Document:

ex_151317.htm

 

Exhibit 10.11

 

EMPLOYMENT AGREEMENT

 

AGREEMENT effective as of May 1, 2018 between FREQUENCY ELECTRONICS, INC., Delaware Corporation, located at 55 Charles Lindbergh Boulevard, Mitchel Field, New York 11553 (the "Company") and DR. STANTON SLOANE who resides at 5 Heckscher Drive, Halesite, NY 11743 (the "Employee").

 

WHEREAS, the Company is engaged in the business of developing, manufacturing, assembling, acquiring, marketing and selling precision time and frequency control products for commercial wireless communication applications, both space and ground based, and for government and military use and applications including temperature, frequency and time control systems and devices, oscillators, solid state amplifiers, telemetry and strain gauge measurements, ovens for the same and other devices of similar nature; and

 

WHEREAS, the Employee has previously added value to the Company by providing his knowledge and expertise to the Company as a member of the Board of Directors of the Company (the "Board") and as Chief Operating Officer; and

 

WHEREAS, the Company desires to retain the special skill, training and experience of the Employee related to the business of the Company and appoint him as its President and Chief Executive Officer and the Employee agrees to said appointment;

 

NOW THEREFORE, the Company and the Employee hereby agree to enter into an employment agreement based upon the terms and conditions set forth below.

 

1.     Employment and Duties. The Company hereby engages the services of the Employee and the Employee hereby accepts such engagement by the Company as the President and Chief Executive Officer ("CEO") of the Company upon the terms and conditions stated herein. The job description of the Employee shall be that's set forth on Exhibit A attached hereto. The duties of the Employee shall be those normally, or otherwise, performed at the Company by the person with the job description of the Employee and, in addition, such other duties as the Board of Directors shall determine.

 

	 	
			(a)

				
			The Employee shall devote his entire time, attention and effort to the business of the Company and shall not during the term of his employment hereunder, engage in any other business, which shall interfere with his ability to perform his duties hereunder; provided that nothing herein contained shall be construed as preventing the Employee from investing his assets in any other business or entity which is not in competition with the business of the Company. The Employee agrees to perform all duties assigned to him, or required of him, hereby to the best of the Employee's ability and in a manner satisfactory to the Company. For Purposes of this Agreement, the words "entire time" shall mean the amount of time, as determined by the Board, reasonably required to perform his duties.

			

 

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2.     Employment Compensation.  The Company shall compensate the Employee, as follows:

 

	 	
			(a)

				
			During the term of this Agreement (the "Term") as defined in Paragraph 3 of this Agreement, the Company shall pay the Employee a salary and bonus, as follows:

			

 

	 	
			(i)

				
			Base Salary. A base annual salary of Three Hundred Twenty-Five Thousand ($325,000) Dollars.

			

 

	 	
			(ii)

				
			Target Bonus. An annual target bonus in an amount not to exceed One Hundred (100%) Percent of the Employee’s Base Salary at the end of the applicable fiscal year which shall be payable only in the event the Company shows a profit for said fiscal year. The actual amount of the target bonus paid to the Employee, if any, shall be determined by the Board in its sole discretion pursuant to specific goals and directives established by the Board and shall be communicated to the Employee as soon as reasonably practicable after the end of the Company's fiscal year.

			

 

	 	
			(iii)

				
			The base salary shall be paid at the same as the Company regularly pays its employees and the Target Bonus, if any, shall be paid within one hundred twenty (120) days of the close of the applicable fiscal year of the Company.

			

 

 

	 	
			(iv)

				
			Each year that the Term is renewed, the Board shall conduct a Compensation review and, in their sole discretion, make adjustments to the Employee's compensation package consistent with the industry and the Employee's peer group.

			

 

	 	
			(b)

				
			Stock Appreciation Rights. During the Term, the Employee will be eligible to receive grants of equity subject to the terms of the Company’s Stock Award Plan (the "SA Plan"). Such equity grants, if any, will be made in the sole discretion of the Board and will be subject to the terms and conditions specified by the SA Plan. If required by applicable law with respect to transactions involving Company equity securities, the Employee agrees that use to his best efforts to comply with any duty that he may have to (i) timely report any such transactions and (ii) to refrain from engaging in certain transactions from time to time. The Company agrees to grant the Employee stock appreciation rights for Fifty-Five (55,000) Thousand Company shares as soon as practicable subsequent to the execution of this Agreement. Upon a termination of the Employee's employment under subparagraphs 6(a), 6(c) or 7(a) any unvested equity in any form issued to the Employee shall become one hundred (100%) percent vested.

			

 

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			(c)

				
			Expense Reimbursement. During the Employee's employment as President and CEO and while this Agreement is in effect, the Employee will be reimbursed for all reasonable and necessary business expenses provided to other officers of the Company (including, but without limitation, travel expenses, .car and related expenses, Company American Express card for business related expenses) upon the properly completed submission of requisite forms and receipts to the Company. Such reimbursements shall be in compliance with. Company policy and any applicable laws and regulations.

			

 

	 	
			(d)

				
			Employee Insurance. The Company shall, during the Term of this Agreement, maintain insurance on the Employee's behalf similar to the insurance provided to the other officers of the Company including, without limitation, medical insurance, major medical insurance, disability benefits insurance and life insurance, at no additional cost to the Employee; and with the Company paying all of the premiums therefor ("Employee Insurance").

			

 

	 	
			(e)

				
			Life Insurance. In addition to the Employee Insurance and during the Term, the Employee shall be entitled to apply for and purchase additional life insurance coverage on his life and the Company shall reimburse him for the premiums for said coverage in an amount no to exceed Ten Thousand ($10,000) Dollars annually.

			

 

	 	
			(f)

				
			Tax Advice. The Company shall pay to the Employee an amount not to exceed Ten Thousand ($10,000) Dollars annually during the Term for tax and financial planning advice obtained by the Employee.

			

 

	 	
			(g)

				
			Other Reimbursement. The Company shall reimburse the Employee for any legal expense incurred by him for the review of this Agreement in an amount not to exceed Five Thousand ($5,000) Dollars.

			

 

3.     Term. The Term of this Agreement shall be deemed to commence as of the date first above written and shall end on the first anniversary of such date, subject to prior termination as provided in Paragraphs 6 and 7 of this Agreement, and provided, however, that this Agreement shall be automatically renewed thereafter for successive one (1) year terms ("Renewal Term(s)"). The Employee shall be deemed to have elected the automatic renewal for each Renewal Term, unless the Employee shall have provided a written notice to the Company at least ninety (90) days prior to the end of the Term or any Renewal Term.

 

4.     Inventions and Ideas. All right, title and interest in and to any and all ideas, inventions and improvements relating to methods, processes, designs or apparatus which the Employee may conceive, make or develop, either solely, jointly or in common with others during the Term or any Renewal Term hereof or within the twelve (12) months immediately following the termination of his employment with the Company, and which in anyway pertain to, or are

 

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useful in connection with, the Company's business shall belong to and be the sole property of the company.

 

5.     Disclosure. The Employee will promptly disclose any and all ideas, schemes, designs, processes, devices, inventions and improvements which pertain to or are useful in connection with the Company's business and which he may conceive, make, develop or discover (the "Intangibles") either solely, jointly, or in common with others to the Chairman of the Board. The Employee agrees upon request, and at the Company's expense, to execute all papers, and do all things that may be reasonably required, in order to vest and maintain in the Company all of the right, title and interest of the Employee in and to any and all of said Intangibles and the applications for patent and letters patent in connection with the same and any reissuances, renewals and/or extensions thereof.

 

6.     Termination of Employment. Termination of employment pursuant to the terms of this Agreement shall not be construed as a termination of the rights and obligations of the parties under this Agreement which are intended to apply subsequent to termination of employment herein.

 

	 	
			(a)

				
			The employment of the Employee hereunder shall automatically terminate, in the event of the death of the Employee during the Term or any Renewal Term hereunder as of the date of death. In the event the Employee becomes totally disabled during the Term or any Renewal Term hereof, the Company, at any time after the occurrence of such total disability and effective upon the giving of written notice to the Employee, shall be entitled to terminate the Employee's employment hereunder. The Company shall pay to the estate of the Employee in the event of his death or to the Employee in the event of termination through disability, all compensation due hereunder up to the date of termination of employment including a pro-rata portion of the Target Bonus he would have received under the provision of Paragraph 2(a)(ii) hereof for the Company's fiscal year during which the Employee's employment terminated; said amount to be paid within one hundred twenty (120) days of the close of the applicable fiscal year of the company. No other compensation or payments required to be paid under this Agreement shall be due under this Agreement in the event of total disability or death of the Employee, except as expressly otherwise provided for in this Agreement or except as provided for under the provisions of an employee benefit pension or welfare plan or equity plan maintained by the Company in which the Employee is a participant. For purposes hereof "total disability" shall mean:

			

 

	 	
			(i)

				
			The total disability as defined in any disability insurance policy maintained by the Company for the benefit of the Employee, or, if no disability insurance policy is being maintained by the Company at the time the determination of total disability is to be made, the continuous inability of the Employee because of bodily injury or

			

 

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sickness to perform the services required of him hereunder for a period of one hundred eighty (180) days or

 

	 	
			(ii)

				
			The total and irrevocable loss of the sight of both eyes, or the use of both hands or feet, or one hand one foot. Termination pursuant to the provisions of this subparagraph (a) based upon total disability or death shall not relieve the Company of its obligations as provided in subparagraphs (c) of this paragraph and paragraph 7(a); it being specifically agreed that all Severance Compensation (as hereinafter defined) shall continue to be paid to the Employee or his estate, as the case may be, if he is receiving the Severance Compensation at the time of his disability or death. Nothing contained in this paragraph shall be construed as relieving the Company from its obligation to maintain disability insurance for the benefit of the Employee, if it is provided on the date of this Agreement or at any time during the Term or any Renewal term hereof.

			

 

	 	
			(b)

				
			The Company may terminate the employment of the Employee hereunder for "Cause" (as defined below) at any time immediately upon written notice to the Employee and thereupon the Company shall pay to the Employee all compensation due to the Employee through the date of termination and the Company shall have no further obligation, under this Agreement, to pay compensation or make other payments to. the Employee. For purposes hereof "cause" shall include only:

			

 

	 	
			(i)

				
			The breach by the Employee of any of the material terms, covenants, provisions or conditions contained herein;

			

 

	 	
			(ii)

				
			The commission of any, crime or act of dishonesty by the Employee as against the Company including any act which materially adversely affects the Company and any material violation of any law of the United States or any rule or regulation of any agency of the United States Government concerning the business of the Company, provided it is proven beyond a reasonable doubt that the Employee had personal knowledge of the act and intended to commit the act, and provided, further, that if the Employee committed such act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to the commission of any crime, if he had reasonable cause to believe that his conduct was not unlawful, then such commission shall not constitute discharge for cause hereunder, and provided further, that termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not of itself, create a presumption that the

			

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Employee did not act in good faith and in a manner which he reasonable believed to be in, or not opposed to, the best interests of the Company, or, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful; or

 

	 	
			(iii)

				
			The commission of any willful, malicious, grossly negligent or reckless act by the Employee which is deemed, in the reasonable judgment of the Board, detrimental to the business, prospect or reputation of the Company; provided that any decision by the Board hereunder may not be arbitrary or capricious; or

			

 

	 	
			(iv)

				
			Notwithstanding any of the foregoing, the Board may make a finding with respect to any act of the Employee that is in the best interests of the Company that such act not be cause for termination. Furthermore, prior to the termination of the Employee's employment for Cause, the Company shall provide the Employee with a written notice setting forth in reasonable detail the circumstances constituting Cause and, if applicable, the conduct required of the Employee to cure the same. If the nature of the Cause is determined, in the sole discretion of the Company, to be curable the Employee shall have thirty (30) days from the date of his receipt of the written notice within which to effectuate a cure.

			

 

	 	
			(c)

				
			The Company may terminate the employment of the Employee hereunder upon seven (7) days written notice to the Employee for financial or any other business needs of the Company which shall be determined in the judgment of the Board which judgment shall not be arbitrary and capricious. Furthermore, the Employee may resign from employment during the term or renewal term for Good Reason, as described below. In the event of termination of the Employee's employment without cause or for good reason pursuant to this subparagraph 6(c), the Company shall pay to the Employee all compensation due hereunder up to the date of termination of employment including a pro-rata portion of the Target Bonus he would have received under the provision of Paragraph 2(a)(ii) hereof for the Company's fiscal year during which the Employee's employment terminated; In addition, the Company agrees to pay the Employee Severance Compensation pursuant to the provisions in paragraph 8.

			

  

For purposes hereof, Good Reason shall include only the following:

 

	 	
			(i)

				
			A material diminution in the Employee's Base Salary;

			

	 	
			(ii)

				
			A material diminution in the Employee's authority, duties or responsibilities;

			

	 	
			(iii)

				
			A material change in the geographic location at which the Employee is required to perform his services for the Company;

			

 

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			(iv)

				
			If the Company has materially breached its obligations to the Employee under this Agreement.

			

 

For purposes hereof the Employee may resign his employment from the Company for any of the events of Good Reasons set forth above within sixty(60) days after the date of the occurrence of any of such events but his resignation for Good Reason shall not be effective unless the Employee provides written notice to the Company within thirty (30) days of the occurrence of the purported Good Reason event describing the basis and underlying facts supporting his belief that a Good Reason event has occurred. Upon providing said notice to the Company, a resignation for Good Reason hereunder will only be deemed to have occurred if the Company has not cured or remedied the Good Reason event within thirty (30) days after its receipt of the written notice.

 

	 	
			(d)

				
			In the event the Employee voluntarily terminates employment during the term or the Renewal Term he agrees to provide the Company with thirty (30) days advanced written notice of his intent to resign. Upon said voluntary termination the Company shall pay to the Employee only his accrued but unpaid base salary up to the effective date of his voluntary termination, any accrued but unpaid Target Bonus, and any amounts provided for under the terms of an employee benefit pension or welfare program maintained by the Company and in which the Employee is a participant.

			

 

7.     Change of Control.

 

	 	
			(a)

				
			If at any time during the Term or a Renewal Term, there is a change in control of the Company, as that term is defined below, the Employee shall have the right, within the six (6) month period following said change in control, and upon giving seven (7) days written notice to the Company, to terminate his employment hereunder, effective immediately upon receipt by the Company of such written notice; in which event, the Company agrees to pay to the Employee all compensation due hereunder up to the date of termination of employment including a pro-rata portion of the Target Bonus he would have received under the provision of Paragraph 2(a)(ii) hereof for the Company's fiscal year during which the Employee's employment terminated. In addition, the Company agrees to pay the Employee Severance Compensation pursuant to the provisions of paragraph 8.

			

 

	 	
			(b)

				
			For the purposes of this agreement a change in control of the company shall be deemed to have occurred if:

			

 

	 	
			(i)

				
			There shall be consummated any of the following: (A) any consolidation or merger if the Company is not the continuing or surviving corporation or pursuant to which shares of the

			

 

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Company's common stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's common stock immediately prior to the merger have the same proportionate ownership of common stock immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company.

 

	 	
			(ii)

				
			The stockholders of the company approve any plan or proposal for the liquidation or dissolution of the Company.

			

 

	 	
			(iii)

				
			Any person (as such term in used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), shall become the beneficial owner (within the meaning of Rule 13-d-3 under the Exchange Act) of 30% or more of the Company's outstanding common stock; or

			

 

	 	
			(iv)

				
			During any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

			

 

8.     Severance Compensation. In the event of termination of the Employee's employment under the provisions of subparagraphs 6(c) or 7(a) hereunder, the Company shall, in addition to any other amounts due to Employee under said subparagraphs, pay to the Employee an amount of Severance Compensation equal to two times the base salary paid to the Employee immediately before his termination of employment. Severance Compensation shall be payable over the one-year period following the Employee's termination of employment and shall be paid pro rata at each regular payroll period as the Company regularly pays its other employees commencing with the first pay period immediately following the Employee's termination of employment.

 

(iv)     Covenant Not to Compete. The Employee agrees that during the Term or any Renewal Term of employment hereunder, and during the entire period the Employee is receiving Severance Compensation under subparagraphs 6(c) or 7(a) and for a period of one year following (i) termination of employment due to disability pursuant to subparagraph 6(a), or (ii) the payment to the Employee of all of his Severance Compensation under subparagraphs 6(c) or 7(a), or (iii) the expiration of the Term of this Agreement and any Renewal Term thereafter, or (iv) termination of employment for any other reason including, without limitation, the voluntary termination by the Employee, or for cause pursuant to paragraph 6(b), the Employee will not in any capacity, directly or indirectly, own, manage, operate, control, be employed by, participate in, have a financial interest in or be connected in any manner with the ownership, management, operation or control of any business or entity which shall be in the business described in the first

 

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"WHEREAS" clause above or which shall be otherwise similar to or in competition with the business of the Company on the date Employee receives or provides notice of termination, directly or indirectly, provided, that the Employee may own not more than one (1%) percent of the stock of a public corporation which competes with the business of the Company for passive investment purposes, so long as the Employee does not render services thereto, directly or indirectly.

 

10.    Disclosure of Information. The Employee recognizes and acknowledges that in connection with his employment with the Company, he will have access to valuable trade secrets and confidential information of the Company, including, among other things, manufacturing and other business methods and processes, engineering and design concepts processes and data, sources of supply, marketing and promotional techniques and financial information, and that these are special and unique assets of the Company's business which are made available to the Employee only in connection with the furtherance of his employment with the Company. The Employee agrees that he will not at any time, during or after his term of employment with the Company, disclose any of such information or any material information relating to the Intangibles, applications for patent and letters patent referred to in paragraph 5 above or any other confidential. information or trade secrets of the Company to any person, firm, corporation or other entity, directly or indirectly, or utilize same, for any reason or purpose whatsoever, except if the Company agrees in writing.

 

11.     Injunction. In the event of a breach or threatened breach by the Employee of the provisions of Paragraphs 4, 5, 9 or 10 above, the Company shall be entitled to an injunction restraining the Employee from (i) owning, managing, operating, controlling, being employed by, participating in, having a financial interest in or being in any way connected with a business of the type described in paragraph 9, directly or indirectly, or (ii) disclosing, utilizing or benefiting, directly or indirectly, from any of the information described in paragraph 5 above. Nothing herein contained shall be construed as prohibiting the Company from pursuing any other remedies which may be available to it for such breach or threatened breach, including recovery of damages.

 

12.     Taking of Property. The Employee agrees that under no circumstances will he take or otherwise appropriate any property of the Company or any property of which the Company is entitled hereunder such as drawings, notes, sketches, plans or any other documents or writings pertaining to work with respect to which the Company is or has been engaged without the written consent of the Company.

 

13.     Indemnification. The Employee agrees to indemnify and hold the Company harmless from any claim or liability asserted against it by any person or entity with which the Employee may have been previously employed (other than with a parent, subsidiary or affiliate of the Company).

 

14.     Governing Law; Jurisdiction. This Agreement shall be interpreted in accordance with and governed by the laws of the State of New York, and shall be deemed executed at the Company's place of business at 55 Charles Lindbergh Boulevard, Mitchel Field, Nassau County, New York. The parties consent to the jurisdiction of any state court located within the County of

 

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Nassau or the United States District Court for the Eastern District of New York and agree that all actions or proceedings arising, directly or indirectly, from this Agreement shall be litigated only in courts having such situs; the parties waive personal service of any legal process upon them arising, directly or indirectly, from this Agreement and consent that service of process may be made by certified or registered mail, return receipt requested, directed to them at the addresses set forth herein or as may otherwise be designated by them in writing, and service so made shall be complete seven (7) days after receipt, as aforesaid. In any action or legal proceeding arising, directly or indirectly, from this Agreement, the Company waives trial by jury and the successful party in any such action or legal proceeding, shall be entitled to recover its reasonable counsel fees and the expenses of such litigation.

 

15.     Arbitration: Expenses. In the event of any dispute under● the provisions of this Agreement or any matter relating to the Employees' employment with the Company, other than a dispute in which the primary relief sought is specific performance of injunction, relating to the matters covered in Paragraph 11 above, the parties shall be required to have the dispute, controversy or claim settled by arbitration in Nassau County, New York in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before an arbitrator selected by the Company and the Employee. Any award entered by the arbitrator shall be final and binding and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction in Nassau County, New York. This arbitration provision shall be specifically enforceable. The arbitrator shall have no authority to add to, modify or amend any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. Each party shall be responsible for its own expenses relating to the conduct of arbitration (including, without limitation, reasonable attorney's fees and expenses) and shall share the fees of the American Arbitration Association,

 

16.     Authority of Employee. The Employee may bind the Company to any obligation or incur expenses on behalf of the Company, consistent with the authority vested in the Employee in his capacity as an officer of the Company as specified on Exhibit A.

 

17.     Enforceability. Should any provision of this Agreement be held by a court of competent jurisdiction to be invalid or unenforceable the remaining provisions of this Agreement shall be enforced to the fullest extent permitted by law.

 

18.     Notices. Any notice or demand required or permitted to be given herein shall be in writing and shall be given either by personal delivery to the Employee, or an officer or director of the Company, as the case may be, or sent by postage prepaid, certified or registered mail, return receipt requested, or by facsimile or e-mail with a scanned or electronic signature to the addresses set forth herein or as may otherwise be designated by them in writing with a notice provided pursuant to this paragraph. Such notice or demand shall be deemed given when personally delivered or received.

 

19.     Assignment. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company. The

 

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rights and obligations of the Employee under this Agreement shall inure to his heirs, executors, administrators and estate. This Agreement may not be assigned by the Employee.

 

20.     Waiver, Modification, Etc. This Agreement may not be altered, amended, waived, changed, abandoned, modified, or discharged orally, but only by an agreement in writing executed by the Company and the Employee with the same formality hereof.

 

21.     Prior Agreements Revoked. This Agreement specifically revokes any and all prior employment agreements between the Company and Employee, whether written or oral.

 

22.     Recitals. The Recitals shall be deemed a part of this agreement.

 

23.     Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

24.     Headings. Headings are for convenience purposes only and shall not be used to interpret or construe the provisions contained herein.

 

25.     Code Section 409A.

 

	 	
			(a)

				
			This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and applicable Internal Revenue Service guidance and Treasury Regulations issued thereunder (and any applicable transition relief under Section 409A of the Code). Nevertheless, the tax treatment of the benefits provided under the Agreement is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisors shall be held liable for any taxes, interest, penalties or other monetary amounts owed by the Employee as a result of the application of Section 409A of the Code.

			

 

	 	
			(b)

				
			Notwithstanding anything in this Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt "deferred compensation" for purposes of Section 409A of the Code ("Non-Exempt Deferred Compensation") would otherwise be payable or distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of a change in control or the Employee's disability or termination of employment, such Non-Exempt Deferred Compensation will not be payable or distributable to the Executive, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such change in control, disability or termination of employment, as the case may be, meet any description or definition of "change in control event", "disability" or "separation from service", as the case may be, in Section

			

 

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409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such. definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon. a change in control, disability or termination of employment, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant "change in control event", "disability" or "separation from service", as the case may be, or such later date as may be required by subparagraph (c) below; If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same form as would have applied absent such designated event or circumstance.

 

	 	
			(c)

				
			Notwithstanding anything is this Agreement to the contrary, if any amount or benefit that would constitute Non-exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of the Employee's separation from service during a period in which he is a Specified Employee (as defined below), then, subject to any permissible. acceleration of payment by the Company under the Treasury Regulations promulgated under Section 409A of the Code:

			

 

	 	
			(i)

				
			The amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following Employee's separation from service will be accumulated through and paid or provided on the first day of the seventh month following Executive's separation from service (or, if Executive dies during such period, within 30 days after Executives death) (in either case, the "Required Delay Period"); and

			

 

	 	
			(ii)

				
			The normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

			

 

For purposes of this Agreement, the term "Specified Employee" has the meaning given such term in Code Section 409A and the final regulations thereunder; provided, however, that the Company's Specified Employees and its application of the six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or a committee thereof, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Agreement.

 

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

 

FREQUENCY ELECTRONICS, INC.

 

By:___________________________________

     Martin B. Bloch, Executive Chairman of

     the Board of Directors.

 

 

 

    ____________________________________

     Dr. Stanton Sloane, Employee

 

 

 

 

 

 

EXHIBIT A TO DR. STANTON SLOANE EMPLOYMENT AGREEMENT

 

 

JOB DESCRIPTION: PRESIDENT AND CHIEF EXECUTIVE OFFICER

 

The President and Chief Executive Officer oversees and is responsible for all Company operations, including but not limited to:

 

	 	
			•

				
			Corporate and business development

			

 

	 	
			•

				
			All personnel decisions

			

 

	 	
			•

				
			Financial operations

			

 

	 	
			•

				
			Research and development

			

 

	 	
			•

				
			Manufacturing

			

 

	 	
			•

				
			Engineering

			

 

	 	
			•

				
			Marketing

			

 

	 	
			•

				
			Sales

			

	 	
			•

				
			Public relations

			

 

	 	
			•

				
			Investor relations

			

 

Concurrent with these responsibilities, the President sets the standard for behavior expected of all employees.

 

 

;cmo-ex1001_83.htm

Exhibit 10.01

 

CAPSTEAD MORTGAGE CORPORATION 

DEFERRED COMPENSATION PLAN 

As Amended and Restated 

Effective January 1, 2009*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Per IRS Notice 2010-6, Section XI. (A.)(1)

 

Solely for purposes of applying this notice, if a plan fails to satisfy the requirements of Section 409A(a) in a manner that is eligible for correction under this notice, and the plan is corrected in accordance with this notice on or before December 31, 2010, the plan may be treated as having been corrected on January 1, 2009, ....

 

 

CAPSTEAD MORTGAGE CORPORATION 

DEFERRED COMPENSATION PLAN

Table of Contents

Page

 

ARTICLE IDEFINITIONS1

ARTICLE IIPARTICIPATION4

ARTICLE IIIDEFERRALS AND CREDITS TO ACCOUNT5

ARTICLE IVIN-SERVICE HARDSHIP WITHDRAWALS7

ARTICLE VPAYMENT OF BENEFIT7

ARTICLE VIFORM OF DISTRIBUTION9

ARTICLE VIIADMINISTRATION OF THE PLAN10

ARTICLE VIIICLAIM REVIEW PROCEDURE11

ARTICLE IXLIMITATION OF RIGHTS12

ARTICLE XLIMITATION OF ASSIGNMENT AND PAYMENTS TO LEGALLY 
INCOMPETENT DISTRIBUTEE12

ARTICLE XIAMENDMENT TO OR TERMINATION OF THE PLAN13

ARTICLE XIISTATUS OF PARTICIPANT AS UNSECURED CREDITOR14

ARTICLE XIIIGENERAL AND MISCELLANEOUS15

 

 

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CAPSTEAD MORTGAGE CORPORATION

DEFERRED COMPENSATION PLAN

PREAMBLE

Capstead Mortgage Corporation (the "Company") previously established the Capstead Mortgage Corporation Deferred Compensation Plan, effective July 1, 1994, as subsequently amended and restated effective January 1, 1998 (the "Prior Plan"), as a fundamental strategy to encourage and reward the continued service of certain key executives who are essential to overall corporate profitability.  The Prior Plan was frozen with respect to the Accounts of all Vested Recipients, effective January 1, 2005, and the maintenance and distribution of the Accounts of all Vested Recipients shall be governed by the terms of the Prior Plan. With respect to the Accounts of all Participants, other than Vested Recipients, the Prior Plan was amended and restated, effective January 1, 2005, for compliance with Section 409A of the Internal Revenue Code and was thereafter referred to as the "Plan".  The Plan is hereby amended and restated for compliance with subsequent guidance under Section 409A, effective January 1, 2009.

The Company intends that this Plan will be maintained for the exclusive benefit of Participants, who shall constitute a select group of executives of the Company, and that any Participant or Beneficiary of the Plan shall have the status of an unsecured general creditor with respect to this Plan and the Trust Fund, if any, established in connection with the Plan.

The terms of the Plan are as follows:

ARTICLE I 
DEFINITIONS

 1.1"Account" shall mean the record maintained by the Administrator showing the monetary value of the individual interest of each Participant or Beneficiary, with respect to amounts deferred and credited pursuant to Article III hereof.  The term "Account" shall refer only to a bookkeeping entry and shall not be construed to require the segregation of assets on behalf of any Participant or Beneficiary.  

 1.2"Administrator" shall mean the Compensation Committee or, if applicable, its delegate.

 1.3"Annual Compensation" shall mean the total amounts payable by the Company to a Participant as remuneration for personal services rendered during each Plan Year, including bonuses and any other type of incentive compensation, as reported on the Participant's federal income tax withholding statement or statements (IRS Form W‐2 or its subsequent equivalent), unreduced by any amounts not includable in such Participant's gross income pursuant to Sections 125 or 402(g) of the Code and any amounts deferred by such Participant pursuant to Section 3.1 hereof, but Annual Compensation shall not include (i) amounts, if any, realized from the exercise of a nonqualified stock option or when restricted stock (or property) held by a Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (ii) amounts payable to a Participant that do not represent salary, i.e., expense reimbursements; and (iii) dividends payable with respect to nonvested shares of restricted stock.

 

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 1.4"Beneficiary" shall mean the person or persons designated by each Participant under the CapSave Plan; provided, however, that a Participant may designate a different Beneficiary hereunder by delivering to the Administrator a written beneficiary designation in the form provided by the Administrator and executed specifically with respect to this Plan.  If a Participant fails to name a Beneficiary, or if the Beneficiary named by a Participant predeceases him or dies before distribution of the Participant's Account, then the entire value of the Participant's Account shall be paid to the Participant's estate.

 1.5"Board" shall mean the Board of Directors of the Company.

 1.6"CapSave Plan" shall mean the qualified 401(k) and profit sharing plan maintained by the Company, as amended from time to time, or any successor qualified plan thereto.

 1.7"Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, and the rules and regulations promulgated thereunder.

 1.8"Company" shall mean Capstead Mortgage Corporation, a company formed under the laws of the State of Maryland, or its successor or successors.

 1.9"Compensation Committee" shall mean the Compensation Committee of the Board.

 1.10"Disability" shall mean a medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, and with respect to which a Participant has been receiving income replacement benefits for a period of not less than 3 months under a long-term disability plan of the Company.

 1.11"Distribution Schedule" shall mean the form of payment and the date or date(s) elected by a Participant, at the time and in the manner described in Section 2.2 hereof, for the distribution of amounts credited to the Participant's Account. 

 1.12"Effective Date" shall mean January 1, 2009.

 1.13"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

 1.14"Insolvent" shall mean (a) the Company is unable to pay its debts as they become due or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 

 1.15"Participant" shall mean an individual who has been selected for participation in the Plan, as set forth in Article II hereof.

 1.16"Performance-Based Compensation" shall mean the total amounts payable to the Participant as remuneration based upon the Participant's performance of services for the Company over a period of not less than twelve (12) months, the payment of which or the amount of which is contingent on the satisfaction of established organizational or individual performance criteria, and that otherwise meets the definition of "performance-based compensation", as that term is 

 

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defined in Section 1.409A-1(e) of the Treasury Regulations. For these purposes, Performance-Based Compensation shall be based upon criteria established no later than ninety (90) days following commencement of the applicable performance period.

 1.17"Plan" shall mean the Capstead Mortgage Corporation Deferred Compensation Plan, as amended and restated herein, effective January 1, 2009, and as further amended from time to time.

 1.18"Plan Year" shall mean the twelve (12) month period commencing on each January 1 and ending on the following December 31.

 1.19"Prior Plan" shall mean the Capstead Mortgage Corporation Deferred Compensation Plan, as amended and restated effective January 1, 1998.

 1.20"Normal Retirement Age" shall mean the date on which the Participant attains age sixty (60) or completes thirty (30) years of service with the Company.

 1.21"Separation from Service" shall mean the date on which the Participant's employment with the Company is terminated, whether voluntary or involuntary, or due to the Participant's death.  The determination of whether a Participant's employment has terminated shall be made in accordance with Code Section 409A and the regulations prescribed thereunder.

 1.22"Specified Employee" shall mean, for any Plan Year in which the Company is publicly traded on an established securities market or otherwise, a Participant who is a "key employee" as defined under Code Section 416(i)(1)(A)(i), (ii), or (iii)(applied in accordance with the Treasury Regulations thereunder and disregarding subparagraph (5) thereof).  For purposes of this Plan, the identification of Specified Employees will be made by the Administrator on December 31st of each Plan Year, based upon the twelve (12) month period ending on such date.  Each Participant identified by the Company as a "key employee" under the applicable provisions of Code Section 416(i) shall be a Specified Employee under this Plan for the twelve (12) month period commencing on the immediately succeeding April 1.  

 1.23"Trust Agreement" shall mean the agreement, if any, including any amendments thereto entered into between the Company and the Trustee for the accumulation of deferrals and credits made pursuant to Article III of the Plan, and any investment income, gains or losses thereto.

 1.24"Trust Fund" shall mean the cash and other properties held and administered by the Trustee pursuant to a Trust Agreement.

 1.25"Trustee" shall mean the designated trustee acting at any time under a Trust Agreement.

 1.26"Valuation Date" shall mean each day on which the financial markets are open for trading activity, except to the extent otherwise prescribed by an authorized deemed investment option designated by the Administrator.

 1.27"Vested Interest" shall mean that portion of the Participant's Account in which he has a nonforfeitable right.  Each Participant shall have a 100% Vested Interest in the value of the 

 

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amounts credited to his Account which are attributable to deferrals made by such Participant pursuant to the provisions of Section 3.1 hereof and shall have a Vested Interest equal to a percentage of all amounts credited to his Account which are attributable to matching contributions and supplemental contributions credited on his behalf pursuant to the provisions of Sections 3.2 and 3.3 hereof, respectively, such percentage to be determined in accordance with the vesting schedule provided under the CapSave Plan.  Notwithstanding the foregoing, each Participant shall have a 100% Vested Interest in the value of his entire Account upon such Participant's death or Disability, or upon attainment of Normal Retirement Age.

 1.28"Vested Recipient" shall mean any Participant whose employment with the Company terminated prior to December 31, 2004, who had a 100% Vested Interest in the value of the amounts credited to his Account on December 31, 2004 and who commenced distribution of amounts credited to his Account prior to January 1, 2005.

ARTICLE II
PARTICIPATION

 2.1Eligibility to Participate.  Participation in the Plan shall be made available to a select group of individuals, as determined by the Board, who are providing services to the Company in key positions of management and responsibility.  The determination as to the eligibility of any individual to participate in the Plan shall be in the sole and absolute discretion of the Board, consistent with the policies of the Company in place from time to time, and the decision of the Board in that regard shall be conclusive and binding for all purposes hereunder.  The Administrator shall notify each individual selected by the Board of his eligibility to participate.

 2.2Participation Agreements.

(a)Elections Upon Commencement of Participation. Within thirty (30) days of the date on which an individual is notified by the Administrator of his eligibility to participate hereunder, such individual shall submit an executed participation agreement to the Administrator, in such form as the Administrator shall require, to irrevocably elect to defer a portion of his Annual Compensation pursuant to Section 3.1 hereunder, provided, however, such election shall not become effective earlier than the first day of the first full payroll period immediately following the Administrator's receipt of such deferral election, or such later payroll period specified by the Participant. A Participant's failure to elect to defer a portion of his Annual Compensation in accordance with this paragraph (a) shall be deemed an election by the Participant to defer zero percent (0%) of his Annual Compensation.  The Participant may, at such time, also irrevocably elect the Distribution Schedule under which benefits hereunder will be paid.  A Participant's failure to elect a Distribution Schedule in accordance with this paragraph (a) shall be deemed an election by the Participant to receive his benefits hereunder in a single, lump sum payment on the fifteenth day of the third month of the Plan Year immediately following such Participant's Separation from Service. 

(b)Annual Deferral Election.  Except as otherwise provided in Article IV hereof, a Participant's election (or deemed election) to defer Annual Compensation shall 

 

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remain effective for each subsequent calendar year, unless and until modified or revoked by the Participant in accordance with this paragraph (b).  A Participant may modify or revoke an election to defer Annual Compensation with respect to amounts to be earned in a subsequent calendar year by submitting an executed participation agreement to the Administrator, in such form as the Administrator shall require, no later than December 31 of the calendar year immediately preceding the calendar year in which such Annual Compensation will be earned.

(c)Performance-Based Compensation.  Notwithstanding any provision of paragraphs (a) and (b) above to the contrary, a Participant may elect to defer or specify a Distribution Schedule with respect to all or a portion of his Annual Compensation which constitutes Performance-Based Compensation by submitting an executed participation agreement to the Administrator, in such form as the Administrator shall require, no later than six (6) months prior to the end of the applicable performance period.

(d)Subsequent Elections Regarding Time and Form of Benefit.  A Participant may elect to delay one or more payment dates under a Distribution Schedule or change the form of benefit to be received hereunder, provided that (i) such election shall not be effective for at least twelve (12) months following the date on which such election is made, (ii) with respect to a payment which the Participant is entitled to receive following his Separation from Service or pursuant to a Distribution Schedule, the first payment with respect to which such election is made is deferred at least five (5) years from the date on which such payment would otherwise have been made, and (iii) with respect to the payment of benefits hereunder pursuant to a Distribution Schedule, such election is made no less than twelve (12) months prior to the date of the first scheduled payment.

ARTICLE III
DEFERRALS AND CREDITS TO ACCOUNT

 3.1Deferral Elections.  For any Plan Year, a Participant may elect, pursuant to Section 2.2 hereof, to defer a portion of the Annual Compensation otherwise payable to him.  The amount a Participant may elect to defer under this Plan for any Plan Year may in no event exceed sixty percent (60%) of such Participant's Annual Compensation earned during such Plan Year, provided, however, that notwithstanding the foregoing, such Participant may elect to defer up to one hundred percent (100%) of that portion of such Participant's Annual Compensation that constitutes a bonus or other type of incentive compensation (including, but not limited to, Performance-Based Compensation) earned during such Plan Year, even though such amounts may be payable during a subsequent Plan Year.  Any amounts withheld pursuant to this Section 3.1 from the Annual Compensation otherwise payable to a Participant shall be credited to his Account as of the date on which such amounts would otherwise have been paid.  

 3.2Matching Contributions.  For each Plan Year, the Company shall credit an amount to the Account of each Participant hereunder who has deferred amounts under the Plan during such Plan Year, as provided in Section 3.1 above, but only as such deferrals relate to that portion, if any, of such Participant's Annual Compensation that exceeds the amount set forth in Section 401(a)(17) of the Code for such Plan Year ("Excess Compensation").  The amount of such 

 

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matching contribution shall equal fifty percent (50%) of the Participant's Excess Compensation deferred hereunder by the Participant during such Plan Year, but only taking into account up to six percent (6%) of such Excess Compensation.  Any amounts credited pursuant to this Section 3.2 shall be credited to the Participant's Account as soon as practicable following the date on which the applicable deferral is credited to the Participant's Account pursuant to Section 3.1 above, but not later than the last day of the second calendar month following the calendar month to which the applicable deferral relates.  

 3.3Supplemental Matching Contributions.  The Company may credit to the Account of a Participant hereunder who has deferred amounts under the Plan, as provided in Section 3.1 above, such amount, if any, as is determined by the Board in its sole and absolute discretion, which amount may, but is not required to be, equal to a uniform percentage of such Participant's Excess Compensation deferred hereunder. Any amounts credited pursuant to this Section 3.3 shall be credited to the Participant's Account as soon as practicable following the date on which the applicable deferral is credited to the Participant's Account pursuant to Section 3.1 above, but not later than the last day of the second calendar month following the calendar month to which the applicable deferral relates.  

 3.4Valuation of Accounts.  As of each Valuation Date, the Administrator shall credit to each Participant's Account the deemed income, gains or losses attributable thereto, determined pursuant to the provisions of Section 3.5 below, as well as any other credits to or charges against such Account. All payments from an Account between Valuation Dates shall be charged against the Account as of the immediately preceding Valuation Date.

 3.5Participant-Directed Investments.  Each Participant, upon becoming a Participant in the Plan, may, in the manner prescribed by the Administrator, designate the manner in which he wishes his Account to be deemed invested among the various options designated by the Administrator for this purpose. The investment designation will continue until changed by the timely submission of a new investment designation.  In the absence of any such investment designation, a Participant's Account shall be deemed to be invested in such property as the Administrator, in its sole and absolute discretion, shall determine.  In no event may a Participant designate the deemed investment of his Account in stock or other securities of the Company or any Affiliate.  The Administrator may, but shall not be obligated to, invest amounts credited to a Participant's Account in accordance with the investment designations of such Participant; nevertheless, the Account of such Participant shall be credited with the amount of income, gains and losses attributable thereto, as if the amounts credited to such Account had been so invested.  The Administrator shall be authorized at any time and from time to time to modify, alter, delete or add to the deemed investment options hereunder.  In the event a modification occurs, the Administrator shall notify those Participants whom the Administrator, in its sole and absolute discretion, determines are affected by the change, and shall give such persons such additional time as is determined necessary by the Administrator to designate the manner in which amounts thereby affected shall be deemed invested.  The Administrator shall not be obligated to substitute deemed investment options with similar investment criteria for existing options, nor shall it be obligated to continue the types of deemed investment options presently available to the Participants.  Notwithstanding any of the foregoing provisions, in no event shall the Administrator or the Company be responsible for implementing the deemed investment designation of a Participant 

 

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unless proper notice of such designation is given to the Administrator in the manner prescribed by the Administrator. 

ARTICLE IV
IN-SERVICE HARDSHIP WITHDRAWALS

 4.1Request for Withdrawal.  In the event of an unforeseeable emergency, a Participant may make a written request to the Administrator for a withdrawal from his Account.  For purposes of this Section, the term "unforeseeable emergency" shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, Participant's spouse or of a Participant’s dependent (as defined in Section 152 of the Code without regard to Section 152(b)(1), (b)(2), and (d)(1)(B)), loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.  Any determination of the existence of an unforeseeable emergency and the amount to be withdrawn on account thereof shall be made by the Administrator in its sole and absolute discretion.  However, notwithstanding the foregoing, a withdrawal will not be permitted to the extent that the financial hardship is or may be relieved:  (i) through reimbursement or compensation by insurance or otherwise or (ii) by liquidation of the Participant's assets, to the extent that liquidation of such assets would not itself cause severe financial hardship.  In no event shall the need to send a Participant's child to college or the desire to purchase a home be deemed to constitute an unforeseeable emergency.  No person serving as Administrator shall vote or decide upon any matter relating to the determination of the existence of his own financial hardship or the amount to be withdrawn by him on account thereof.  A request for a hardship withdrawal must be made in writing on a form provided by the Administrator, and must be expressed as a specific dollar amount.  The amount of a hardship withdrawal may not exceed the amount necessary to meet the severe financial hardship, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution.  All hardship withdrawals shall be paid in a lump sum in cash.

 4.2Termination of Deferral Election.  Upon a Participant's receipt of an in-service withdrawal pursuant to Section 4.1 of this Plan for an unforeseeable emergency, or to the extent required for a Participant to receive a hardship withdrawal under the CapSave Plan, such Participant's deferral election shall thereupon be automatically terminated.  Except to the extent otherwise required with respect to a hardship withdrawal under the CapSave Plan, a Participant may elect to resume deferrals under this Plan as of the first day of the first full payroll period of the immediately succeeding calendar year, or such later payroll period specified by the Participant, by submitting a new deferral election to the Administrator no later than the last day of the immediately preceding calendar year.

ARTICLE V
PAYMENT OF BENEFIT

 5.1General.  Distribution of a Participant's Vested Interest shall commence in accordance with such Participant's Distribution Schedule or, if the Participant has failed to elect a Distribution Schedule, then within ninety (90) days following such Participant's Separation from Service, provided, however that a distribution to which a Specified Employee is entitled shall not 

 

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commence prior to the first day of the seventh (7th) month following the date of such Participant's Separation from Service or, if earlier, the date of the Participant’s death.  The amount credited to the Participant's Account for purposes of such distribution shall be determined as of the Valuation Date coincident with or next preceding the date of distribution, increased by the amount of Participant deferrals and Company contributions, if any, to be credited after such Valuation Date.  

 5.2Death of Participant.  Notwithstanding any provision of this Plan to the contrary, in the case of the death of a Participant, distribution of such Participant's entire Account shall be made to the Beneficiary of such Participant within ninety (90) days following the date of such Participant’s death.  The amount credited to the Participant's Account for purposes of such distribution shall be determined as of the Valuation Date coincident with or next preceding the date of distribution, increased by the amount of Participant deferrals and Company contributions, if any, to be credited after such Valuation Date.  

 5.3Effect of Tax Laws.  Notwithstanding any provision of this Plan to the contrary, if, in any Plan Year, the Plan fails to meet the requirements of Code Section 409A, benefits may be paid to an affected Participant hereunder before they would otherwise be payable, provided, however, that the amount paid shall not exceed the lesser of:  (a) the amount in such Participant's Account or (b) the amount to be reported pursuant to Code Section 409A on the applicable Form W-2 (or Form 1099) as taxable income to the Participant.

 5.4Delay for Compelling Business Reasons.  Notwithstanding any provision of this Plan to the contrary, the benefits payable hereunder may, to the extent expressly provided in this Section 5.4, be paid later than the date on which they would otherwise be paid to the Participant.

(a)Going Concern.  In the event the Board determines that the making of any payment on the date specified hereunder would jeopardize the ability of the Company to continue as a going concern, the Administrator may delay the payment of benefits under this Plan until the first calendar year in which the Board notifies the Administrator that the payment of benefits would not have such effect.

(b)Loss of Deduction.  In the event the Board determines that the Company’s Federal income tax deduction for benefits hereunder would not be permitted due to the application of Code Section 162(m), the Administrator may delay the date on which payment of such benefits would otherwise be made or commence, provided that the payment is made either (i) in the first taxable year of the Participant in which the Company reasonably anticipates (or should reasonably anticipate) that the Federal income tax deduction of such payment would not be barred by application of Code Section 162(m) or (ii) during the period beginning with the date of the Participant's Separation from Service and ending on the later of the last day of the taxable year of the Company in which the Participant's Separation from Service occurred or, if later the 15th day of the third month following the Participant's Separation from Service.  In the case of a Specified Employee, however, the period described in clause (ii) of the immediately preceding sentence shall instead be measured from the first day of the seventh (7th) month following such Participant's Separation from Service to the last day of the taxable year of the Company in which such date occurred or, if later, the 15th day of the third month following such date.

 

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(c)Violation of Securities Laws.  In the event the Board reasonably anticipates that the payment or commencement of benefits hereunder will violate Federal securities laws or other applicable law (other than Code Section 409A), the date on which payment of such benefits would otherwise be made or commence may be delayed until the earliest date on which the Board reasonably anticipates that the making or commencement of such payment would not cause such violation.  

 5.5Administrative Delay in Payment.  The payment of benefits under this Article V shall begin at the date specified in accordance with the provisions of the foregoing paragraphs of this Article V; provided that, in the case of administrative necessity, the payment of such benefits may be delayed up to the later of the last day of the calendar year in which payment would otherwise be made or the 15th day of the third calendar month following the date on which payment would otherwise be made.  Further, if, as a result of events beyond the control of the Participant (or following the Participant's death, the Participant's Beneficiary), it is not administratively practicable for the Administrator to calculate the amount of benefits due to the Participant as of the date on which payment would otherwise be made, the payment may be delayed until the first calendar year in which calculation of the amount is administratively practicable.

 5.6No Participant Election.  Notwithstanding the foregoing provisions of this Plan, if the period during which payment of benefits hereunder will be made occurs, or will occur, in two calendar years, the Participant shall not be permitted to elect the calendar year in which the payment shall be made.

ARTICLE VI
FORM OF DISTRIBUTION

 6.1Payment of Benefits.  Except to the extent otherwise provided herein, distribution of a Participant's Vested Interest shall be made either in a single, lump sum cash payment, or in the form of periodic cash installments over a period not to exceed five (5) years, such method of payment to be irrevocably elected by the Participant at the time and in the manner described under Section 2.2 above; provided, however, that payment will be made in a lump sum in any event if, at the time distribution is to commence, the value of the benefit in which such Participant has a vested interest is less than $10,000.  Furthermore, notwithstanding the commencement of installment payments under this Section 6.1, the entire value of all remaining amounts to which a Participant is entitled hereunder shall be distributed to him in a lump sum, in cash, at such time as the value of such remaining amounts is less than $10,000.  If installment payments are made, such payments shall be charged pro rata to the individual investment options in which amounts credited to the Participant's Account are deemed to be invested, pursuant to the provisions of Section 3.5 hereof.  Furthermore, the Administrator shall continue to credit the unpaid balance of the Participant's Account with the deemed income and losses attributable thereto, determined pursuant to the provisions of Section 3.5 hereof, as well as with any other credits to or charges against the unpaid balance of such Account, during the period for which installment payments are made.

 6.2Payment of Benefits On Account of Death.  Notwithstanding any provision herein to the contrary, payment of a Participant's benefit (or the remainder thereof) on account of the Participant's death shall be made in a single, lump sum payment to the Beneficiary within ninety (90) days following the date of such Participant's death.

 

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 6.3Payments to Specified Employees.  Notwithstanding any other provision of this Plan or a participation agreement to the contrary, to the extent applicable, a Participant who is a Specified Employee, the distribution of whose benefit hereunder is therefore deferred, as described in Section 5.1 hereof, shall, upon the commencement of such distribution, receive a single, lump sum payment equal to the aggregate amount of payments that would otherwise have been made during the first six months following the date of such Participant's Separation from Service.  

ARTICLE VII
ADMINISTRATION OF THE PLAN

 7.1Designation of Administrator.  The Plan shall be administered by the Administrator.  No person serving as Administrator, or a member of a committee serving as such, shall receive compensation with respect to his services for the performance of his duties hereunder.  The Administrator shall serve without bond or security for the performance of its duties hereunder unless applicable law makes the furnishing of such bond or security mandatory or unless required by the Company.  Any Administrator or member of a committee serving as such may resign by delivering his written resignation to the Board.  

 7.2Actions of Administrator.  If a committee shall be serving as Administrator at any time, the Administrator shall perform any act that the Plan authorizes expressed by a vote at a meeting or in a writing signed by a majority of such individuals without a meeting.  Neither the Administrator not any member of a committee serving as such shall vote or decide upon any matter relating solely to himself or vote in any case in which his individual right or claim to any benefit under the Plan is particularly involved.  If, in any matter or case in which a person is so disqualified to act, the remaining persons serving as Administrator cannot resolve such matter or case, the Board will resolve such matter or case, or will appoint a temporary substitute to exercise all the powers of the disqualified person concerning the matter or case in which he is disqualified.

 7.3Delegation, Expenses and Indemnification.  The Administrator may designate in writing other persons to carry out its responsibilities under the Plan, and may remove any person designated to carry out its responsibilities under the Plan by notice in writing to that person.  The Administrator may employ persons to render advice with regard to any of its responsibilities.  All usual and reasonable expenses of the Administrator shall be paid by the Company.  The Company shall indemnify and hold harmless each Administrator and member of a committee serving as such from and against any and all claims and expenses (including, without limitation, attorney's fees and related costs), in connection with the performance by such person of his duties in that capacity, other than any of the foregoing arising in connection with the willful neglect or willful misconduct of the person so acting.

 7.4Administrative Duties.  The Administrator may establish rules, not contrary to the provisions of the Plan, for the administration of the Plan and the transaction of its business, and shall interpret the Plan and determine all questions arising in the administration, interpretation and application of the Plan in its sole and absolute discretion.  All determinations of the Administrator shall be conclusive and binding on all employees, Participants and Beneficiaries, subject to the provisions of this Plan and applicable law.

 

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 7.5Actions of Company.  Any action to be taken hereunder by the Company shall be taken by resolution adopted by the Board or an executive committee thereof; provided, however, that by resolution, the Board or an executive committee thereof may delegate to any officer of the Company the authority to take any actions hereunder, other than the power to amend or terminate the Plan.

ARTICLE VIII
CLAIM REVIEW PROCEDURE

 8.1Denial of Benefits.  A Participant or Beneficiary (the "Claimant") who believes he is entitled to benefits hereunder that have not been paid may file a written claim for benefits with the Administrator.  Within a reasonable period of time thereafter, but not later than ninety (90) days (unless the Administrator determines that special circumstances require an extension of time) following receipt of the written claim, the Administrator will determine the Claimant's entitlement to the benefits requested.  If the Administrator determines that an extension of time is required, the Administrator will, prior to expiration of the initial 90-day period, notify the Claimant, in writing, of the extension, along with an explanation of the special circumstances requiring an extension of time and the date by which the Administrator expects to reach its decision, which shall not be later than one hundred eighty (180) days from the Administrator's receipt of the claim.  If the claim is denied, the Administrator will furnish the Claimant a written notice stating:  (a) the specific reason or reasons for denial of the claim, (b) a specific reference to pertinent Plan provisions on which the denial is based, (c) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary, and (d) an explanation of the Plan's claim review procedure and the time limits applicable to such procedures, including a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse determination on review.  

 8.2Appeal of Denial of Benefits.  A Claimant may appeal to the Administrator any claim that is denied by submitting a written request for review within sixty (60) days after notice of the claim denial.  The written appeal must (i) request a review of the claim under the Plan, (ii) set forth all grounds under which the request for review is based and any facts in support thereof, and (iii) set forth any issues or comments that the Claimant deems pertinent to the appeal.  The Claimant may also submit documents, records and other information relating to the claim for benefits.  In preparing the request for review, the Claimant will be entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits.  The Administrator's review will take into account all comments, documents, records, and other information submitted by the Claimant and relating to the claim, without regard to whether such information was submitted or considered in the Administrator's initial benefit determination.  The Administrator will notify the Claimant in writing of its decision within sixty (60) days (unless the Administrator determines that special circumstances require an extension of time) after receipt of the request for review.  If the Administrator determines that an extension of time is required, it will, prior to expiration of the initial 60-day period, notify the Claimant, in writing, of the extension, along with an explanation of the special circumstances requiring an extension of time and the date by which the Administrator expects to reach its decision, which shall not be later than one hundred twenty (120) days from the Administrator's receipt of the Claimant's request for review.  If the Claimant's appeal is denied, the written notification of the Administrator will contain specific reasons for the decision and will 

 

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refer to the specific Plan provisions on which the decision is based, and will contain a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claim for benefits and a statement of the Claimant's right to bring an action under Section 502(a) of ERISA.  The decision of the Administrator will be final and conclusive as to any claim filed hereunder.

ARTICLE IX
LIMITATION OF RIGHTS

The establishment of this Plan shall not be construed as giving to any Participant or Beneficiary, any employee of the Company or any person whomsoever, any legal, equitable or other rights against the Company, or its officers, directors, agents or shareholders, or as giving to any Participant or Beneficiary any equity or other interest in the assets or business of the Company or shares of Company stock or as giving any employee the right to be retained in the employment of the Company.  All employees shall be subject to discharge to the same extent they would have been if this Plan had never been adopted.  The rights of a Participant hereunder shall be solely those of an unsecured general creditor of the Company.

ARTICLE X
LIMITATION OF ASSIGNMENT AND PAYMENTS TO
LEGALLY INCOMPETENT DISTRIBUTEE

 10.1Non-Alienation.  No benefits payable under the Plan to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of the same shall be void.  No benefit shall in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachment or legal process for or against any person, except to the extent required by law.

 10.2Incapacitated Distributee.  In the event any benefit payable under the Plan is to be paid to or for the benefit of any person who is then a minor or determined by the Administrator, on the basis of qualified medical advice, to be incompetent, the Administrator need not require the appointment of a guardian or custodian, but shall be authorized to cause the same to be paid over to the person having custody of the minor or incompetent, or to cause the same to be paid to the minor or incompetent without the intervention of a guardian or custodian, or to cause the same to be paid to a legal guardian or custodian of the minor or incompetent, if one has been appointed, or to cause the same to be used for the benefit of the minor or incompetent.

ARTICLE XI
AMENDMENT TO OR TERMINATION OF THE PLAN

 11.1Amendment and Termination.  The Company reserves the right at any time to amend or terminate the Plan in whole or in part by resolution of the Board.  No amendment shall have the effect of retroactively changing or depriving Participants or Beneficiaries of rights already accrued under the Plan.  In the event that the Company shall change its name, the Plan shall be 

 

12

deemed to be amended to reflect the name change without further action of the Company, and the language of the Plan shall be changed accordingly.  

 11.2Distribution Upon Termination.  Upon termination of the Plan, benefits hereunder shall be paid at the time and in the manner as otherwise provided herein; provided, however, that, notwithstanding the foregoing, the Company, in its sole and absolute discretion, may accelerate the payment of benefits hereunder in the event that termination of the Plan occurs in accordance with one of the following:

(a)Termination and liquidation of the Plan within twelve (12) months of a corporate dissolution taxed under section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), provided that the amounts deferred under the Plan are included in the Participants' gross income in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received):

(i)The calendar year in which the Plan termination and liquidation occurs;

(ii)The first calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or

(iii)The first calendar year in which the payment is administratively practicable.

(b)Termination and liquidation of the Plan pursuant to an irrevocable action taken by the Board within the thirty (30) days preceding, or the twelve (12) months following, a "change in control" event (as defined in Treasury Regulations §1.409A-3(i)(5)), provided that all agreements, methods, programs and other arrangements sponsored by the Company immediately after the time of the change in control event with respect to which deferrals of compensation are treated as having been deferred under a single plan under Treasury Regulations §1.409A-1(c)(2) are terminated and liquidated with respect to each Participant that experienced the change in control event, so that under the terms of the termination and liquidation of the Plan all such Participants are required to receive all amounts of compensation deferred under the terminated agreements, methods, programs and arrangements within twelve (12) months of the date the Board irrevocably takes all necessary actions to terminate and liquidate the agreements, methods, programs and arrangements.

(c)Termination and liquidation of the Plan upon satisfaction of the following conditions:

(i)The termination and liquidation of the Plan does not occur proximate to a downturn in the financial health of the Company;

(ii)The Company terminates and liquidates all agreements, methods, programs and arrangements sponsored by the Company that would be aggregated with the Plan under Treasury Regulations §1.409A-1(c) if the same Participant had 

 

13

deferrals of compensation under all of the agreements, methods, programs and arrangements that are terminated and liquidated;

(iii)No payments in liquidation of the Plan are made within twelve (12) months of the date the Board takes all necessary action to irrevocably terminate and liquidate the Plan other than payments that would be payable under the Plan if the action to terminate and liquidate the Plan had not occurred;

(iv)All payments are made within twenty-four (24) months of the date the Board takes all necessary action to irrevocably terminate and liquidate the Plan; and

(v)The Company does not adopt a new plan that would be aggregated within any terminated and liquidated plan under Treasury Regulations §1.409A-1(c), if the same Participant participated in both plans, at any time within three (3) years following the date the Board takes all necessary action to irrevocably terminate and liquidate the Plan.

(d)Such other events and conditions as may be prescribed by the Commissioner of Internal Revenue in generally applicable guidance published in the Internal Revenue Bulletin.

ARTICLE XII
STATUS OF PARTICIPANT AS UNSECURED CREDITOR

All benefits under the Plan shall be the unsecured obligations of the Company and, except for those assets that may be placed in a Trust Fund established in connection with this Plan, no assets will be placed in trust or otherwise segregated from the general assets of the Company for the payment of obligations hereunder.  If assets are placed in a Trust Fund, the Trust Agreement, to the extent required by the Code, shall conform in all material respects to the model trust set forth in Internal Revenue Service Revenue Procedure 92‐64.  To the extent that any person acquires a right to receive payments hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

ARTICLE XIII
GENERAL AND MISCELLANEOUS

 13.1Prohibited Acceleration.  Notwithstanding any provision herein to the contrary, except as provided in Sections 5.3 and 11.2 hereof, the time or schedule of any payment hereunder shall not be accelerated, except to the extent otherwise permitted under Code Section 409A and the regulations promulgated thereunder.

 13.2Trust Fund.  The Company may establish a Trust Fund for the purpose of retaining assets set aside by the Company pursuant to the Trust Agreement for payment of all or a portion of the benefits payable pursuant to Article V of the Plan.  Any such benefits not paid from a Trust Fund shall be paid from the Company's general assets.  The Trust Fund, if such shall be established, 

 

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shall be subject to the claims of general creditors of the Company in the event the Company is Insolvent.

 13.3Severability.  In the event that any provision of this Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable and this Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein.

 13.4Construction.  The section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan.  Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular.  When used herein, the masculine gender includes the feminine gender.

 13.5Governing Law.  The validity and effect of this Plan and the rights and obligations of all persons affected hereby shall be construed and determined in accordance with the laws of the State of Texas unless superseded by federal law.

 13.6No Requirement to Fund.  The Company is not required to set aside any assets for payment of the benefits provided under this Plan; however, it may do so as provided in the Trust Agreement, if any.  A Participant shall have no security interest in any such amounts.  It is the Company's intention that this Plan be construed as a plan that is unfunded and maintained primarily for the purpose of providing benefits for a select group of management and highly compensated employees of the Company.

 13.7Taxes.  All amounts payable hereunder shall be reduced by any and all federal, state and local taxes imposed upon the Participant or his Beneficiary that are required to be paid or withheld by the Company.

IN WITNESS WHEREOF, Capstead Mortgage Corporation has caused these presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized this _____ day of December, 2010.

CAPSTEAD MORTGAGE CORPORATION

By:

Title:

ATTEST:

 

(Title)

Dallas_1\5290890\2

2376-2 12/13/2010

 

12/13/2010 
 
 

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