

(v)                                 “Severance Amount” means an amount equal to one times the Executive’s Annual Base Salary as of the Termination Date.

 

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(vi)                             “Termination for Cause” means a termination of the Executive’s employment by the Company due to (A) an act or acts of dishonesty undertaken by the Executive and intended to result in substantial gain or personal enrichment of the Executive at the expense of the Company, (B) unlawful conduct or gross misconduct that is willful and deliberate on the Executive’s part and that, in either event, is materially injurious to the Company, (C) the conviction of the Executive of, or his entry of a no contest or nolo contendre plea to, a felony, (D) willful and deliberate breach by the Executive of his fiduciary obligations as an officer or director of the Company, (E) a persistent failure by the Executive to perform the duties and responsibilities of his employment hereunder, which failure is willful and deliberate on the Executive’s part and is not remedied by him within 30 days after the Executive’s receipt of written notice from the Company of such failure, or (F) material breach of any terms and conditions of this Agreement by Executive, which breach has not been cured by the Executive within ten days after written notice thereof to Executive from the Company.  For the purposes of this Section 3(e)(vi), no act or failure to act on the Executive’s part shall be considered “dishonest,” “willful” or “deliberate” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.

 

(vii)                         “Termination Date” means the earlier to occur of (i) the date the Company specifies in writing to the Executive in connection with the exercise of its Termination Right or (ii) the date the Executive specifies in writing to the Company in connection with any notice to effect a Termination for Good Reason.

 

(viii)                     “Termination due to Disability” means a termination of the Executive’s employment by the Company because the Executive has been incapable, after reasonable accommodation, of substantially fulfilling the positions, duties, responsibilities and obligations set forth in this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease for a period of (i) six (6) consecutive months or (ii) an aggregate of nine (9) months (whether or not consecutive) in any twelve (12) month period.  Any question as to the existence, extent or potentiality of the Executive’s disability shall be determined by a qualified physician selected by the Company with the consent of the Executive, which consent shall not be unreasonably withheld.  The Executive or the Executive’s legal representatives or any adult member of the Executive’s immediate family shall have the right to present to such physician such information and arguments as to the Executive’s disability as he, she or they deem appropriate, including the opinion of the Executive’s personal physician.

 

(ix)                             “Termination for Good Reason” means a termination of the Executive’s employment by the Executive within thirty (30) days of the Company’s failure to cure, in accordance with the procedures set forth below, any of the following events without the Executive’s consent: (i) a reduction in any of the Executive’s compensation rights hereunder (that is, the Annual Base Salary or target Annual Bonus opportunity specified in Section 2(b)(iv)); (ii) the removal of the Executive by the Company from the position of CEO and President; (iii) a material reduction in the Executive’s duties and responsibilities as in effect

 

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immediately prior to such reduction; (iv) the relocation of the Executive’s principal office to a location that is more than 50 miles outside of Eden Prairie, Minnesota; (v) a material breach of any material provision of this Agreement by the Company or (vi) if the Company (1) fails to pay its debts generally as they become due, (2) files a petition for relief under any chapter of Title 11 of the United States Code or a petition to take advantage of any insolvency under the laws of the United States of America or any state thereof, (3) makes an assignment for the benefit of its creditors, (4) consents to the appointment of a receiver of itself or of the whole or any substantial part of its property, (5) suffers the entry of an order for relief under any chapter of Title 11 of the United Sates Code, or (6) files a petition or answer seeking reorganization under the Federal Bankruptcy Laws or any other applicable law or statute of the United States of America or any state thereof.  Notwithstanding the foregoing, a termination shall not be treated as a Termination for Good Reason (A) if the Executive shall have consented in writing to the occurrence of the event giving rise to the claim of Termination for Good Reason, or (B) unless the Executive shall have delivered a written notice to the Board within forty-five (45) days of the Executive’s having actual knowledge of the occurrence of one of such events stating that the Executive intends to terminate the Executive’s employment for Good Reason and specifying the factual basis for such termination, and such event, if capable of being cured, shall not have been cured within twenty-one (21) days of the receipt of such notice.

 

(x)                                 “Termination Right” means the right of the Company, in its sole, absolute and unfettered discretion, to terminate the Executive’s employment under this Agreement for any reason or no reason whatsoever.  For the avoidance of doubt, any Termination for Cause effected by the Company shall not constitute the exercise of its Termination Right.

 

(f)                                   Conflict with Plans.  As permitted under the terms of the Company’s applicable stock option and equity award plans, the Company and the Executive agree that the definitions of Termination for Cause or Termination for Good Reason set forth in this Section 3 shall apply in place of any similar definition or comparable concept applicable under such plans (or any similar definition in any successor plan).

 

(g)                                 Section 409A.  It is intended that payments and benefits under this Agreement either be excluded from or comply with the requirements of Section 409A and the guidance issued thereunder and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted consistent with such intent.  In the event that any provision of this Agreement is subject to but fails to comply with Section 409A, the Company may revise the terms of the provision to correct such noncompliance to the extent permitted under any guidance, procedure or other method promulgated by the Internal Revenue Service now or in the future or otherwise available that provides for such correction as a means to avoid or mitigate any taxes, interest or penalties that would otherwise be incurred by the Executive on account of such noncompliance.  Provided, however, that in no event whatsoever shall the Company be liable for any additional tax, interest or penalty imposed upon or other detriment suffered by the Executive under Section 409A or damages for failing to comply with Section 409A.  Solely for purposes of determining the time and form of payments due the Executive under this Agreement (including any payments due under Sections 3(b) or 5) or otherwise in connection with the Executive’s termination of employment with the Company, the Executive shall not be deemed to have incurred a

 

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termination of employment unless and until the Executive shall incur a “separation from service” within the meaning of Section 409A.  The determination of whether and when a separation from service has occurred shall be made in accordance with this subparagraph and in a manner consistent with Treasury Regulation Section 1.409A-1(h).  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.  For purposes of Section 409A, the Executive’s right to any installment payment under this Agreement shall be treated as a right to receive a series of separate and distinct payments.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.

 

4.                                      EXECUTIVE REMEDY. The Executive shall be under no obligation to seek other employment or other engagement of the Executive’s services.  The Executive acknowledges and agrees that the payment and rights provided under Section 3 are fair and reasonable, and are the Executive’s sole and exclusive remedy, in lieu of all other remedies at law or in equity, for termination of the Executive’s employment by the Company upon exercise of its Termination Right pursuant to this Agreement or upon a Termination for Good Reason.

 

5.                                      CHANGE OF CONTROL.  Upon and following a Change of Control of the Company, as defined in the Change of Control Agreement between the Executive and the Company dated the date hereof, and any amendments thereto or any subsequent change of control agreement between the Executive and the Company (the “Change of Control Agreement”), the rights and obligations of the Executive and the Company will no longer be governed by this Agreement, but will be as provided in the Change of Control Agreement (including any rights or obligations in this Agreement that are specifically incorporated by reference therein).  Upon the occurrence of a Change of Control, the term of this Agreement will end, and the provisions of this Agreement will be null and void, and of no further force and effect, except that compensation and benefit obligations accrued by the Company with respect to the Executive prior to the Change of Control and during the term of this Agreement will remain valid and enforceable, and the rights of Executive to indemnification shall remain in effect.

 

6.                                      CONFIDENTIALITY; NON-COMPETITION AND NON-SOLICITATION.

 

(a)                                 Certain Definitions.  For purposes of this Agreement, the following terms will have the following meanings:

 

(i)                                    “Confidential Information” means any information, knowledge or

 

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data of any nature and in any form (including information that is electronically transmitted or stored on any form of magnetic or electronic storage media) relating to the past, current or prospective business or operations of the Company and its subsidiaries, that at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted or contemplated by the Company and its subsidiaries (other than information known by such persons through a violation of an obligation of confidentiality to the Company), whether produced by the Company and its subsidiaries or any of their consultants, agents or independent contractors or by the Executive, and whether or not marked confidential, including without limitation information relating to the Company’s or its subsidiaries’ products and services, business plans, business acquisitions, processes, product or service research and development ideas, methods or techniques, training methods and materials, and other operational methods or techniques, quality assurance procedures or standards, operating procedures, files, plans, specifications, proposals, drawings, charts, graphs, support data, trade secrets, supplier lists, supplier information, purchasing methods or practices, distribution and selling activities, consultants’ reports, marketing and engineering or other technical studies, maintenance records, employment or personnel data, marketing data, strategies or techniques, financial reports, budgets, projections, cost analyses, price lists, formulae and analyses, employee lists, customer records, customer lists, customer source lists, proprietary computer software, and internal notes and memoranda relating to any of the foregoing.

 

(ii)                                “Competitive Business” means any business or activity which is involved in the research, development, sale, distribution and/or marketing of counter-pulsation technology for the treatment of Class III heart failure.

 

(b)                                 Nondisclosure of Confidential Information.  The Executive will hold in a fiduciary capacity for the benefit of the Company all Confidential Information obtained by the Executive during the Executive’s employment (whether prior to or after the Commencement Date) and will use such Confidential Information solely within the scope of his employment with and for the exclusive benefit of the Company.  For a period of five (5) years after the Termination Date, the Executive agrees (a) not to communicate, divulge or make available to any person or entity (other than the Company) any such Confidential Information, except upon the prior written authorization of the Company or as may be required by law or legal process, and (b) to deliver promptly to the Company any Confidential Information in his possession, including any duplicates thereof and any notes or other records the Executive has prepared with respect thereto.  In the event that the provisions of any applicable law or the order of any court would require the Executive to disclose or otherwise make available any Confidential Information, the Executive will give the Company prompt prior written notice of such required disclosure and an opportunity to contest the requirement of such disclosure or apply for a protective order with respect to such Confidential Information by appropriate proceedings.

 

(c)                                  Limited Covenant Not to Compete.  During the Employment Period and for a period of twelve (12) consecutive months immediately following the termination of the Executive’s employment for any reason, whether such termination is at the initiative of the Executive or the Company, the Executive agrees that, with respect to each jurisdiction, or specified portions thereof, in which the Executive regularly (a) makes contact with customers of the Company or any of its subsidiaries, (b) conducts the business of the Company or any of its

 

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subsidiaries, or (c) supervises the activities of other employees of the Company or any of its subsidiaries, and in which the Company or any of its subsidiaries engages in Competitive Business as of the Termination Date (collectively, the “Subject Areas”), the Executive will restrict his activities within the Subject Areas as follows:

 

(i)                                    The Executive will not, directly or indirectly, for himself or others, own, manage, operate, control, be employed in an executive, managerial or supervisory capacity by, consult with, assist or otherwise engage or participate in or allow his skill, knowledge, experience or reputation to be used in connection with, the ownership, management, operation or control of, any company or other business enterprise engaged in the Competitive Business within any of the Subject Areas; provided, however, that nothing contained herein will prohibit the Executive from making passive investments as long as the Executive does not beneficially own more than 2% of the equity interests of a business enterprise engaged in the Competitive Business within any of the Subject Areas.  For purposes of this paragraph, “beneficially own” will have the same meaning ascribed to that term in Rule 13d-3 under the Exchange Act;

 

(ii)                                The Executive will not call upon any customer of the Company or its subsidiaries for the purpose of soliciting, diverting or enticing away the business of such person or entity, or otherwise disrupting any previously established relationship existing between such person or entity and the Company or its subsidiaries;

 

(iii)                            The Executive will not solicit, induce, influence or attempt to influence any supplier, lessor, lessee, licensor, partner, joint venturer, potential acquiree or any other person who has a business relationship with the Company or its subsidiaries, or who on the Termination Date is engaged in discussions or negotiations to enter into a business relationship with the Company or its subsidiaries, to discontinue or reduce or limit the extent of such relationship with the Company or its subsidiaries; and

 

(iv)                             Without the consent of the Company, the Executive will not make contact with any of the employees of the Company or its subsidiaries with whom he had contact during the course of his employment with the Company for the purpose of soliciting such employee for hire, whether as an employee or independent contractor, or otherwise disrupting such employee’s relationship with the Company or its subsidiaries.

 

(d)                                 Company Property.  Promptly following the Executive’s termination of employment, the Executive shall return to the Company all property of the Company, and all copies thereof in the Executive’s possession or under the Executive’s control, except that the Executive may retain the Executive’s personal notes, diaries, rolodexes, mobile devices, calendars and correspondence of a personal nature.

 

(e)                                  Equitable Remedies.  The Executive acknowledges that the Company would be irreparably injured by a violation of Section 6 and the Executive agrees that the Company, in addition to any other remedies available to it for such breach or threatened breach, on meeting the standards required by law, shall be entitled to a preliminary injunction, temporary restraining order, or other equivalent relief, restraining the Executive from any actual or threatened breach of Section 6.  If a bond is required to be posted in order for the Company to

 

12

 

secure an injunction or other equitable remedy, the parties agree that said bond need not be more than a nominal sum.

 

(f)                                   Employee Proprietary Information and Inventions Assignment.  The terms of that certain Employee Proprietary Information, Inventions Assignment and Non-Competition Agreement between the Executive and the Company dated March 1, 2016 are hereby incorporated by reference (the “Invention Assignment Agreement”).  To the extent that there are any conflicts between the terms and conditions of the Invention Assignment Agreement and this Agreement, the terms and conditions of this Agreement shall control. All non-conflicting terms of the Invention Assignment Agreement are hereby expressly preserved.

 

(g)                                 Severability; Blue Pencil.  The Executive acknowledges and agrees that the Executive has had the opportunity to seek advice of counsel in connection with this Agreement and the restrictive covenants contained herein are reasonable in geographical scope temporal duration and in all other respects.  If it is determined that any provision of this Section 6 is invalid or unenforceable, the remainder of the provisions of this Section 6 shall not thereby be affected and shall be given full effect, without regard to the invalid portions.  If any court or other decision- maker of competent jurisdiction determines that any of the covenants in this Section 6 is unenforceable because of the duration or geographic scope of such provision, then after such determination becomes final and unappealable, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable, and in its reduced form, such provision shall be enforced.

 

7.                                      SUCCESSORS.

 

(a)                                 This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

 

(b)                                 This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and any party acting in the form of a receiver or trustee capacity.

 

(c)                                  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

8.                                      MISCELLANEOUS.

 

(a)                                 This Agreement shall be construed in accordance with, and governed by, the laws of the State of Minnesota, without regard to the conflicts of law rules of such state. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of the courts of the

 

13

 

State of Minnesota or any federal court with subject matter jurisdiction located in the State of Minnesota (and any appeals court therefrom) in the event any dispute arises out of this Agreement or any transaction contemplated hereby, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action relating to this Agreement or any transaction contemplated hereby in any court other than such courts.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

 

(b)                                 All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

 

	
If to the Executive:
    	
 
    	
to his last address provided in the Company’s   records
    
	
 
    	
 
    	
 
    
	
If to the Company:
    	
 
    	
Sunshine Heart, Inc.
    
	
 
    	
 
    	
Attn: Chief Financial Officer
    
	
 
    	
 
    	
12988 Valley View Road
    
	
 
    	
 
    	
Eden Prairie, Minnesota 55344
    
	
 
    	
 
    	
Facsimile: 952.224.0181
    

 

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

 

(c)                                  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

 

(d)                                 The Company hereby agrees to indemnify the Executive and hold the Employee harmless to the extent provided under Certificate of Incorporation and the By-Laws of the Company and that certain Indemnity Agreement, dated the date hereof, between the Company and the Executive (the “Indemnity Agreement”) against and in respect of any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (including reasonable attorney’s fees), losses, and damages resulting from the Executive’s good faith performance of the Executive’s duties and obligations with the Company. This obligation shall survive the termination of the Executive’s employment with the Company.

 

(e)                                  From and after the Commencement Date, the Company shall cover the Executive under directors’ and officers’ liability insurance both during and, while potential liability exists, after the Employment Period in the same amount and to the same extent as the Company covers its other executive officers and directors.

 

(f)                                   The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

 

14

 

(g)                                 The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the executive to effect a Termination for Good Reason shall not be deemed to be a waiver of such provision of right or any other provision or right of this Agreement.

 

(h)                                 Other than in connection with a Change of Control (as defined in the Change of Control Agreement, and in which case this Agreement will be superseded by the Change of Control Agreement), the Company will require any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets of the Company (i) to assume unconditionally and expressly this Agreement and (ii) to agree to perform all of the obligations under this Agreement in the same manner and to the same extent as would have been required of the Company had no assignment or succession occurred, such assumption to be set forth in a writing reasonably satisfactory to the Executive.  In the event of any such assignment or succession, the term “Company” as used in this Agreement will refer also to such successor or assign.

 

(i)                                    This Agreement, and all agreements, documents, instruments, schedules, exhibits or certificates prepared in connection herewith together with the Change of Control Agreement, the Invention Assignment Agreement and the Indemnity Agreement, represent the entire understanding and agreement between the parties with respect to the subject matter hereof, supersede all prior agreements or negotiations between such parties and may be amended, supplemented or changed only by an agreement in writing which makes specific reference to this Agreement or the agreement or document delivered pursuant hereto, as the case may be, and which is signed by the party against whom enforcement of any such amendment, supplement or modification is sought.

 

SIGNATURES ON THE FOLLOWING PAGE

 

15

 

IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first above written.

 

	
THE   EXECUTIVE:
    	
THE   COMPANY:
    
	
 
    	
 
    
	
 
    	
SUNSHINE   HEART, INC.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
/s/   JOHN L. ERB
    	
 
    	
By:
    	
/s/   PAUL BUCKMAN
    
	
JOHN   L. ERB
    	
Name:
    	
Paul   Buckman
    
	
 
    	
Title:
    	
Lead   Independent Director and
    
	
 
    	
 
    	
Chairman   of the Compensation
    
	
 
    	
 
    	
Committee
    
				

 

SIGNATURE PAGE TO EXECUTIVE EMPLOYMENT AGREEMENT

 

 

EXHIBIT A

 

RELEASE AND WAIVER OF CLAIMS

 

TO BE SIGNED ON OR FOLLOWING THE TERMINATION DATE

 

In consideration of the payments and other benefits set forth in the Executive Employment Agreement of March 1, 2016 (the “Executive Employment Agreement”), I, JOHN L. ERB, hereby furnish SUNSHINE HEART, INC., a Delaware corporation (the “Company”), with the following release and waiver (“Release and Waiver”).

 

In exchange for the consideration provided to me by the Executive Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date that I sign this Agreement (collectively, the “Released Claims”). The Released Claims include, but are not limited to: (a) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment; (b) all claims related to my compensation or benefits from the Company including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all U.S. federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, misclassification, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (the “ADEA”), the Family and Medical Leave Act, the Workers’ Adjustment and Retraining Notification, the Employee Retirement Income Security Act of 1974, and the Minnesota Human Rights Act.  Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (a) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; (b) any rights or claims to unemployment compensation, funds accrued in my 401k account, or any vested equity incentives; (c) any rights that are not waivable as a matter of law; or (d) any claims arising after the day on which I sign this Release and Waiver. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.

 

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. I further acknowledge that I have been advised, that: (a) the release and waiver granted herein does not relate to claims which may arise after this

 

Exhibit A-1

 

Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; and (c) I have twenty-one (21) days from the date of termination of my employment with the Company or the date on which I received this Release and Waiver, whichever is later and not including such date (as applicable) in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have fifteen (15) days following the execution of this Release and Waiver, not counting the day on which I sign this Release and Waiver, to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the fifteen (15) day revocation period has expired without my having previously revoked this Release and Waiver.  Any revocation must be personally delivered to the Company or, if mailed, postmarked, no later than the last day of the 15-day revocation period.  The address for delivery of any such revocation shall be the Company’s address identified in Section 8(b) of the Executive Employment Agreement.

 

I acknowledge my continuing obligations under the Executive Employment Agreement. Pursuant to the Executive Employment Agreement I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control. I understand and agree that my right to the severance pay I am receiving in exchange for my agreement to the terms of this Release and Waiver is contingent upon my continued compliance with the Executive Employment Agreement.

 

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company.

 

	
 
    	
 
    	
 
    	
Dated:
    	
 
    
	
JOHN   L. ERB
    	
 
    

 

Exhibit A-2fifthamend.htm

FIFTH AMENDMENT

 

TO

 

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

Fifth Amendment (the “Amendment”) to a certain Second Amended and Restated Loan and Security Agreement, dated as of February 19, 2009, by and among RCM Technologies, Inc. and all of its subsidiaries (collectively, the “Borrower”), Citizens Bank of Pennsylvania, a Pennsylvania state chartered bank, in its capacity as administrative agent and arranger (the “Agent”), and Citizens Bank of Pennsylvania, as lender (the “Bank”).

WHEREAS, the Bank and the Borrower made, executed and delivered a Second Amended and Restated Loan and Security Agreement, dated as of February 19, 2009, as amended by a certain Amendment to Second Amended and Restated Loan and Security Agreement dated as of July 22, 2011, a certain Second Amendment to Second Amended and Restated Loan and Security Agreement dated as of October 24, 2011, a certain Third Amendment to Second Amended and Restated Loan and Security Agreement dated as of December, 2011, and a certain Fourth Amendment to Second Amended and Restated Loan and Security Agreement dated as of December 12, 2014 (collectively, the “Original Loan and Security Agreement”), and in connection therewith, the Borrower executed and delivered a Seventh Amended and Restated Revolving Credit Note payable to the order of the Bank, in the original principal amount of $35,000,000.00, dated December 12, 2014 (the “Restated Credit Note”); and

WHEREAS, as security for (a) the punctual performance in full by the Borrower of its obligations under the Loan Documents (as such term is defined in the Original Loan and Security Agreement), (b) the punctual payment in full of all amounts owing or to be owing under any 

 

  

1

  

Loan Document, (c) the punctual payment of any other amounts which at any time may be due and payable from the Borrower to the Bank, in each case whether presently existing or hereafter arising (collectively, the “Secured Obligations”), the Borrower granted a security interest to the Bank in the Collateral (as such term is defined in the Original Loan and Security Agreement), pursuant to the terms and provisions of the Original Loan and Security Agreement; and

WHEREAS, the Borrower has requested the Bank amend certain terms and provisions of the Original Loan and Security Agreement, and the Bank is willing to consent to such modifications upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises herein contained, and each intending to be legally bound hereby, the parties hereto hereby agree as follows:

1. Except as expressly defined herein, all terms used herein shall have the meanings ascribed to them in the Original Loan and Security Agreement.  This Amendment is intended to amend the Original Loan and Security Agreement, and the Original Loan and Security Agreement shall be so amended, from and as of the date hereof.

2. The Original Loan and Security Agreement shall be amended so that all references to “Agreement” contained therein shall mean the Original Loan and Security Agreement, as amended herein, and as further amended, supplemented or modified from time to time.

3. The first sentence of the definition of “Applicable LIBOR Rate Margin” found in Section 1.1 of the Original Loan and Security Agreement is hereby amended and restated in its entirety as follows:

Applicable LIBOR Rate Margin – The amount to be added to the applicable LIBOR Rate to determine the applicable LIBOR Based Rate for all amounts outstanding under the Loans which bear interest at the LIBOR Based Rate, which amount shall be

 

  

2

  

determined in accordance with the ratio of the Borrower’s Total Funded Debt to EBITDA a set forth in the following matrix:

 

	
 

Tier

	
Total Funded

Debt to EBITDA

	
Applicable

LIBOR Rate Margin

	
V

	
≥ 2.75x

	
225 b.p.

	
IV

	
≥ 2.50x but <2.75x

	
200 b.p.

	
III

	
≥ 2.25x but <2.50x

	
175 b.p.

	
II

	
≥ 1.25x but < 2.25x

	
150 b.p.

	
I

	
< 1.25x

	
125 b.p.

 

4. The first sentence of the definition of “Applicable Prime Rate Margin” is hereby amended and restated in its entirety as follows:

 

Applicable Prime Rate Margin -The amount to be added to the applicable Prime Rate to determine the applicable Prime Based Rate for all amounts outstanding under the Loans which bear interest at the Prime Based Rate, which amount shall be determined in accordance with the ratio of the Borrower’s Total Funded Debt to EBITDA as set forth in the following matrix:

 

	
 

Tier

	
Total Funded

Debt to EBITDA

	
Applicable

Prime Rate Margin

	
V

	
≥ 2.75x

	
30 b.p.

	
IV

	
≥ 2.50x but <2.75x

	
25 b.p.

	
III

	
≥ 2.25x but <2.50x

	
0 b.p.

	
II

	
≥ 1.25x but < 2.25x

	
0 b.p.

	
I

	
< 1.25x

	
0 b.p.

 

5. The definition of “Fixed Charge Ratio” found in Section 1.1 of the Original Loan and Security Agreement is hereby restated and confirmed in its entirety as follows:

“Fixed Charge Ratio”

 

(A)  If there is no Total Funded Debt outstanding in the fiscal quarter in which a Distribution is paid or in the fiscal quarter immediately following such fiscal quarter:

 

The sum of EBITDA, plus 150% of paid Distributions, divided by the sum of (i) interest expense, plus (ii) income taxes paid, plus (iii) scheduled principal payments, plus (iv) Unfunded Capital Expenditures, plus (v) paid Distributions.

 

(B)  If there is Total Funded Debt outstanding in the fiscal quarter in which a Distribution is paid or in the fiscal quarter immediately following such quarter:

 

  

3

  

The sum of EBITDA, divided by the sum of (i) interest expense, plus (ii) income taxes paid, plus (iii) scheduled principal payments, plus (iv) Unfunded Capital Expenditures, (v) plus paid Distributions.  (In the event an amount attributable to a paid Distribution was added to the numerator of the Fixed Charge Ratio pursuant to subparagraph (A) above during the testing period in question, that amount shall continue to be included in the numerator for purposes of determining the Fixed Charge Ratio pursuant to this subparagraph (B)).

 

(In calculating the denominator of the Fixed Charge Ratio: (i) any deferred portion of a purchase price required to be paid by the Borrower in connection with a Permitted Acquisition shall not be considered; and (ii) solely for the relevant reporting periods, the Permitted Dividend, if made, shall not be considered in calculating the numerator and denominator of the Fixed Charge Ratio).

 

6. Section 1.1 of the Original Loan and Security Agreement is hereby amended by deleting the definition of “Modified Current Ratio.”

7. The first sentence of the definition of “Letter of Credit Applicable Margin” found in Section 1.1 of the Original Loan and Security Agreement is hereby amended and restated in its entirety as follows:

 

Letter of Credit Applicable Margin: - The amount determined in accordance with the ratio of the Borrower’s Total Funded Debt to EBITDA as set forth in the following matrix:

 

	
 

Tier

	
Total Funded

Debt to EBITDA

	
Letter of Credit

Applicable Margin

	
V

	
≥ 2.75x

	
2.25% per annum

	
IV

	
≥ 2.25x but <2.75x

	
2.00% per annum

	
III

	
≥ 1.75x but <2.25x

	
1.75% per annum

	
II

	
≥ 1.25x but <1.75x

	
1.50% per annum

	
I

	
< 1.25x

	
1.25% per annum

8. The definition of “Permitted Dividend” found in Section 1.1. of the Original Loan and Security Agreement is hereby amended and restated in its entirety as follows:

“Permitted Dividend” - A one-time dividend of up to $1.00 per share declared in 2015, and payable to the shareholders of RCM in an aggregate amount not to exceed $13,000,000, which will be substantially paid on or before December 31, 2015 and which 

 

  

4

  

 

amount includes 2015 Unvested Dividend Equivalents (as defined below).  All Parties acknowledge that certain employees, directors and contractors hold dividend equivalent rights under unvested restricted share unit agreements which dividend equivalent rights shall be accrued before December 31, 2015 but paid after December 31, 2015 (the “2015 Unvested Dividend Equivalents”).  In no event shall the 2015 Unvested Dividend Equivalents exceed $500,000.00.

 

9. Section 2.5(b) of the Original Loan and Security Agreement is hereby amended and restated in its entirety as follows:

 

(b)           Unused Line Fee.  So long as the Revolving Credit Facility is outstanding and has not been terminated pursuant to the terms hereof, the Borrower shall unconditionally pay to the Agent, for the benefit of the Lenders in accordance with their Pro Rata Percentages, a non-refundable fee (the “Unused Line Fee”) based on the Borrower’s financial condition, tested quarterly, as follows:

 

	
 

Tier

	
Total Funded

Debt to EBITDA

	
Unused Line Fee

	
V

	
≥ 2.75x

	
22.5 b.p.

	
IV

	
≥ 2.50x but <2.75x

	
20.0 b.p.

	
III

	
≥ 2.25x but <2.50x

	
15.0 b.p.

	
II

	
≥ 1.25x but < 2.25x

	
12.5 b.p.

	
I

	
< 1.25x

	
10.0 b.p.

 

The Unused Line Fee shall be charged on the average daily unused portion of the Revolving Credit Facility calculated by subtracting the sum of the average daily outstanding balance of all Revolving Credit Loans and Letter of Credit Outstanding from $35,000,000.  The Unused Line Fee shall be computed and paid on a quarterly basis, in arrears, on the first day of each April, July, October and January, and on the earlier of (i) the Revolving Credit Maturity Date or the date on which the Revolving Credit Facility is terminated by the Borrower pursuant to Section 2.1(d) hereof, and, in the event the Borrower requests a Line Reduction as provided in Section 2.1(d) hereof, on the effective date of such reduction.

 

10. Section 6.9(c) of the Original Loan and Security Agreement is hereby amended and restated in its entirety as follows:

 

	
  

	
(c)

	
(i)

	
On or before October 3, 2015, the Total Funded Debt to EBITDA ratio shall at no time exceed a maximum ratio of 2.75x;

 

  

5

  

(ii)           After October 3, 2015, but prior to April 2, 2016, the Total Funded Debt to EBITDA ratio shall at no time exceed a maximum ratio of 3.25x.

 

(iii)           On and after April 2, 2016, but prior to October 3, 2016, the Total Funded Debt to EBITDA ratio shall at no time exceed a maximum ratio of 3.00x.

 

(iv)           On and after October 3, 2016, the Total Funded Debt to EBITDA ratio shall not exceed a maximum ratio of 2.75x

 

(v)           By way of clarification, and not in limitation of the foregoing, in all events on and after October 3, 2016, the Total Funded Debt to EBITDA ratio shall not exceed a maximum ratio of 2.75x.

 

11. Section 7.6 of the Original Loan and Security Agreement is hereby amended and restated in its entirety as follows:

 

Distributions, Redemptions and Other Indebtedness: The Borrower shall not: (a) declare or pay or make any forms of Distribution to its shareholders, their successors or assigns other than (i) the Permitted Dividend, and (ii) Distributions constituting the repurchase of RCM’s outstanding stock, provided that from and after December 12, 2014, the total amount of such Distributions shall not exceed $7,500,000, in the aggregate; (b) make any prepayments on any existing or future indebtedness for borrowed money to any Person without the prior written consent of the Agent which consent will not be unreasonably withheld; or (c) hereafter borrow money other than from Lenders hereunder except (i) in connection with borrowed money giving rise to a Permitted Lien under Section 7.3(d) and, (ii) in connection with Permitted Acquisitions, subordinated Sellers Notes on terms and conditions reasonably acceptable to the Agent.  Solely for purposes of this Section 7.6, any deferred portion of a purchase price which may be required to be paid by the Borrower in connection with a Permitted Acquisition, based on the performance of the acquired business following the Permitted Acquisition, shall not be considered “borrowed money.

 

12. Exhibit 6.11 of the Original Loan and Security Agreement is hereby deleted in its entirety and replaced with the form of Compliance Certificate attached as Exhibit A to this Amendment.

 

  

6

  

13. The Bank hereby approves as a “Permitted Asset or Stock Sale” (as such term is defined under the Original Loan and Security Agreement), the sale by Business Support Group of Michigan, Inc. for a purchase price not to exceed $550,000.00 of substantially all of its operating assets relating solely to its business involving QAD enterprise applications for business solutions (but excluding all cash and cash equivalents, all prepaid amounts, all deposits and all accounts receivable.)

14. The initial Applicable LIBOR Rate Margin, Applicable Prime Rate Margin, Letter of Credit Applicable Margin, and Unused Line Fee shall be based on Tier V until such time as the “Total Funded Debt to EBITDA” ratio is next retested and the Compliance Certificate delivered pursuant to the provisions of the Original Loan and Security Agreement, at which point the provisions of the Original Loan and Security Agreement, as amended hereby, will control.

15. Pursuant to the terms of the Original Loan and Security Agreement, as amended herein, the Borrower has provided to the Bank, as security for the payment and performance of any and all of the Obligations and the performance of all other obligations and covenants of Borrower under the Original Loan and Security Agreement, as amended herein, the Restated Credit Note, and each other Loan Document, certain or contingent, now existing or hereafter arising, which are now, or may at any time or times hereafter be owing by Borrower to Bank, a first priority, perfected security interest in the Collateral.  The Borrower hereby ratifies and confirms the liens and security interests granted under the Original Loan and Security Agreement; and further ratifies and confirms, without condition, that (a) such liens and security interests shall secure the payment and performance of any and all of the Obligations and the performance of all other obligations and covenants of Borrower under the Original Loan and Security Agreement, as amended herein, the Restated Credit Note, and each other Loan 

 

  

7

  

Document, certain or contingent, now existing or hereafter arising, which are now, or may at any time or times hereafter be owing by Borrower to Bank, and (b) the perfected status and priority of such liens and security interests shall not be affected in any way by the amendments to the Original Loan and Security Agreement, as set forth herein.  The Borrower acknowledges that the outstanding principal amounts of the Restated Credit Note are due and owing without any claim, defense or set-off.

16. All representations, warranties and covenants of the Borrower contained in the Original Loan and Security Agreement, are hereby ratified and confirmed without condition as if made anew upon the execution of this Amendment and are hereby incorporated by reference.  All representations, warranties and covenants of the Borrower, whether hereunder, or contained in the Original Loan and Security Agreement, shall remain in full force and effect until all amounts due under the Original Loan and Security Agreement, as amended herein, the Restated Credit Note and each other Loan Document, are satisfied in full.

17. Except as modified by the terms hereof, all terms, provisions and conditions of the Original Loan and Security Agreement, and each other Loan Document, are in full force and effect, and are hereby incorporated by reference as if set forth herein.  This Amendment and the Original Loan and Security Agreement shall be deemed as complementing and not restricting the Bank’s rights hereunder or thereunder.  If there is any conflict or discrepancy between the provisions of this Amendment and any provision of the Original Loan and Security Agreement, the terms and provisions of this Amendment shall control and prevail.

18. As a condition precedent to the effectiveness of this Amendment, simultaneously with the execution and delivery of this Amendment, the Borrower shall deliver to the Bank the following:

 

  

8

  

(a) Payment by the Borrower to the Bank of an amendment fee in the amount of $30,000.00;

 

(b) An incumbency certificate for each Borrower identifying all authorized officers, with specimen signatures;

 

(c) Certified copies of resolutions of the directors of each Borrower authorizing the execution, delivery and performance of this Amendment, and any other document hereunder, which resolutions shall be in form and substance satisfactory to the Bank in its sole discretion; and

 

(d) Uniform Commercial Code, judgment, federal and state tax lien searches against each Borrower, at the Borrower’s expense, showing that the Collateral is not subject to any Liens except for Permitted Liens, together with Good Standing Certificates from each Borrower’s state of creation.

 

19. The Borrower hereby represents, warrants and certifies to the Bank that no Event of Default or Unmatured Event of Default has occurred and is presently existing under the Loan Documents.

20. This Amendment (a) shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania; (b) shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns; (c) may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument; and (d) may only be amended or modified pursuant to a writing signed by the parties hereto.

21. THE BORROWER HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST THE BANK WITH RESPECT TO THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO.

22. The Borrower hereby agrees that it will pay, or cause to be paid or reimburse the Bank for, all of the Bank’s costs and expenses in connection with this Amendment, including without limitation the fees of its legal counsel.

  

9

  

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized, as of the 14th day of December, 2015.

 

	
BORROWER:

	
RCM TECHNOLOGIES, INC.

	  	
By:

	  /s/ Kevin D. Miller
	  	
Print Name:

	  Kevin D. Miller
	  	
Title:

	  CFO
	 	 	 
	  	
RCM TECHNOLOGIES (USA), INC.

	  	
By:

	  /s/   Kevin D. Miller
	  	
Print Name:

	    Kevin D. Miller
	  	
Title:

	  CFO
	 	 	 
	  	
PROGRAMMING ALTERNATIVES OF MINNESOTA, INC.

	  	
By:

	  /s/   Kevin D. Miller
	  	
Print Name:

	    Kevin D. Miller
	  	
Title:

	  CFO
	 	 	 
	  	
RCMT DELAWARE, INC.

	  	
By:

	  /s/   Kevin D. Miller
	  	
Print Name:

	    Kevin D. Miller
	  	
Title:

	  CFO
	 	 	 
	  	
RCM TECHNOLOGIES CANADA CORP.

	  	
By:

	  /s/   Kevin D. Miller
	  	
Print Name:

	    Kevin D. Miller
	  	
Title:

	  CFO
	 	 	 
	  	
BUSINESS SUPPORT GROUP OF MICHIGAN, INC.

	  	
By:

	  /s/   Kevin D. Miller
	  	
Print Name:

	    Kevin D. Miller
	  	
Title:

	  CFO

  

10

  

 

	
AGENT:

	
CITIZENS BANK OF PENNSYLVANA,

as Administrative Agent and Arranger

	 	 
	  	
By:

	  /s/ Derrick R. Davis
	  	
Print Name:

	  Derrick R. Davis
	  	
Title:

	  SVP
	 	 	 
	
LENDERS:

	
CITIZENS BANK OF PENNSYLVANIA,

as Lender

	  	
By:

	  /s/ Derrick R. Davis
	  	
Print Name:

	  Derrick R. Davis
	  	
Title:

	  SVP

  

11

  

EXHIBIT A

FORM OF COMPLIANCE CERTIFICATE

 

  

12

  

EXHIBIT 6.11

 

COMPLIANCE CERTIFICATE

 

 

 

____________, 20____        

 

Derrick R. Davis, Senior Vice President

Citizens Bank of Pennsylvania

2001 Market Street

Suite 600

Philadelphia, Pennsylvania  19103

 

Dear Mr. Davis:

 

I have reviewed the Second Amended and Restated Loan and Security Agreement dated February __, 2009, between RCM Technologies, Inc. and its subsidiaries (collectively, the “Borrower”) and Citizens Bank of Pennsylvania, as heretofore amended (collectively, the “Loan Agreement”).

 

I hereby certify AS OF _________________, 20___ that (a) the Borrower has observed, performed and complied with each and every one of its respective undertakings contained in the Loan Agreement, and (b) there does not exist any Event of Default or any Unmatured Event of Default (as each such term is defined in the Loan Agreement).

 

Attached hereto is a copy of the calculations required by Section 6.11 of the Loan Agreement showing compliance with Section 6.9 of the Loan Agreement.

 

	
Sincerely,

	  
	  
	  
	
Name:

	  
	  
	
Title:

	  

 

  

  

  

 

	
RCM Technologies, Inc.

	
Covenant Compliance

	
As of

	  	
, 20

	  	  
	
($ in thousands)

 

*All terms utilized herein have meanings ascribed to them in the Loan Agreement

 

	
6.9(a)

	
Fixed Charge Ratio (tested on rolling four quarter basis)

	  	  	  
	  	  	  	  	  
	
A.

	
If there is no Total Funded Debt outstanding in the fiscal

quarter in which a Distribution is paid or in the fiscal

quarter immediately following such fiscal quarter:

	  	
$

	  
	  	  	  	  	  
	  	
The Sum Of:

	  	  	  
	  	
EBITDA,

	  	
$

	  
	  	
150% of paid Distributions (excluding the Permitted Dividend)

	  	
$

	  
	  	
Total

	  	
$

	  
	  	  	  	  	  
	  	
Divided By Sum Of:

	  	  	  
	  	
Interest Expense

	  	
$

	  
	  	
Income Taxes Paid

	  	
$

	  
	  	
Scheduled Principal Payments

	  	
$

	  
	  	
Unfunded Capital Expenditures

	  	
$

	  
	  	
Distributions Paid (excluding the Permitted Dividend)

	  	
$

	  
	  	  	
Total

	  	
$

	  
	  	
Actual Fixed Charge Ratio

	  	
$

	  
	  	
Maximum Fixed Charge Ratio

	  	  	  
	  	
Compliance

	  	  	
Yes/No

	  	  	  	  	  
	
B.

	
If there is Total Funded Debt outstanding in the fiscal

quarter in which a Distribution is paid or in the fiscal

quarter immediately following such fiscal quarter:

	  	  	  
	  	  	  	  	  
	  	
EBITDA

	  	
$

	  
	  	  	  	  	  
	  	
Divided By The Sum Of:

	  	  	  
	  	
(i)

	
Interest Expense

	  	
$

	  
	  	
(ii)

	
Income Taxes Paid

	  	
$

	  
	  	
(iii)

	
Scheduled Principal Payments

	  	
$

	  
	  	
(iv)

	
Unfunded Capital Expenditures

	  	
$

	  
	  	
(v)

	
Paid Distributions (excluding the Permitted Dividend)

	  	
$

	  
	  	  	
Total

	  	
$

	  
	  	
(In the event an amount attributable to a paid Distribution

was added to the numerator of the Fixed Charge Ratio

pursuant to subparagraph A. above during the testing period

in question, that amount shall continue to be included in the

numerator for purposes of determining the Fixed Charge

Ratio pursuant to this subparagraph B).

	  	  	  

 

 

  

  

  

 

 

	  	  	  	  	  
	  	
Minimum Fixed Charge Ratio

	  	  	  
	  	
Compliance

	  	  	
Yes/No

	  	  	  	  	  
	
6.9(b)

	
Capital Expenditures and Purchase Money Financing

(tested on rolling four quarter basis)

	  	
Total Capital Expenditures

	  	
$

	  
	  	
Total Purchase Money Financing (excluding Acquisitions)

	  	
$

	  
	  	  	
Total

	  	
$

	  
	  	
Maximum Capital Expenditures and Purchase

	  	  	  
	  	
Money Financing

	  	
$

	  
	  	
Compliance

	  	  	
Yes/No

	  	  	  	  	  
	
6.9(c)

	
Total Funded Debt to EBITDA (tested on rolling four quarter basis)

	  	
Total Funded Debt

	  	
$

	  
	  	
EBITDA

	  	
$

	  
	  	
Actual Total Funded Debt to EBITDA

	  	
$

	  
	  	
Maximum Total Funded Debt to EBITDA

	  	  	  
	  	
Compliance

	  	  	
Yes/No

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00255-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00255-of-00352.parquet"}]]