Document:

Exhibit 10.5

 

EMPLOYMENT AGREEMENT

 

This
Employment Agreement (Agreement) dated as February 8, 2008, is made by and
between Atlantic Bancshares, Inc., (Company) a South Carolina corporation
which is the holding company for Atlantic Community Bank (Bank), a South
Carolina state bank, (collectively referred to as Employer) and Karen B.
Sprague (Executive).

 

In
consideration of the mutual covenants herein contained, the parties agree as
follows:

 

Section 1 – Duties

 

Employer
shall employ Executive and the Executive shall serve the Employer as Chief
Operating Officer and Executive Vice President of the Bank and of the Company
upon the terms can conditions set forth herein. 
Executive shall have such authority and responsibilities consistent with
her position as set forth in the Company’s or Bank’s bylaws or as assigned by
the Company’s and the Bank’s Boards of Directors (collectively referred to as
Board of Directors) or the Company’s Chief Executive Officer.  Executive shall devote her full business
time, attention, skill and efforts to the performance of her duties
hereunder.  Executive may devote
reasonable period to service as a director or advisor to other organizations,
to charitable and community activities, provided that, in the Board’s sole
opinion, such activities do not materially interfere with and are not in
conflictive with or adverse to, the interests of the Company or the Bank. Executive
shall be subject to all Bank policies and benefits as are other employees,
except as may otherwise be stated herein.

 

Section 2 – Term

 

A.                                   Unless earlier terminated as provided herein,
Executive’s employment under this Agreement shall commence on February 8,
2008, and be for a term of three years.  Executive
agrees to remain in the exclusive employ of Employer until February 8,
2011, and neither to accept other employment nor to become employed by any
other employer until such termination date, unless the termination date is
affected as hereinafter provided.

 

B.                                     In the event written notice is not given by
either party to this Agreement 60 days prior to the termination date, this
Agreement shall be extended on the same terms and conditions as herein
provided, all for an additional period of three (3) years. Agreement shall
continue thereafter for three-year periods unless either party hereto gives 60
days written notice to the other party that the party does not wish to extend
this Agreement.

 

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C.                                     Nothing in this Agreement shall prevent,
limit or otherwise interfere with the right of Company and Bank to terminate
the services of Executive at any time, subject only to the provisions set forth
in Section 4 of this Agreement.

 

D.                                    Nothing in this Agreement shall prevent,
limit or otherwise interfere with the right of the Executive to resign at any
time from her position with Employer, subject only to the provision set forth
in Section 4 of this Agreement.

 

Section 3 – Compensation & Benefits

 

A.                                   Starting February 8, 2008, Employer
shall pay Executive an annual base salary of $95,000.00
(Ninety-Five Thousand and no/100 Dollars) in accordance with the
Employer’s normal payroll practices, which shall mean no less frequently than
monthly.  The Chief Executive Officer shall
review Executive’s performance and salary periodically and may increase Executive’s
base salary if he determines in his sole discretion that an increase is
appropriate.

 

B.                                     Executive shall participate in Employer’s
long-term equity incentive program and be eligible to purchase stock options in
accordance with the stock incentive plan approved by the Company’s
shareholders.  Any options or similar
awards shall be issued to Executive at an exercise price of not less than the
stock’s current fair market value as of the date of grant.

 

C.                                     Executive shall participate in all
retirement, health, welfare, and other benefit plans or programs of Employer
now or as may be adopted for all employees or adopted for a class of employees
that includes Executive.  Employer shall
pay the Executive’s coverage for medical and dental benefits excluding the
minimal required co-pay payment.

 

D.                                    Employer shall provide Executive with an
automobile allowance of $350.00 per month.

 

E.                                      Employer may pay for membership dues for
Executive’s membership in various civic organizations.  In addition, Employer shall pay membership
fees and annual dues, subject to approval by the Chief Executive Officer.

 

F.                                      Employer shall reimburse Executive for reasonable
travel and other expenses, including cell phone, related to Executive’s duties
which are incurred and accounted for in accordance with Bank policies.  Executive shall be issued a corporate credit
card to be used for business related expenses in accordance with Bank policies.
 The Employer shall reimburse the
Executive for such expenses within 60 days of Executive’s notice to Employer of
such expense.

 

G.                                     Employer shall provide Executive with four
weeks paid vacation per year which shall be taken in accordance with Bank
policies and in accordance with any banking rules or regulations governing
vacation leave.  Paid time off days may
not be 

 

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carried
forward into following calendar years, and any payments made by the Employer to
the Executive as compensation for paid time off days shall be paid in accordance
with the Employer’s normal payroll practices, which shall mean no less
frequently than monthly.

 

H.                                    The Executive shall be eligible to receive
cash bonuses based on the Executive’s achievement of specified goals and
criteria.  These goals and criteria may
include both annual and long-term goals, may provide for vesting over a
specified time period, and shall be established annually by the Compensation
Committee of the Board of Directors.  For
purposes of this Agreement, a bonus shall not be deemed to be earned prior to
the date it is actually paid to the Executive except to the extent that the
Employer specifically provides otherwise in a writing delivered to the
Executive.  Any bonus payment made
pursuant to this Section 3(H) shall be made the earlier of (i) 70
days after the previous year end for which the bonus was earned by the
Executive and became a payable of the Employer or (ii) the first pay
period following the Employer’s press release announcing its previous year’s
financial performance.

 

Section 4 – Termination

 

A.                                   Executive’s employment under the Agreement
may be terminated prior to the end of the term only as provided in this Section 4.

 

B.                                     Death.  The Agreement will terminate
upon the death of Executive.   In this event, the Employer shall pay
Executive’s estate any sums due her as base salary and/or reimbursement of
expenses through the end of the month during which death occurred in accordance
with the Employer’s normal payroll practices, which shall mean no less
frequently than monthly.  The Employer
shall also pay the Executive’s estate any bonus earned or accrued through the
date of death including any amounts awarded for previous years but which were
not yet vested.  Any bonus for previous
years which was not yet paid will be paid pursuant to the terms as set forth in
Section 3(H).  Any bonus that is
earned in the year of death will be paid on the earlier of (i) 70 days
after the year end in which the Executive died or (ii) the first pay
period following the Employer’s press release announcing its financial
performance for the year in which the Executive died.  To the extent that the bonus is
performance-based, the amount of the bonus will be calculated by taking into
account the performance of the Company for the entire year and prorated through
the date of Executive’s death.

 

C.                                     Disability.  Employer may terminate this
Agreement upon the Disability of Executive for a period of ninety (90) days.  In this event, the Employer shall pay
Executive any sums due her as base salary and/or reimbursement of expenses
through the date of termination in accordance with the Employer’s normal
payroll practices, which shall mean no less frequently than monthly.

 

D.                                    For Cause.  Employer may terminate this
Agreement for cause upon delivery of a Notice of Termination to Executive.  If Executive is terminated for cause under
this provision Executive shall receive only any sums due her as base salary and

 

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reimbursement
of expenses through the date of termination in accordance with the Employer’s
normal payroll practices, which shall mean no less frequently than monthly.  For purposes of this paragraph, cause is
defined as:

 

(i)             The commission or omission by Executive of
any act, which in Employer’s sole opinion, is intended to cause, causes, or is
reasonably likely to cause harm to Employer, including harm to its business
reputation;

 

(ii)          The indictment of Executive for the
commission or perpetration by Executive of any crime involving dishonesty,
moral turpitude, or fraud;

 

(iii)       The material breach by Executive of this
Agreement;

 

(iv)      Violation of Employer policies by Executive;

 

(v)         Receipt of any form of notice, written or
otherwise, that any regulatory agency having jurisdiction over Employer intends
to institute any formal or informal regulatory action against Executive or
Employer;

 

(vi)      Exhibition by Executive of a standard of
behavior that is disruptive to the orderly conduct of the Employer’s Business
to a level which, in the Board of Director’s sole opinion, is detrimental to
Employer’s best interest; or

 

(vii)   Failure of Executive to devote her full
business time and attention to her employment.

 

E.                                      Without Cause. 
Employer may terminate this Agreement without cause upon delivery of a
Notice of Termination to Executive.

 

If Executive is terminated
without cause under this provision, Employer shall pay to Executive severance
compensation a lump sum amount equal to her then current monthly base salary
for twelve (12) months, plus any bonus earned or accrued through the date of
termination, including any amounts awarded for previous years but which were
not yet vested.  If when Executive’s
employment terminates she is a specified employee within the meaning of Section 409A
of the Internal Revenue Code, and if the benefits under this Section 4(E) would
be considered deferred compensation under Section 409A, and finally if an
exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i) is
not available, the lump sum amount due under this Section 4(E) shall
be paid to the Executive on the date that is six months and one day following
date of Executive’s termination.

 

F.                                      Resignation.  Executive may terminate this
Agreement at any time by delivery of a Notice of Resignation to Employer with a
minimum of 30 days notice.  If Executive
resigns under this provision, Employer shall pay Executive any sums due her 

 

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as
base salary and reimbursement of expenses through the effective date of
resignation, and any other amounts due to Executive pursuant to the Employer’s
policies; provided however, that if Executive fails to give at least 30 days
notice, Executive may forfeit right to payment of accrued and unpaid vacation
time.  Any such amounts payable under this
Section 4(F) will be paid in accordance with the Employer’s normal
payroll practices, which shall mean no less frequently than monthly.

 

G.                                     Change of Control. Upon the occurrence of a Change in Control,
and regardless of whether the Executive remains employed by the Employer or its
successor following a Change in Control, the Executive shall be entitled to the
following:

 

(i) within
fifteen (15) days, Employer shall pay Executive in cash in an amount equal to
her then current monthly base salary multiplied by 36 plus any bonus earned or
accrued through the date of Change in Control (including any amounts awarded
for previous years but which were not yet vested);

 

(ii) For
a period of 36 months, payment of premiums for medical and dental insurance,
disability insurance, and life insurance being provided to Executive prior to
the change in control or to other similarly situated executives who continue in
the employ of Employer.

 

Employer’s
obligation hereunder with respect to the benefits stated in this Section 4G(ii) shall
be limited to the extent that Executive’s employment terminates and she becomes
eligible for any such benefits pursuant to a subsequent employer’s benefit
plans, in which case Employer may reduce the coverage of any benefits it is
required to provide Executive so long as the aggregate coverage and benefits of
the combined benefit plans is no less favorable to Executive than the coverages
and benefits required to be provided hereunder; and

 

(iii) The
restrictions on any outstanding incentive awards (including restricted stock)
granted to Executive under Company’s or Bank’s long-term equity incentive
program or other incentive plan or arrangement shall lapse and such awards
shall become 100% vested, all stock options and stock appreciation rights
granted to Executive shall become immediately exercisable and shall become 100%
vested, all performance units granted to Executive shall become 100% vested.

 

For the purpose of this Section 4(G),
all amounts paid to Executive will be grossed up so as to account for any
additional federal and state income taxes that may be owed as a result of this
lump sum payment rather than periodic payments over 36 months.

 

H.                                    With the exceptions of the provisions of this
Section 4 and the express terms of any benefit plan under which Executive
is a participant, it is agreed that, upon 

 

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termination
of Executive’s employment for any reason, Employer shall have no obligation to Executive
for, and Executive waives and relinquishes any further compensation or
benefits, except for COBRA benefits. 
Unless otherwise stated in this Section 4, the effect of
termination on any outstanding incentive awards, stock options, stock
appreciations rights, performance units or other incentives shall be governed
by the terms of the applicable plan.  At
the time of Termination of Employment, and as a condition to the Employer’s
obligation to pay any severance hereunder, the Employer and the Executive shall
enter into a release substantially in the form attached hereto as Exhibit A
acknowledging such remaining obligations and discharging both parties, as well
as the Employer’s officers, directors and employees with respect to their
actions for or on behalf of the Employer, from any other claims or obligations
arising out of or in connection with the Executive’s employment by the
Employer, including the circumstances of such termination.

 

I.                                         The parties intend that the severance
payments and other compensation provided for herein are reasonable compensation
for Executive’s service to Employer and shall not constitute “excess parachute
payments” within the meaning of Section 280G of the Internal Revenue Code
and any regulations thereunder.  In the
event that Employer’s independent accountants acting as auditors for Employer
on the date of a Change in Control determine that the payments provided for
herein constitute “excess parachute payments,” then the compensation payable
hereunder shall be increased, on a tax gross-up basis, so as to reimburse
Executive for the tax payable by Executive, pursuant to Section 4999 of
the Internal Revenue Code, on such “excess parachute payments,” taking into
account all taxes payable by Executive with respect to such tax gross-up
payments hereunder, so that Executive shall be, after payment of all taxes, in
the same financial position as if no taxes under Section 4999 of the
Internal Revenue Code had been imposed upon him.

 

Section 5 - Ownership of Work Product

 

Employer shall own all work
product arising during the course of Executive’s employment (prior, present, or
future).  For purposes hereof, “work
product” shall mean all intellectual property rights, including all trade
secrets, U.S. and international copyrights, patentable inventions, and other
intellectual property rights in any programming, documentation, technology, or
other work product that relates to Employer, its Business or its customers and
that the Executive conceives, develops or delivers to Employer at any time
during her employment, during or outside normal working hours, in or away from
the facilities of Employer, and whether or not requested by Employer. If the
Work Product contains any materials, programming, or intellectual property
rights that the Executive conceived or developed prior to and independent of
the Executive’s work for Employer, Executive agrees to point out the
pre-existing items to Employer and Executive grants Employer a worldwide,
unrestricted, royalty-free right, including the right to sublicense such items.

 

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Section 6 - Protection of Trade Secrets

 

Executive agrees to maintain
in strict confidence, and except as necessary to perform her duties for
Employer, the Executive agrees not to use or disclose any trade secrets of Employer
during or after her employment. “Trade secret” means information, including a
formula, pattern, compilation, program, device, method, technique, process,
drawing, cost data, or customer list, that: (i) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value from
its disclosure or use; and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.

 

Section 7 - Protection of Other Confidential
Information

 

Executive agrees to maintain
in strict confidence and, except as necessary to perform her duties for
Employer, not to use or disclose any confidential business information of
Employer during her employment and for a period of 24 months following
termination of Executive’s employment.  “Confidential
business information” shall mean any internal, non-public information
concerning Employer’s financial position and results of operations (including
revenues, assets, net income, etc.); annual and long-range business plans;
product or service plans; marketing plans and methods; training, educational
and administrative manuals; customer and supplier information and purchase
histories; and employee lists. The provisions of Sections 6 and 7 shall also
apply to protect trade secrets and confidential business information of third
parties provided to Employer under an obligation of confidentiality or secrecy.

 

Section 8 - Return of Materials

 

Executive shall surrender to
Employer, promptly upon its request or upon termination of Executive’s
employment, all media, documents, notebooks, computer programs, handbooks, data
files, models, samples, price lists, drawings, customer lists, prospect data,
or other material of any nature whatsoever (in tangible or electronic form) in Executive’s
possession or control, including all copies thereof, relating to Employer, its
Business or its customers. Upon the request of Employer, Executive shall
certify in writing compliance with the foregoing requirement.

 

Section 9 - Restrictive Covenants

 

A.                                   No Solicitation of Customers. 
During Executive’s employment with Employer and for a period of 12
months thereafter, Executive shall not (except of behalf of or with the prior
written consent of Employer) either directly or indirectly, on Executive’s own
behalf or in the service or on behalf of others (i) solicit, divert, or
appropriate to or for a Competing Business, or (ii) attempt to solicit,
divert, or appropriate to or for a Competing Business, any person or entity
that is or was a customer of Employer or any of its affiliates at any time
during the 12 months prior to the date of termination and with whom the Executive
has had material contact. The 

 

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parties
agree that solicitation of such a customer to acquire stock in a Competing
Business during this time period would be a violation of this Section 9(A).  This restriction does not apply following a
Change in Control.

 

B.                                     No Recruitment of Personnel. During Executive’s employment with Employer
and for a period of 12 months thereafter, Executive shall not, either directly
or indirectly, on Executive’s own behalf or in the service or on behalf of
others (i) solicit, divert or hire away or (ii) attempt to solicit,
divert or hire away, to any Competing Business located in the territory, any
employee of or consultant to Employer or any of its affiliates, regardless of
whether Executive or consultant is full-time or temporary, the employment or
engagement is pursuant to written agreement, or the employment is for a
determined period or is at-will.  For
purposes of this Agreement, “territory” means within a radius of 15 miles from
the main office of the Employer or any branch office of Employer.  This restriction does not apply following a
Change in Control.

 

C.                                     Non-Competition Agreement. 
During Executive’s employment with Employer and for a period of 12
months thereafter, Executive shall not (except of behalf of or with the prior
written consent of Employer) compete with Employer or any of its affiliates by
directly or indirectly forming, serving as organizer, employee, director or
officer of, or consultant to, or acquiring or maintaining more than a 1%
passive investment in a depository financial institution or holding company
therefore if such depository institution or holding company has one or more
offices or branches located in the territory. 
This restriction does not apply following a Change in Control.

 

D.                                    Independent Provisions.  The
provisions in each of the above Sections 9(A), 9(B), and 9(C) are
independent, and the unenforceability of any one provision shall not affect the
enforceability of any other provision.

 

Section 10 - Successors: Binding Agreement

 

The rights and obligations
of this Agreement shall bind and inure to the benefit of the surviving
corporation in any merger or consolidation in which Employer is a party, or to
any assignee of all or substantially all of Employer’s Business and properties.
Executive’s rights and obligations under this Agreement may not be assigned by
him, except under her right to receive accrued but unpaid compensation,
unreimbursed expenses and other rights, if any, provided under this Agreement
which survive termination of this Agreement shall pass after death to the
personal representative of her estate.

 

Section 11 - Notice

 

For the purposes of this
Agreement, notices and all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to the other;
provided, however, that all notices to Employer shall be directed to the
attention 

 

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of
the Chief Executive Officer with a copy to the Secretary of Employer. All
notices and communications shall be deemed to have been received on the date of
delivery thereof.

 

Section 12 - Governing Law

 

This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of South Carolina without giving effect to the conflict of laws principles
thereof.  Any action brought by any party
to this Agreement shall be brought and maintained in a court of competent
jurisdiction in State of South Carolina.

 

Section 13 - Non Waiver

 

Failure of Employer to
enforce any of the provisions of this Agreement or any rights with respect
thereto shall in no way be considered to be a waiver of such provisions or
rights or in any way affect the validity of this Agreement.

 

Section 14 - Enforcement

 

Executive aggress that in
the event of any breach or threatened breach by Executive of any covenant
contained in Section 9(A), 9(B), or 9(C) hereof, the resulting
injuries to Employer would be difficult or impossible to estimate accurately,
even though irreparable injury or damages would certainly result. Accordingly,
an award of legal damages, if without other relief, would be inadequate to protect
Employer.  Executive, therefore, agrees
that in the event of any such breach, Employer shall be entitled to obtain from
a court of competent jurisdiction an injunction to restrain the breach or
anticipated breach of any such covenant, and to obtain any other available
legal, equitable, statutory or contractual relief. Should Employer have cause
to seek such relief, no bond shall be required from Employer and Executive
shall pay all attorney’s fees and court costs which Employer may incur to the
extent Employer prevails in its enforcement action.

 

Section 15 - Saving Clause

 

The provisions of this
Agreement shall be deemed severable and the invalidity or unenforceability of
any provision shall not affect the validity or enforceability of the other
provisions thereof. If any provision or clause of this Agreement, or portion
thereof, shall be held by any court or other tribunal of competent jurisdiction
to be illegal, void, or unenforceable in such jurisdiction, the remainder of
such provision shall not be thereby affected and shall be given full effect,
without regard to the invalid portion. It is the intention of the parties that,
if any court construes any provision or clause of this Agreement, or any
portion thereof, to be illegal, void, or unenforceable because of the duration
of such provision or the area or matter covered thereby, such court shall
reduce the duration, area, or matter or such provision, and, in its reduced
form, such provision shall then be enforceable and shall be enforced. Executive
and Employer hereby agree that this Agreement may be amended from time to time
to modify the terms of Section 9(A), 9(B), or 9(C) the definition of
the term “territory” and the definition 

 

9

 

of
the term “business” to reflect changes in Employer’s Business and affairs so
that the scope of the limitations placed on Executive’s activities by Section 9
accomplishes the parties’ intent in relation to the current facts and
circumstances.

 

Section 16 - Certain Definitions

 

A.                                   “Affiliate” shall mean any business entity
controlled by, controlling or under common control with Employer.

 

B.                                     “Business” shall mean the operation of a
depository financial institution, including, without limitation, the
solicitation and acceptance of deposits of money and commercial paper, the
solicitation and funding of loans and the provision of other banking services,
and any other related business engaged in by Employer or any of its Affiliates
as of the date of termination.

 

C.                                     “Change in Control” shall mean as defined by
Treasury Regulation § 1.409A-3(i)(5).

 

D.                                    “Competing Business” shall mean any business
that, in whole or in part, is the same or substantially the same as the
Business.

 

E.                                      “Disability” shall mean as defined by
Treasury Regulation § 1.409A-3(i)(4).

 

F.                                      “Notice of Termination” shall mean a written
notice of termination from Employer or Executive which specifies an effective
date of termination, indicates the specific termination provision(s) in
this Agreement relied upon, and, in the case of a termination for Good Reason
or for Cause, sets forth in reasonable detail the facts and circumstances
claimed to provide the basis for termination of Executive’s employment under
the provision so indicated.

 

G.                                     “Terminate,” “terminated,” “termination,” or “Termination”
of Employment” shall mean separation from service as defined by Regulation
1.409A-1(h).

 

Section 17 – Entire Agreement

 

This Agreement constitutes
the entire agreement between the parties hereto and supersedes all prior agreements,
if any, understanding and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.

 

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IN WITNESS WHEREOF, Employer
has caused this Agreement to be executed by its Chairman of the Board of
Directors and Executive has signed this Agreement, effective of the date first
above written.

 

 

	
  ATTEST:

  	
   

  	
  ATLANTIC
  BANCSHARES, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  Brian J. Smith

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
  Name:
  Brian J. Smith

  
	
   

  	
   

  	
  Title:
  Chairman of the Board

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Karen B. Sprague

  	
   

  
	
   

  	
   

  	
  Karen
  B. Sprague

  
											

 

11

 

Exhibit A

 

Form of Release of Claims

 

SEVERANCE AGREEMENT AND RELEASE

 

This Severance Agreement and
Release (the “Agreement”) is made between Karen
B. Sprague, an individual resident of South Carolina (“Employee”),
and Atlantic Community Bank (the “Bank”).

 

As
used in this Agreement, the term “Employee” shall include the employee’s heirs,
executors, administrators, and assigns, and the term “Bank” shall include the
Bank, its holding company, any other related or affiliated entities, and the
current and former officers, directors, shareholders, employees, and agents of
them.

 

On February 8, 2008,
the Bank and Employee entered into an Employment Agreement governing the
relationship between the parties.  Section 4(H) of
the Employment Agreement also provides that Employee shall be entitled to
severance pay if the Employment Agreement is terminated, on the condition that
Employee enter into this release or a substantially similar release.

 

Employee desires to receive
severance pay and the Bank is willing to provide severance pay on the condition
the Employee enter into this Agreement.

 

Now, in consideration for
the mutual promises and covenants set forth herein, and in full and complete
settlement of all matters between Employee and the Bank, the parties agree as
follows:

 

1.                                      Termination Date:  The
Employee agrees that her employment with the Bank terminates as of                                 
(the “Termination Date”).

 

2.                                      Severance Payments: 
Subsequent to her Termination
Date, the Bank shall pay Employee severance pay as noted in Paragraph 4 of the
Employment Agreement, dated                 ,
(the “Severance Payment”), less applicable deductions and withholdings.

 

3.                                      Legal Obligations

 

The parties acknowledge that
pursuant to Section 4(H) of the Employment Agreement, they agreed
that at the time of termination and as a condition of payment of severance,
they would enter into this release acknowledging any remaining obligations and
discharging each other from any other claims or obligations arising out of or
in connection with Employee’s employment by the Bank, including the
circumstances of such termination.  Employee
acknowledges that the Bank has no prior legal obligations to make the payments
described in Section 2 above which are exchanged for the promises of
Employee set forth in this Agreement.  It is specifically agreed that the payments described in Section 2
are valuable and sufficient consideration for each of the promises of Employee
set forth in this Agreement and are payments in addition to anything of value
to which Employee is otherwise entitled.

 

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4.                                      Waiver and Release:

 

a)                                      Employee unconditionally releases and
discharges the Bank from any and all causes of action, suits, damages, claims,
proceedings, and demands that the Employee has ever had, or may now have,
against the Bank, whether asserted or unasserted, whether known or unknown,
concerning any matter occurring up to and including the date of the signing of
this Agreement.

 

b)                                     Employee acknowledges that she is waiving and
releasing, to the full extent permitted by law, all claims against the Bank,
including (but not limited to) all claims arising out of, or related in any way
to, her employment with the Bank or the termination of that employment,
including (but not limited to) any and all breach of contract claims, tort
claims, claims of wrongful discharge, claims for breach of an express or
implied employment contract, defamation claims, claims under Title VII of the
Civil Rights Act of 1964 as amended, which prohibits discrimination in
employment based on race, color, national origin, religion or sex, the Family
and Medical Leave Act, which provides for unpaid leave for family or medical
reasons, the Equal Pay Act, which prohibits paying men and women unequal pay
for equal work, the Age Discrimination in Employment Act of 1967, which
prohibits age discrimination in employment, the Americans with Disabilities
Act, which prohibits discrimination based on disability, the Rehabilitation Act
of 1973, the South Carolina Human Affairs Law, any and all other applicable
local, state and federal non-discrimination statutes, the Employee Retirement
Income Security Act, the Fair Labor Standards Act, the South Carolina Payment
of Wages Law and all other statutes relating to employment, the common law of
the State of South Carolina, or any other state, and any and all claims for
attorneys’ fees.

 

c)                                      This Waiver and Release provision ((a) through
(c) of this paragraph) shall be construed to release all claims to the
full extent allowed by law.  If any term
of this paragraph shall be declared unenforceable by a court or other tribunal
of competent jurisdiction, it shall not adversely affect the enforceability of
the remainder of this paragraph.

 

d)                                     The Bank unconditionally releases and
discharges Employee from any and all causes of action, suits, damages, claims,
proceedings, and demands that the Bank has ever had, or may now have, against
Employee, whether asserted or unasserted, whether known or unknown, concerning
any matter occurring up to and including the date of the signing of this
Agreement with the exception of any claims for breach of trust, or any act
which constitutes a felony or crime involving dishonesty, theft, or fraud.

 

5.                                      Restrictive Covenants and Other
Obligations

 

The
parties agree that Section 5 – “Ownership of Work Product,” Section 6
– “Protection of Trade Secret,” Section 7 – “Protection of Confidential
Information,” Section 8 – “Return of Materials,” Section 9 – “Restrictive
Covenants,” Section 14 – “Enforcement,” and Section 15 – “Saving
Clause,” of the Employment Agreement shall remain in full force and effect and
that Employee will perform her obligations under those sections and those
sections of the Employment Agreement are incorporated by reference as if set
forth fully herein.  In the event
Employee breaches any obligation under this Section 5, the Bank’s
obligation to make severance payments to Employee shall terminate immediately
and the Bank shall have no further obligations to Employee.

 

13

 

6.                                      Duty of Loyalty/Nondisparagement

 

The parties shall not (except
as required by law) communicate to anyone, whether by word or deed, whether
directly or through any intermediary, and whether expressly or by suggestion or
innuendo, any statement, whether characterized as one of fact or of opinion,
that is intended to cause or that reasonably would be expected to cause any
person to whom it is communicated to have a lowered opinion of the other party.

 

7.                                      Confidentiality Of The Terms Of
This Agreement

 

Employee agrees not to
publicize or disclose the contents of this Agreement, including the amount of
the monetary payments, except (i) to her immediate family; (ii) to
her attorney(s), accountant(s), and/or tax preparer(s); (iii) as may be
required by law; or (iv) as necessary to enforce the terms of this
Agreement.  Employee further agrees that
she will inform anyone to whom the terms of this Agreement are disclosed of the
confidentiality requirements contained herein. 
Notwithstanding the foregoing, the parties agree that where business
needs dictate, Employee may disclose to a third party that she has entered into
an agreement with the Bank, which agreement contains restrictive covenants
including noncompetition and nondisclosure provisions, one or more of which
prohibit her from performing the requested service.

 

Employee recognizes that the
disclosure of any information regarding this Agreement by him, her family, her attorneys,
her accountants or financial advisors, could cause the Bank irreparable injury
and damage, the amount of which would be difficult to determine.  In the event the Bank establishes a violation
of this paragraph of the Agreement by Employee, her attorneys, immediate
family, accountants, or financial advisors, or others to whom Employee
disclosed information in violation of the terms of this Agreement.  The Bank shall be entitled to injunctive
relief without the need for posting a bond and shall also be entitled to
recover from Employee the amount of attorneys’ fees and costs incurred by the
Bank in enforcing the provisions of this paragraph.

 

8.                                      Continued Cooperation

 

Employee agrees that she will
cooperate fully with the Bank in the future regarding any matters in which she was
involved during the course of her employment, and in the defense or prosecution
of any claims or actions now in existence or which may be brought or threatened
in the future against or on behalf of the Bank. 
Employee’s cooperation in connection with such matters, actions and
claims shall include, without limitation, being available to meet with the Bank’s
officials regarding personnel or commercial matters in which she was involved;
to prepare for any proceeding (including, without limitation, depositions,
consultation, discovery or trial); to provide affidavits; to assist with any
audit, inspection, proceeding or other inquiry; and to act as a witness in
connection with any litigation or other legal proceeding affecting the
Bank.  Employee further agrees that
should she be contacted (directly or indirectly) by any person or entity
adverse to the Bank, she shall within 48 hours notify the then-current Chairman
of the Board of the Bank.  Employee shall
be reimbursed for any reasonable costs and expenses incurred in connection with
providing such cooperation.

 

9.                                      Entire Agreement; Modification of
Agreement

 

Except as otherwise expressly
noted herein, this Agreement constitutes the entire understanding of the
parties and supersedes all prior discussions, understandings, and 

 

14

 

agreements
of every nature between them relating to the matters addressed herein.  Accordingly, no representation, promise, or
inducement not included or incorporated by reference in this Agreement shall be
binding upon the parties.  Employee
affirms that the only consideration for the signing of this Agreement are the
terms set forth above and that no other promises or assurances of any kind have
been made to her by the Bank or any other entity or person as an inducement for
her to sign this Agreement.  This
Agreement may not be changed orally, but only by an agreement in writing signed
by the parties or their respective heirs, legal representatives, successors,
and assigns.

 

10.                               Partial Invalidity

 

The parties agree that the
provisions of this Agreement and any paragraphs, subsections, sentences, or
provisions thereof shall be deemed severable and that the invalidity or
unenforceability of any paragraph, subsection, sentence, or provision shall not
affect the validity or enforceability of the remainder of the Agreement.

 

11.                               Waiver

 

The waiver of the breach of
any term or provision of this Agreement shall not operate as or be construed to
be a waiver of any other subsequent breach of this Agreement.

 

12.                               Successors and Assigns

 

This Agreement shall inure
to and be binding upon the Bank and Employee, their respective heirs, legal
representatives, successors, and assigns.

 

13.                               Governing Law

 

This
Agreement shall be construed in accordance with the laws of the state of South
Carolina and any applicable federal laws.

 

14.                               Headings

 

The headings or titles of
sections and subsections of this Agreement are for convenience and reference
only and do not constitute a part of this Agreement.

 

15.                               Notice

 

Any notice or communication
required or permitted under this Agreement shall be made in writing and sent by
certified mail, return receipt requested, addressed as follows:

 

	
  If
  to Employee:

  
	
  68
  Crossings Boulevard, Bluffton, SC 29910

  
	
   

  
	
  If
  to the Bank:

  
	
  PO
  Box 3077, Bluffton, SC 29910

  

 

16.                               Representations: 
Employee acknowledges
that:

 

a)                                      She has read this Agreement and understands
its meaning and effect.

 

15

 

b)                                     She has knowingly and voluntarily entered
into this Agreement of her own free will.

 

c)                                      By signing this Agreement, Employee has
waived, to the full extent permitted by law, all claims against the Bank based
on any actions taken by the Bank up to the date of the signing of this
Agreement, and the Bank may plead this Agreement as a complete defense to any
claim the Employee may assert.

 

d)                                     She would not otherwise be entitled to the
consideration described in this Agreement, and that the Bank is providing such
consideration in return for Employee’s agreement to be bound by the terms of
this Agreement.

 

e)                                      She has been advised to consult with an
attorney before signing this Agreement.

 

f)                                        She has been given up to 21 days to consider
the terms of this Agreement.

 

g)                                     She has seven days, after Employee has signed
the Agreement and it has been received by the Bank, to revoke it by notifying
the Chairman of the Board of her intent to revoke acceptance.  For such revocation to be effective, the
notice of revocation must be received no later than 5:00 p.m. on the
seventh day after the signed Agreement is received by the Bank.  This Agreement shall not become effective or
enforceable until the revocation period has expired.

 

h)                                     She is not waiving or releasing any rights or
claims that may arise after the date the Employee signs this Agreement.

 

 

	
  As
  to Employee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
  Karen B. Sprague

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  As
  to the Bank:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
  Brian
  J. Smith, Chairman of the Board

  

 

16Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS
EMPLOYMENT AGREEMENT
(this “Agreement”) is made and entered into this 6th day of February 2008,
by and between International Rectifier Corporation, a Delaware corporation (the
“Corporation”), and Oleg Khaykin, an individual (the “Executive”).

 

RECITALS

 

THE
CORPORATION AND THE EXECUTIVE ENTER INTO THIS AGREEMENT on the basis of the following facts,
understandings and intentions:

 

A.  The Corporation desires that the
Executive be employed by the Corporation to carry out the duties and
responsibilities described below, all on the terms and conditions hereinafter
set forth.

 

B.  The Executive desires to accept
employment on such terms and conditions.

 

NOW, THEREFORE, in consideration of the above recitals
incorporated herein and the mutual covenants and promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby expressly acknowledged, the Corporation and the Executive agree as
follows:

 

1.             Retention and Duties.

 

1.1                               Retention.  The Corporation hereby agrees to engage and employ the
Executive for the Period of Employment (as defined in Section 2) on the
terms and conditions expressly set forth in this Agreement.  The Executive hereby accepts and agrees to
such engagement and employment, on the terms and conditions expressly set forth
in this Agreement.

 

1.2                               Duties.  During the Period of Employment, the Executive shall serve
the Corporation as its President and Chief Executive Officer and shall be
principally responsible for the general supervision, direction and control of
the business and officers of the Corporation, in each case subject to the
general direction of the Corporation’s Board of Directors (the “Board”).  During the Period of Employment, the
Executive shall have the powers and duties customarily attendant to the offices
of president and chief executive officer of a corporation of the size and
nature of the Corporation and such other powers and duties commensurate with
his position as the Board may assign from time to time.  The Executive shall also be subject to the
corporate policies of the Corporation as they are in effect from time to time
throughout the Period of Employment (including, without limitation, the Corporation’s
insider trading policy, Code of Ethics, and employee policies, as they may
change from time to time).  During the
Period of Employment, the Executive shall report solely to the Board.  The Corporation shall appoint the Executive
to the Board promptly following the Commencement Date (as defined in Section 2).  In connection with any expiration of the term
of the Executive’s Board seat during the Period of Employment, the Corporation
shall re-nominate the Executive at the related annual meeting of the
Corporation’s 

 

1

 

stockholders to
fill a Board seat, if the Executive is elected as a director, that would have
the longest remaining term of the director seats to be filled at that meeting
(but the Board shall not be required to change the class of seat the Executive
has theretofore filled as a director) and, in such cases, shall use good faith
efforts to keep the Executive on the Board; provided the Executive is
continuing as an employee of the Corporation, is otherwise willing to serve on
the Board, and satisfies the minimum guidelines and requirements (if any)
established by the Corporation for Board membership generally.

 

1.3                               No
Other Employment; Minimum Time Commitment.  During the Period of Employment, the Executive shall devote
substantially all of the Executive’s business time, energy and skill to the
performance of the Executive’s duties for the Corporation, and hold no other
employment.  Nothing herein shall
preclude the Executive from (i) serving on boards of directors of other
business entities provided that the Board approves such other service in
writing, (ii) engaging in a reasonable level of charitable activities and
community affairs, including serving on boards of directors or the equivalent,
and (iii) managing his personal and family investments and affairs,
provided that such activities do not violate applicable law or materially
interfere or conflict with the effective discharge of his duties and
responsibilities to the Corporation or the policies of the Corporation, as they
may be in effect from time to time.  The
Board has approved the Executive’s service as a member of the board of
directors of Zarlink Semiconductor, Inc. 
Notwithstanding the foregoing, however, the Corporation has the right
(upon written notice) to require the Executive to resign from any board
(including, without limitation, the board of directors of Zarlink Semiconductor, Inc.)
or similar body on which he may now or in the future serve (or reduce his
involvement) if the Board reasonably determines in good faith that such service
violates applicable law or materially interferes or conflicts with the
effective discharge of the Executive’s duties and responsibilities to the
Corporation or that any business related to such service is then in material
competition with any business of the Corporation or any of its affiliates.

 

1.4                               No
Breach of Contract.  The Executive hereby represents to the Corporation that: (i) the
execution and delivery of this Agreement by the Executive and the Corporation
and the performance by the Executive of the Executive’s duties hereunder shall
not constitute a breach of, or otherwise contravene, the terms of any other
agreement or policy to which the Executive is a party or otherwise bound; (ii) the
Executive has provided the Corporation with a copy of any confidentiality,
trade secret, non-compete, no solicit, or similar agreement or policy (or
agreement or policy containing any similar restrictive covenant) to which the
Executive is a party or otherwise bound (each, a “Restrictive Covenant
Agreement”); (iii) no Restrictive Covenant Agreement reasonably will
interfere with the effective discharge by the Executive of his duties to the
Corporation; and (iv) the Executive will not disclose trade secrets or
other confidential information to the Corporation in violation of any
applicable law or any Restrictive Covenant Agreement.

 

2

 

1.5                               Location.  The Executive acknowledges that the Corporation’s principal
executive offices are currently located in El Segundo, California.  The Executive’s principal place of employment
shall be the Corporation’s principal executive offices, as (subject to Section 5.5(e)(iii))
they may be moved from time to time at the discretion of the Corporation.  The Executive agrees that he will be
regularly present at the Corporation’s principal executive offices, subject to
travel in the course of performing his duties for the Corporation.

 

2.                                      Period of Employment.  Subject to earlier termination as provided in Section 3.5,
the “Period of Employment” shall be a period of three (3) years
commencing on March 1, 2008 (the “Commencement Date”) and ending at
the close of business on the third (3rd) anniversary of the Commencement Date
(the “Termination Date”); provided, however, that this Agreement shall
be automatically renewed, and the Period of Employment shall be automatically
extended for one (1) additional year on each of the second, third, fourth
and fifth anniversaries of the Commencement Date, unless either party gives notice,
in writing, prior to such anniversary that the Period of Employment shall not
be extended (or further extended, as the case may be).  The term “Period of Employment” shall include
any extension thereof pursuant to the preceding sentence.  Provision of notice that the Period of
Employment shall not be extended or further extended, as the case may be, shall
not constitute a breach of this Agreement and shall not constitute “Good Reason”
for purposes of this Agreement. 
Notwithstanding the foregoing, the Period of Employment is subject to
earlier termination as provided below in this Agreement.

 

3.             Compensation.

 

3.1                               Base
Salary.  The Executive’s base salary for the Period of Employment
(the “Base Salary”) shall be at the initial rate of SEVEN HUNDRED AND FIFTY
THOUSAND DOLLARS ($750,000) per annum and shall be paid in accordance with the
Corporation’s regular payroll practices in effect from time to time, but not
less frequently than in monthly installments. 
During the Period of Employment, the Board will review the Executive’s
Base Salary on an annual basis (commencing in 2009) and may, in its discretion,
increase (but not decrease) the Base Salary from the rate in effect immediately
preceding any such change.

 

3.2                               Annual Incentive Bonus.  During the Period of
Employment, the Executive shall be eligible to receive an annual incentive
bonus in an amount to be determined by the Compensation Committee of the Board
(the “Compensation Committee”) in good faith (the “Incentive Bonus”);
provided, however, that the Executive must be continuously employed with the
Corporation through the last day of a fiscal year to be eligible to receive an
Incentive Bonus for that fiscal year. 
The Executive’s target Incentive Bonus opportunity for a fiscal year
shall equal ONE HUNDRED PERCENT (100%) of the Executive’s Base Salary at the
rate in effect on the last day of such fiscal year, with the actual bonus
amount for any such fiscal year determined by the Compensation Committee based
on performance targets and objectives (which may be based on the performance of
the Corporation and/or the Executive’s individual performance, as the
Compensation Committee may determine), and actual performance against those 

 

3

 

targets and objectives, as determined in
good faith by the Compensation Committee for such year, in consultation with
the Executive; provided, however, that with respect to the Executive’s
Incentive Bonus for the Corporation’s fiscal year ending June 30, 2008,
such bonus shall be prorated based on the number of days between the
Commencement Date and June 30, 2008. 
Any Incentive Bonus payable to the Executive with respect to a fiscal
year shall be paid as soon as reasonably practicable after the last day of such
fiscal year (and in all events in the same calendar year as the year in which
such fiscal year ends).

 

3.3                               Signing Bonus.  In the event that (1) any of (i) Executive’s
notice to Amkor Technology, Inc. (the “Former Employer”) or Former
Employer otherwise acquiring notice of the Executive’s appointment to the Board
or intention to accept employment with the Corporation, (ii) public
announcement of Executive’s appointment to the Board or intention to accept
employment with the Corporation, or (iii) commencement of Executive’s
service as a member of the Board or employment with the Corporation occurs
before the time of payment of the Former Employer’s executive bonuses for its
2007 fiscal year generally and (2) the Former Employer does not pay the
Executive a bonus with respect to the Former Employer’s 2007 fiscal year or
pays the Executive a bonus with respect to such fiscal year of less than FIVE
HUNDRED AND SEVENTY FIVE THOUSAND DOLLARS ($575,000), the Executive will be
entitled to receive a one-time signing bonus from the Corporation (the “Signing
Bonus”) equal to difference between FIVE HUNDRED AND SEVENTY FIVE THOUSAND
DOLLARS ($575,000) and the amount of such bonus paid by the Former Employer to
the Executive with respect to such fiscal year. 
(For purposes of clarity, the entitlement to a Signing Bonus will be
determined based on gross bonus amounts determined before giving effect to tax
withholding and other authorized deductions, but any payment of the Signing
Bonus itself will be subject to required tax withholding.)  If the Executive is entitled to a Signing
Bonus, the Corporation shall pay such bonus to the Executive not later than December 31,
2008.  The Executive agrees to use his
reasonable efforts to obtain from the Former Employer the full amount of his
bonus for the Former Employer’s 2007 fiscal year.

 

3.4                               Equity Incentive Awards. 
The Compensation Committee shall approve the grant to the Executive of
the following awards under the Corporation’s 2000 Incentive Plan, as amended
(the “Plan”), such awards to be granted no later than the later
of the Commencement Date or the date that is the third trading day on the New
York Stock Exchange that follows the day on which the Corporation is current in
its financial statement reporting obligations to the Securities and Exchange
Commission (which is currently expected to be when the Corporation files its
Annual Report on Form 10-K for its fiscal year ended June 30, 2007,
but would be extended until the third trading day following the filing of any
then past due report for a subsequent fiscal quarter and the amendment of any
incomplete current report requiring the presentment of financial information)
(the later of such dates, the “Date of Grant”):

 

4

 

·                  An option (the “Option”) to
purchase 750,000 shares of the Corporation’s common stock.  The per-share exercise price of the Option
shall be the closing market price of a share of the Corporation’s common stock
on the Date of Grant, and the expiration date of the Option shall be the day
before the fifth anniversary of the Date of Grant (subject to earlier
termination as provided in the applicable award agreement).  The Option shall vest and become exercisable
in five substantially equal installments on each of the first five anniversaries
of the Commencement Date, in each case subject to the Executive’s employment
with the Corporation through the applicable vesting date (and subject to
accelerated vesting as provided in Section 5.3 below), provided that the
vesting date for the fifth and final such installment shall not be later than
the date that is four years and nine months after the Date of Grant.  The Option shall be evidenced by a stock
option agreement in substantially the form provided by the Corporation to the
Executive and will be subject to such other terms as are provided therein and
in the Plan.

 

·                  An award of
250,000 restricted stock units (the “RSU Award”), such award to be
effective on the Date of Grant and to vest in five substantially equal
installments on each of the first five anniversaries of the Commencement Date,
in each case subject to the Executive’s employment with the Corporation through
the applicable vesting date (and subject to accelerated vesting as provided in Section 5.3
below).  The restricted stock units
subject to the RSU Award shall be paid, upon vesting, in an equal number of
shares of the Corporation’s common stock. 
The RSU Award shall be evidenced by a restricted stock unit award
agreement in substantially the form provided by the Corporation to the
Executive and will be subject to such other terms as are provided therein and
in the Plan.

 

·                  If a Change in
Control Event occurs prior to the Date of Grant specified above, the Executive’s
right to the grant of the Option shall immediately terminate and instead the
number of restricted stock units subject to the RSU Award shall be increased to
(x) 375,000 if the Change in Control Event occurs within six months after
the Commencement Date or (y) 500,000 if the Change in Control Event occurs
on or after the date that is six months after the Commencement Date (in each
case, in lieu of the 250,000 set forth above), and the RSU Award as so
increased shall be granted upon (or, as may be necessary to give effect to the
grant, immediately prior to) the occurrence of the Change in Control Event;
provided, however, the Corporation shall have the right at its option to pay
the Executive a lump sum amount upon or within thirty (30) days after such
Change in Control Event (in lieu of such RSU Award) equal to the number of
shares subject to such RSU Award that would have been vested at the time of
such Change in Control Event multiplied by the Fair Market Value (as defined in
the Plan) of a share of the Corporation’s common stock at the time of such
Change in Control Event (such amount subject to required tax withholding).

 

5

 

·                  Subject to Section 5.3,
the vesting of the Option and the RSU Award shall not, unless otherwise
specifically approved by the Board in its discretion, accelerate in connection
with any Change in Control Event to the extent the awards will continue in
effect after such event or be assumed by a successor company (or a parent
thereof).

 

The parties acknowledge and agree that the foregoing awards are intended
to satisfy the Corporation’s obligation to grant equity incentive awards to the
Executive for the initial four years of the Period of Employment (if employment
continues through such period) and the parties do not anticipate that
additional equity incentive awards will be granted to the Executive during such
period.  The amount, timing, and other
terms of any future equity award grants to the Executive shall be determined by
the Board (or the Compensation Committee) in its sole discretion.  The share amounts set forth above are subject
to adjustment for stock splits, stock dividends, reverse stock splits, mergers
and similar events in accordance with the adjustment provisions of the Plan.

 

3.5                               Compensation
for Board Service.  The Executive shall not be entitled to
additional compensation (other than the compensation otherwise provided for in
this Agreement) for service on the Board or for service as a director, officer,
or in any other capacity with any affiliate of the Corporation.

 

4.             Benefits.

 

4.1                               Retirement,
Welfare and Fringe Benefits.  During the Period of Employment, the
Executive shall be entitled to participate in all employee pension and welfare
benefit plans and programs, and fringe benefit plans and programs, made
available by the Corporation to the Corporation’s senior executives generally,
in accordance with the eligibility and participation provisions of such plans
and as such plans or programs may be in effect from time to time.  Unless the Compensation Committee in its
discretion determines otherwise, the Executive shall not, however, have rights
to participate in any bonus or other incentive plan maintained or adopted by
the Corporation (other than as expressly provided in Sections 3.2 and 3.4).

 

4.2                               Reimbursement
of Legal Expenses.  The Corporation shall reimburse the Executive for or pay the
reasonable legal fees incurred by the Executive relating to the negotiation and
preparation of this Agreement, provided that in no event shall the Corporation’s
obligation with respect to such reimbursement or payment of such legal fees
exceed FIFTEEN THOUSAND DOLLARS ($15,000).

 

4.3                               Vacation and Other
Leave.  During the Period of Employment, the Executive shall
accrue and be entitled to take paid time off (or vacation, depending on the
Corporation’s programs in effect from time to time) at a rate of four (4) weeks
per year, subject to scheduling with the Board and the Corporation’s policies
regarding vacation accruals (including, without limitation, limits on the
amount of vacation that may be accrued and untaken before future accruals
cease).

 

6

 

4.4                               Relocation Expenses.  The Corporation shall
pay or reimburse the Executive for his reasonable costs incurred in relocating
from Scottsdale, Arizona to a location that is a reasonable commuting distance
from the Corporation’s principal executive offices, including, without
limitation, reasonable costs for brokerage fees, loan and closing costs,
temporary housing, travel associated with locating a residence and
transportation and storage of household goods; provided that in no event shall
the Corporation’s obligation with respect to such payments or reimbursements
exceed ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000) in the aggregate.  The parties anticipate that such relocation
will not occur before June 1, 2008, but will occur promptly after that
date.

 

4.5                               Supplemental Life/Disability Insurance.  Subject to
eligibility under the then-existing programs, during the Period of Employment
the Corporation shall provide the Executive with supplemental life insurance
and long term disability insurance up to a cap on supplemental premiums of ONE
THOUSAND THREE HUNDRED DOLLARS ($1,300) annually for life insurance and SEVEN
THOUSAND DOLLARS ($7,000) annually for disability insurance.

 

5.             Termination.

 

5.1                               Termination
by the Corporation.  The Executive’s employment with the Corporation, and the
Period of Employment, may be terminated at any time by the Corporation: (i) with
Cause (as defined in Section 5.5), or (ii) on written notice to the
Executive, without Cause, or (iii) in the event of the Executive’s death,
or (iv) in the event the Executive has a Disability (as defined in Section 5.5).

 

5.2                               Termination
by the Executive.  The Executive’s employment with the Corporation, and the Period of
Employment, may be terminated by the Executive with no less than thirty (30)
days advance written notice to the Corporation (such notice to be delivered in
accordance with Section 18); provided, however, that in the case of a
termination for Good Reason (as defined in Section 5.5), the Executive may
provide immediate written notice of termination once the applicable cure period
(as contemplated by the definition of Good Reason) has lapsed if the
Corporation has not reasonably cured the circumstances that gave rise to the
termination for Good Reason.

 

5.3                               Benefits Upon
Termination.   If the Executive’s employment with the Corporation is
terminated during the Period of Employment for any reason by the Corporation or
by the Executive, or upon or following the expiration of the Period of Employment (in any case, the date
that the Executive’s employment by the Corporation terminates is referred to as
the “Severance Date”), the Corporation shall have no further obligation
to make or provide to the Executive, and the Executive shall have no further
right to receive or obtain from the Corporation, any payments or benefits
except:

 

(a)           the Corporation
shall pay the Executive (or, in the event of his death, the Executive’s estate)
any Accrued Obligations (as defined in Section 5.5);

 

7

 

(b)           if, during the
Period of Employment (but not upon or following the expiration of the Period of
Employment), the Executive’s employment is terminated (x) by the Corporation
without Cause or (y) by the Executive for Good Reason, (any of such
terminations, a “Qualifying Termination”), the Corporation shall,
subject to the following provisions of this Section 5.3 and the provisions
of Section 5.4, pay (in addition to the Accrued Obligations) the Executive
the following severance benefits:

 

(i)                     The Corporation shall pay the Executive an amount,
subject to tax withholding and other authorized deductions, equal to (A) the
sum of (1) the Executive’s Base Salary at the highest annualized rate in
effect during the one (1) year period immediately prior to the Severance
Date plus (2) such annualized rate of Base Salary multiplied by the
Executive’s highest target Incentive Bonus percentage in effect during the
one-year period immediately prior to the Severance Date (but not less than
100%), multiplied by (B) one and one-half (1.5).  Such amount is referred to hereinafter as the
“Severance Benefit.” 
Notwithstanding the foregoing, in the event that such termination of
employment occurs at any time during the period commencing two (2) months
prior to the occurrence of a Change in Control Event (as defined in Section 5.5)
and ending on the second anniversary of such Change in Control Event (the “Protected
Period”), the one and one-half (1.5) multiplier in the foregoing clause (B) shall
be replaced by a multiplier of two (2).

 

                                Subject to Section 5.7(a), the
Corporation shall pay the Severance Benefit (if the Executive is entitled to
the Severance Benefit) to the Executive in accordance with the provisions of
this paragraph.  If the Executive’s
Separation from Service (as defined in Section 5.5) occurs before a 409A
CIC Event (as defined in Section 5.5), the Severance Benefit shall be paid
in a series of substantially equal separate installments in accordance with the
Corporation’s standard payroll practices over a period of eighteen (18)
consecutive months, with the first installment payable in the month following
the month in which the Executive’s Separation from Service.  (For purposes of clarity, each such
installment shall equal the applicable fraction of the aggregate Severance
Benefit.  For example, each installment
would equal one-eighteenth (1/18th) of the Severance Benefit.)  If the Executive is receiving such
installment payments and a 409A CIC Event occurs, any remaining installment
payments (commencing with any installment for the month following the month in
which such 409A CIC Event occurs and any future installments otherwise due)
will be paid (without applying a present value discount) in the month following
the month in which the 409A CIC Event occurs. 
If the Executive’s Separation from Service occurs on or within twenty
four (24) months after a 409A CIC Event, the Severance Benefit shall be paid in
a single lump sum payment in the month following the month in which the
Executive’s Separation from Service occurs.

 

8

 

(ii)                  The Executive shall be entitled to accelerated vesting
of a portion of the Option and RSU Award (to the extent then outstanding and
otherwise not fully vested) as follows:  (A) the
vesting schedule applicable to each of the Option and RSU Award shall, for this
purpose, be deemed to have been a 5-year monthly vesting schedule over the
sixty (60) months following the Commencement Date, and (B) the portion of
the Option and RSU Award that, under such monthly vesting schedule, would have
otherwise been scheduled to vest based on the Executive’s continued employment
(had the Executive’s employment not terminated) during the period of eighteen
(18) months following the Severance Date shall become fully vested and, in the
case of the Option, exercisable as of the Severance Date, and the Option, to
the extent exercisable, shall remain exercisable until the earlier of the first
anniversary of the Severance Date, the end of the maximum term of the Option,
or a termination of the option in connection with a change in control or
similar event as provided in the Plan. 
However, in the case of a Qualifying Termination during the Protected
Period, the Option and RSU Award (to the extent then outstanding and otherwise
not fully vested) shall become fully vested and, in the case of the Option,
exercisable as of the Severance Date, and the Option, to the extent
exercisable, shall remain exercisable until the earlier of the first
anniversary of the Severance Date, the end of the maximum term of the Option,
or a termination of the option in connection with a change in control or
similar event as provided in the Plan.

 

                                Notwithstanding the foregoing, if a
Qualifying Termination occurs prior to the Date of Grant, the Executive’s right
to the grant of the Option shall immediately terminate and instead the number
of restricted stock units subject to the RSU Award shall be increased to (x) 375,000
if the Qualifying Termination occurs within six months after the Commencement
Date or (y) 500,000 if the Qualifying Termination occurs on or after the
date that is six months after the Commencement Date (in each case, in lieu of
the 250,000 set forth above), and the RSU Award as so increased shall be
granted upon (or, as may be necessary to give effect to the grant, immediately
prior to) the Severance Date and the provisions of the preceding paragraph
regarding accelerated vesting shall apply with respect to the RSU Award as so
increased.

 

(iii)               The Corporation will pay or reimburse the Executive
for his premiums charged to continue medical coverage pursuant to the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at the same or
reasonably equivalent medical coverage for the Executive (and, if applicable,
the Executive’s eligible dependents) as in effect immediately prior to the
Severance Date, to the extent that the Executive elects such continued
coverage; provided that the Corporation’s obligation to make any payment or
reimbursement pursuant to this clause (iii) shall commence with
continuation coverage for the month following the month in which the Executive’s
Separation from Service occurs and shall cease 

 

9

 

                                with continuation coverage for the
eighteenth (18th) month following the month in which the Executive’s
Separation from Service occurs (or, if earlier, shall cease upon the first to
occur of the Executive’s death, the date the Executive becomes eligible for
coverage under the health plan of a future employer, or the date the
Corporation ceases to offer group medical coverage to its active executive
employees or the Corporation is otherwise under no obligation to offer COBRA
continuation coverage to the Executive). 
To the extent the Executive elects COBRA coverage, he shall notify the
Corporation in writing of such election prior to such coverage taking effect
and complete any other continuation coverage enrollment procedures the Corporation
may then have in place.  The Executive
shall promptly notify the Corporation in writing if he or any of his covered
dependents becomes eligible for coverage under any other health plan.

 

(c)           The foregoing
provisions of this Section 5.3 shall not affect: (i) the Executive’s
receipt of benefits otherwise due terminated employees under group insurance
coverage consistent with the terms of the applicable Corporation welfare
benefit plan; (ii) the Executive’s rights under COBRA to continue
participation in medical, dental, hospitalization and life insurance coverage; (iii) the
Executive’s receipt of benefits otherwise due in accordance with the terms of
the Corporation’s Retirement Savings Plan; (iv) any rights that the
Executive may have under and with respect to a stock option, restricted stock
or other equity-based award, to the extent that such award was granted before
the Severance Date and to the extent expressly provided in the written
agreement evidencing such award; or (v) any right to indemnification the
Executive may have from the Corporation or the Executive’s right to be covered
under any applicable insurance policy, with respect to any liability the
Executive incurred or might incur as an employee, officer or director of the
Corporation or its affiliates.

 

5.4          Release; Exclusive Remedy.

 

(a)           This
Section 5.4 shall apply notwithstanding anything else contained in this
Agreement to the contrary.  As a
condition precedent to any Corporation obligation to the Executive pursuant to Section 5.3(b),
the Executive shall, upon or promptly following his last day of employment with
the Corporation: (i) provide the Corporation with a valid, executed,
written release of claims (in substantially the form attached hereto as Exhibit A,
with such changes to such form as the Corporation may determine necessary or
appropriate to help ensure that the release contemplated by such form is
maximally enforceable in accordance with applicable law) and such release shall
have not been revoked by the Executive pursuant to any revocation rights
afforded by applicable law; and (ii) satisfy his obligations under Section 5.4(c).  The Corporation shall have no obligation to
make any payment to the Executive pursuant to Section 5.3(b) unless
and until the release contemplated by this Section 5.4 is executed and
delivered, and not revoked by the Executive pursuant to any revocation rights
afforded by applicable law.

 

10

 

(b)           The
Executive agrees that the payments contemplated by Section 5.3 shall
constitute the exclusive and sole remedy for any termination of his employment
and in such case the Executive covenants not to assert or pursue any other
remedies, at law or in equity, with respect to any termination of employment.  The Corporation and the Executive acknowledge
and agree that there is no duty of the Executive to mitigate damages under this
Agreement, and there shall be no offset against any amounts due to the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain.  All amounts paid to the Executive pursuant to
Section 5.3 shall be paid without regard to whether the Executive has
taken or takes actions to mitigate damages and, subject to all applicable laws
and regulations, shall not be subject to setoff, counterclaim, recoupment,
defense or other right which the Corporation may have against the Executive or
others.

 

(c)           The
Executive agrees that, upon or promptly following the termination of the
Executive’s employment with the Corporation (regardless of the reason), he will
resign from the Board (if he is then a member of the Board), from the board of
directors or similar governing body of any affiliate of the Corporation on
which he may then serve, and from any other position which he may then hold
with the Corporation and its affiliates.

 

5.5          Certain
Defined Terms.

 

(a)           As
used herein, “Accrued Obligations” means:

 

(i)            any Base Salary that had accrued but had not been paid
(including accrued and unpaid vacation time) prior to the Severance Date;

 

(ii)           any Incentive Bonus payable pursuant to Section 3.2
with respect to the fiscal year preceding the fiscal year in which the
Severance Date occurs (if the Executive was employed by the Corporation on the
last day of that fiscal year) that had not previously been paid; and

 

(iii)          any reimbursement due to the Executive pursuant to Section 4.2
for expenses incurred by the Executive prior to the Severance Date.

 

Subject
to Section 5.7, the Accrued Obligations shall be paid promptly after the
Severance Date.

 

(b)           As used herein, “Cause”
shall mean that, during the Period of Employment, any of the following events
or contingencies exists or has occurred:

 

(i)            the Executive is convicted of, or pleads guilty or nolo contendere to, a felony (whether or not involving the
Corporation or any of its affiliates); or

 

(ii)           the Executive
commits an act of willful and material misconduct involving the Corporation or
any of its affiliates; or

 

11

 

(iii)          the Executive willfully and repeatedly fails or refuses to
perform his duties as required by this Agreement; or

 

(iv)          a willful and material violation by the Executive of any
written rule, regulation or policy of the Corporation; or

 

(v)           a willful and material breach by the
Executive of any provision of this Agreement.

 

However,
no act or failure to act, on the Executive’s part shall be considered “willful”
unless done, or omitted to be done, by the Executive not in good faith and
without reasonable belief that the Executive’s action or omission was in the
best interest of the Corporation, and in the case of clauses (ii) through (v) of
the foregoing definition, there shall be no determination of Cause hereunder
unless the Executive shall have received written notice from the Board stating
the nature of the act or omission asserted to constitute Cause and affording
the Executive at least ten (10) days to correct such act or omission.  A determination by the Board that Cause
exists shall be effective only if approved at a Board meeting (in person or
telephonic) by at least a majority of the Board (not counting the Executive if
he is then a member of the Board).  The
Executive is entitled to be present (with counsel) at such meeting and respond
to any basis that may be asserted as constituting Cause (a summary of which
shall be supplied to the Executive in writing at least five (5) days
before any such meeting).

 

(c)           As
used herein, “Change in Control Event” shall have the meaning ascribed
to such term in the Corporation’s 2000 Incentive Plan; provided, however, that
as used in this Agreement, the exception in clause (D) of the first bullet
point under paragraph (3) of such term as so defined (the exception for
acquisitions by any member of or entity or group affiliated with the
Lidow family) shall not apply.

 

(d)           As
used herein, “Disability” shall mean a physical or mental impairment
which has resulted in the Executive’s entitlement to commencement of long-term
disability benefits under the Company’s long-term disability policy applicable
to the Executive or, in the absence of such a policy, a physical or mental
impairment which has rendered the Executive unable to perform the essential
functions of his employment with the Corporation, even with reasonable
accommodation that does not impose an undue hardship on the Corporation, for
more than 90 calendar days in any 12-month period, unless a longer period is
required by federal or state law, in which case that longer period would apply.  In the absence of an applicable long-term
disability policy as described above, the determination of whether or not a
Disability exists for purposes of this Agreement shall be based upon the
findings of a qualified medical doctor reasonably agreed to by the Corporation
and the Executive (or, in the event of the Executive’s incapacity, his legal
representative).  In the absence of
agreement between the Corporation and the Executive, each party shall nominate
a qualified medical doctor, and the two 

 

12

 

doctors so nominated shall select a third
qualified medical doctor, who shall make the determination as to Disability.

 

(e)           As used herein, “Good Reason” shall mean the occurrence of one or more of the following
without the Executive’s written consent:

 

(i)       a
material diminution in the Executive’s rate of Base Salary;

 

(ii)      a
material diminution in the Executive’s authority, duties, or responsibilities;

 

(iii)     a
material change in the geographic location of the Executive’s principal office
with the Corporation (for this purpose, in no event shall a relocation of such
office to a new location that is not more than fifty (50) miles from the
current location of the Corporation’s executive offices constitute a “material
change”);

 

(iv)     a
material breach by the Corporation of this Agreement; or

 

(v)      in the
event of a Change in Control Event after the Commencement Date, the Executive
should for any reason not then be or thereafter cease to be a member of the
Board (provided that the Executive is then otherwise willing to serve as a
member of the Board and satisfies the minimum guidelines and requirements (if
any) established by the Corporation for Board membership generally);

 

provided,
however, that any such condition or conditions, as applicable, shall not
constitute Good Reason unless both (x) the Executive provides written
notice to the Corporation of the condition claimed to constitute Good Reason
within ninety (90) days of the initial existence of such condition(s) (such
notice to be delivered in accordance with Section 18), and (y) the
Corporation fails to remedy such condition(s) within thirty (30) days of
receiving such written notice thereof; and provided, further, that in all
events the termination of the Executive’s employment with the Corporation shall
not constitute a termination for Good Reason unless such termination occurs not
more than one hundred and twenty (120) days following the initial existence of
the condition claimed to constitute Good Reason.

 

(f)            As used herein, a “Separation from
Service” occurs when the Executive dies, retires, or otherwise has a
termination of employment with the Corporation that constitutes a “separation
from service” within the meaning of Treasury Regulation Section 1.409A-1(h)(1),
without regard to the optional alternative definitions available thereunder.

 

(g)           As used herein, “409A CIC Event”
means a Change in Control Event that qualifies as a “change in the ownership”
of the Corporation, a “change in the effective control” of the Corporation, or
a “change in the ownership of a substantial portion of the assets” of the
Corporation, each within the meaning of Treas. Reg. Section 1.409A-3(i)(5).

 

13

 

5.6                               Section 280G Gross-Up. 
The Executive shall be covered by the tax gross-up provisions set forth
in Exhibit B hereto, incorporated herein by this reference.

 

5.7                               Section 409A. 
If the Executive is a “specified employee” within the meaning of
Treasury Regulation Section 1.409A-1(i) as of the date of the
Executive’s Separation from Service, the Executive shall not be entitled to any
payment or benefit pursuant to Section 5.3(b) until the earlier of (i) the
date which is six (6) months after Separation from Service for any reason
other than death, or (ii) the date of the Executive’s death.  The provisions of this Section 5.7(a) shall
only apply if, and to the extent, required to avoid the imputation of any tax,
penalty or interest pursuant to Section 409A of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”). 
Any amounts otherwise payable to the Executive upon or in the six (6) month
period following the Executive’s Separation from Service that are not so paid
by reason of this Section 5.7(a) shall be paid (without interest) as
soon as practicable (and in all events within thirty (30) days) after the date
that is six (6) months after the Executive’s Separation from Service (or,
if earlier, as soon as practicable, and in all events within thirty (30) days,
after the date of the Executive’s death).

 

6.                                      Means and Effect of Termination.  Any
termination of the Executive’s employment under this Agreement shall be
communicated by written notice of termination from the terminating party to the
other party.  The notice of termination
shall indicate the specific provision(s) of this Agreement relied upon in
effecting the termination.  Upon the
occurrence of any such termination, the Executive shall be deemed to have
resigned as a director and/or officer of the Corporation and its affiliates as
of the Severance Date without the giving of any notice or taking of any other
action.

 

7.                                      Protective Covenants.

 

7.1                               Confidential Information;
Inventions.

 

(a)         The Executive shall not disclose or use
at any time, either during the Period of Employment or thereafter, any
Confidential Information (as defined below) of which the Executive is or
becomes aware, whether or not such information is developed by him, except to
the extent that such disclosure or use is made by the Executive in connection
with the Executive’s performance in good faith of his duties for the
Corporation.  The Executive will take all
appropriate steps to safeguard Confidential Information in his possession and
to protect it against disclosure, misuse, espionage, loss and theft.  The Executive shall deliver to the
Corporation at the termination of the Period of Employment, or at any time the
Corporation may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating
to the Confidential Information or the Work Product (as hereinafter defined) of
the business of the Corporation or any
of its affiliates (the Corporation and its affiliates are referred to,
collectively, as the “Company Group”) which the Executive may
then possess or have under his control. 
Notwithstanding the foregoing, the Executive may truthfully respond to a
lawful and valid subpoena or 

 

14

 

other legal process,
but shall give the Corporation the earliest possible notice thereof, shall, as
much in advance of the return date as possible and to the extent legally
permitted to do so, make available to the Corporation and its counsel the
documents and other information sought, and shall assist the Corporation and
such counsel in resisting or otherwise responding to such process.

 

(b)        As used in this Agreement, the term “Confidential
Information” means information that is not generally known to the public
and that is used, developed or obtained by the Corporation in connection with
its business, including, but not limited to, information, observations and data
obtained by the Executive while employed by the Corporation or any predecessors
thereof (including those obtained prior to the Commencement Date) concerning (i) the
business or affairs of the Corporation (or such predecessors), (ii) products
or services, (iii) fees, costs and pricing structures, (iv) designs, (v) analyses,
(vi) drawings, photographs and reports, (vii) computer software,
including operating systems, applications and program listings, (viii) flow
charts, manuals and documentation, (ix) data bases, (x) accounting
and business methods, (xi) inventions, devices, new developments, methods
and processes, whether patentable or unpatentable and whether or not reduced to
practice, (xii) customers and clients and customer or client lists,
(xiii) other copyrightable works, (xiv) all production methods,
processes, technology and trade secrets, and (xv) all similar and related
information in whatever form. 
Confidential Information will not include any information that has been
published (other than a disclosure by the Executive in breach of this
Agreement) in a form generally available to the public prior to the date the
Executive proposes to disclose or use such information.  Confidential Information will not be deemed
to have been published merely because individual portions of the information
have been separately published, but only if all material features comprising
such information have been published in combination.

 

(c)         As used in this Agreement, the term “Work
Product” means all inventions, innovations, improvements, technical
information, systems, software developments, methods, designs, analyses, drawings,
reports, service marks, trademarks, trade names, logos and all similar or
related information (whether patentable or unpatentable, copyrightable,
registerable as a trademark, reduced to writing, or otherwise) which relates to
actual or anticipated business, research and development or existing or future
products or services of any member of the Company Group and which are
conceived, developed or made by the Executive (whether or not during usual
business hours, whether or not by the use of the facilities of a member of the
Company Group, and whether or not alone or in conjunction with any other
person) while employed by the Corporation together with all patent
applications, letters patent, trademark, trade name and service mark
applications or registrations, copyrights and reissues thereof that may be
granted for or upon any of the foregoing. 
All Work Product that the Executive may have discovered, invented or
originated during his employment by any member of the Company Group prior to
the Commencement Date, that he may discover, invent or originate during the
Period of Employment, shall be the exclusive property of the applicable Company
Group member, and the Executive hereby assigns all of 

 

15

 

the Executive’s
right, title and interest in and to such Work Product to the applicable Company
Group member, including all intellectual property rights therein.  The Executive shall promptly disclose all
Work Product to the Corporation, shall execute at the request of the
Corporation any assignments or other documents the Corporation may deem
necessary to protect or perfect its right (or the rights of any member of the
Company Group) therein, and shall assist the Corporation, at the Corporation’s
expense, in obtaining, defending and enforcing the Corporation’s rights (or the
rights of any member of the Company Group) therein.  The Executive hereby appoints the Corporation
as his attorney-in-fact to execute on his behalf any assignments or other
documents deemed necessary by the Corporation to protect or perfect the
Corporation, the Corporation’s right (or the rights of any member of the
Company Group) to any Work Product. 
Notwithstanding the foregoing, the provisions of this agreement
requiring assignment of Work Product to the Corporation do not apply to any
Work Product which qualifies fully under the provisions of California Labor
Code Section 2870 (attached hereto as Exhibit C) or the provisions of
any applicable like statute of any other state. 
For purposes of this Agreement, the term “person” includes any
individual, association, corporation, partnership, limited liability company,
trust or any other entity or organization, including a governmental entity.

 

7.2                               No Competing Employment.  The Executive
acknowledges and recognizes the highly competitive nature of the businesses of
the Corporation, the amount of sensitive and confidential information involved
in the discharge of the Executive’s position with the Corporation, and the harm
to the Corporation that would result if such knowledge or expertise was
disclosed or made available to a competitor. 
Based on that understanding, the Executive hereby expressly agrees that,
during the Period of Employment  and for a period of six months following
the Severance Date, the Executive shall not, without prior written approval of
the Corporation, directly or indirectly own an interest in, manage, operate,
join, control, lend money or render financial assistance to, as an officer,
employee, partner, stockholder, consultant or otherwise, any individual,
partnership, firm, corporation or other business organization or entity that,
at such time competes with the Company Group in the business of power
management semiconductor technology or products (a “Competing Company”).  Notwithstanding the foregoing, the Executive
shall be entitled to own up to 2% of the outstanding securities of any entity
if such securities are registered under Section 12(b) or (g) of
the Securities Exchange Act of 1934, as amended.

 

7.3                               Prohibition on Solicitation
of Customers.  During the Period of Employment and for a
period of one year following the Severance Date (or, if longer, during any
period in which the Executive is receiving severance or other payments from the
Corporation hereunder), the Executive shall not, directly or indirectly, either
for the Executive or for any other person or entity, solicit any person or
entity to terminate such person’s or entity’s contractual and/or business
relationship with the Company Group, nor shall the Executive interfere with or
disrupt or attempt to interfere with or disrupt any such relationship.  The foregoing shall not be 

 

16

 

violated by general
advertising of a customary nature not targeted at such persons or entities, nor
by serving as a reasonable and customary reference upon request.

 

7.4                               Prohibition on
Solicitation of the Corporation’s Employees or Independent Contractors after
Termination.  During the Period of Employment and for a
period of one year following the Severance Date (or, if longer, during any
period in which the Executive is receiving severance or other payments from the
Corporation hereunder), the Executive will not directly or indirectly solicit
any of the Company Group’s employees, agents, or independent contractors to
leave the employ of the Company Group for a Competing Company.  The foregoing shall not be violated by
general advertising of a customary nature not targeted at such employees,
agents or independent contractors, nor by serving as a reasonable and customary
reference upon request.

 

7.5                               Cooperation. 
The Executive agrees that during the Period of Employment and
thereafter, he shall respond to all reasonable inquiries of the Corporation
about any matters concerning the Corporation or its affairs that occurred or
arose during the Executive’s employment by the Corporation, and the Executive
further agrees to reasonably cooperate with the Corporation in investigating,
prosecuting and defending any charges, claims, demands, liabilities, causes of
action, lawsuits or other proceedings by, against or involving the Corporation
relating to the period during which the Executive was employed by the
Corporation or relating to matters of which the Executive has or should have
knowledge or information.  The Executive
further agrees that, except as required by law, the Executive will at no time
voluntarily serve as a witness or offer written or oral testimony against the
Corporation in conjunction with any complaints, charges or lawsuits brought
against the Corporation by or on behalf of any other current or former
employees, or any governmental or administrative agencies related to his period
of employment and, to the extent legally permitted, will provide the
Corporation with notice of any subpoena or other request for such information
or testimony.

 

7.6                               Understanding of Covenants. 
The Executive represents that he (i) is familiar with and has
carefully considered the foregoing covenants set forth in this Section 7
(together, the “Restrictive Covenants”), (ii) is fully aware of his
obligations hereunder, (iii) agrees to the reasonableness of the length of
time, scope and geographic coverage, as applicable, of the Restrictive
Covenants, (iv) agrees that the Corporation and the other members of the
Company Group currently conduct business throughout the continental United
States and the rest of the world, and (v) agrees that the Restrictive
Covenants are necessary to protect the Corporation’s and the other members of
the Company Groups’ respective confidential and proprietary information, good
will, stable workforce, and customer relations. 
The Executive understands that the Restrictive Covenants may limit his
ability to earn a livelihood in a business similar to the business of the
Company and any other member of the Company Group, but he nevertheless believes
that he has received and will receive sufficient consideration and other
benefits as an employee of the Company and as otherwise provided hereunder or
as described in the recitals hereto to clearly justify such restrictions which,
in any 

 

17

 

event (given his
education, skills and ability), the Executive does not believe would prevent
him from otherwise earning a living.  The
Executive agrees that the Restrictive Covenants do not confer a benefit upon
the Company disproportionate to the detriment of the Executive.

 

7.7                               Right to Injunctive and
Equitable Relief.  The Executive’s obligations not to disclose
or use Confidential Information and to refrain from conduct otherwise
prohibited by the Restrictive Covenants are of a special and unique character,
which gives them a peculiar value.  The
Corporation cannot be reasonably or adequately compensated in damages in an
action at law in the event the Executive breaches such obligations, and the
breach of such obligations would cause irreparable harm to the
Corporation.  Therefore, the Executive
expressly agrees that the Corporation shall be entitled to injunctive and other
equitable relief without bond or other security in the event of such breach in
addition to any other rights or remedies which the Corporation may
possess.  Furthermore, the obligations of
the Executive and the rights and remedies of the Corporation under this Section 7
are cumulative and in addition to, and not in lieu of, any obligations, rights,
or remedies created by applicable law relating to misappropriation or theft of
trade secrets or confidential information.

 

7.8                               Remedy for Breach of Section 7. 
This provisions of this Section 7.8 control notwithstanding
anything to the contrary in Section 5.3. 
In the event the Executive breaches any provision of Section 7 in
any willful and material manner the Executive will no longer be entitled to,
and the Corporation will no longer be obligated to pay, any remaining unpaid
portion of any benefits contemplated by Section 5.3(b) and, in
addition to any other legal remedies the Corporation may have in such
circumstances, the Corporation shall have the right, in its sole discretion, to
take any or all of the following actions: (i) terminate the payments and
benefits otherwise due pursuant to Section 5.3(b), (ii) require the
Executive to repay to the Corporation any amount theretofore paid to the
Executive pursuant to Section 5.3(b), and/or (iii) terminate any and
all stock options theretofore granted to the Executive by the Corporation (to
the extent not theretofore exercised); provided, however, that if a cure is
reasonably possible in the circumstances, the Corporation shall provide the
Executive with written notice of the breach and shall not take any of the above
actions unless the Executive fails to cure the breach within ten (10) business
days’ after such notice, and the Executive agrees to not exercise any such
stock options after the Corporation provides the Executive with such notice and
before such cure is made.  In no case
where benefits are otherwise triggered under Section 5.3(b), however,
shall the Executive be entitled to benefits pursuant to Section 5.3(b)(i) of
less than $5,000, which amount the parties agree is good and adequate
consideration, in and of itself, for the Executive’s release contemplated by Section 5.4.

 

8.                                      Withholding
Taxes.  Notwithstanding
anything else herein to the contrary, the Corporation may withhold (or cause
there to be withheld, as the case may be) from any amounts otherwise due or
payable under or pursuant to this Agreement such federal, state 

 

18

 

and local income, employment, or
other taxes as may be required to be withheld pursuant to any applicable law or
regulation.

 

9.                                      Assignment.

 

(a)           This Agreement is personal to the
Executive and without the prior written consent of the Corporation 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 Corporation and its successors and
assigns.  Without limiting the generality
of the preceding sentence, the Corporation 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 Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Corporation would be required to perform it if no such
succession had taken place.  As used in
this Agreement, “Corporation” shall mean the Corporation as hereinbefore
defined and any successor or assignee, as applicable, which assumes and agrees
to perform this Agreement by operation of law or otherwise.

 

10.                               Number and
Gender.  Where
the context requires, the singular shall include the plural, the plural shall
include the singular, and any gender shall include all other genders.

 

11.                               Section Headings.  The section headings of, and titles of paragraphs and subparagraphs
contained in, this Agreement are for the purpose of convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation thereof.

 

12.                               Governing Law.  This Agreement, and all questions relating to its validity,
interpretation, performance and enforcement, as well as the legal relations hereby created between the parties
hereto, shall be governed by and construed under, and interpreted and enforced
in accordance with, the laws of the State of California, notwithstanding any
California or other conflict of law provision to the contrary.  (The Executive and the Corporation are
sometimes referred to in this Agreement as the “parties” hereto.)

 

13.                               Severability.  If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other provisions or applications of
this Agreement which can be given effect without the invalid provisions or
applications and to this end the provisions of this Agreement are declared to
be severable.

 

14.                               Entire
Agreement.  This
Agreement embodies the entire agreement of the parties hereto respecting the
matters within its scope.  This Agreement
supersedes all prior and contemporaneous agreements of the parties hereto that
directly or indirectly bears upon the subject matter hereof (including, without
limitation, the Prior Employment Agreement). 
Any prior negotiations, correspondence, agreements, proposals or
understandings relating to the subject matter hereof shall be deemed to have
been merged into this Agreement, and to the extent inconsistent herewith, such
negotiations, 

 

19

 

correspondence, agreements,
proposals, or understandings shall be deemed to be of no force or effect.  There are no representations, warranties, or
agreements, whether express or implied, or oral or written, with respect to the
subject matter hereof, except as expressly set forth herein.

 

15.                               Modifications.  This
Agreement may not be amended, modified or changed (in whole or in part), except
by a formal, definitive written agreement expressly referring to this
Agreement, which agreement is executed by both of the parties hereto.

 

16.                               Waiver.  Neither the failure nor any delay on the part of a party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same
or of any right, remedy, power or privilege, nor shall any waiver of any right,
remedy, power or privilege with respect to any occurrence be construed as a
waiver of such right, remedy, power or privilege with respect to any other
occurrence.  No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted
such waiver.

 

17.                               Arbitration.  Except as provided in Section 7,
any controversy arising out of or relating to this Agreement, its enforcement
or interpretation, or because of an alleged breach, default, or
misrepresentation in connection with any of its provisions, or any other
controversy arising out of the Executive’s employment, including, but not
limited to, any state or federal statutory claims, shall be submitted to
arbitration in Los Angeles County, California, before a sole arbitrator
selected from Judicial Arbitration and Mediation Services, Inc., Los
Angeles County, California, or its successor (“JAMS”), or if JAMS is no
longer able to supply the arbitrator, such arbitrator shall be selected from
the American Arbitration Association, and shall be conducted in accordance with
the provisions of California Code of Civil Procedure §§ 1280 et seq. as
the exclusive forum for the resolution of such dispute; provided, however, that
provisional injunctive relief may, but need not, be sought by either party to
this Agreement in a court of law while arbitration proceedings are pending, and
any provisional injunctive relief granted by such court shall remain effective
until the matter is finally determined by the Arbitrator.  Final resolution of any dispute through
arbitration may include any remedy or relief which the Arbitrator deems just
and equitable, including any and all remedies provided by applicable state or
federal statutes.  At the conclusion of
the arbitration, the Arbitrator shall issue a written decision that sets forth
the essential findings and conclusions upon which the Arbitrator’s award or
decision is based.  Any award or relief
granted by the Arbitrator hereunder shall be final and binding on the parties
hereto and may be enforced by any court of competent jurisdiction.  The parties agree that the Corporation shall
be responsible for payment of the forum costs of any arbitration hereunder,
including the Arbitrator’s fee.  The
Executive and the Corporation further agree that in any proceeding to enforce
the terms of this Agreement, each party shall bear its own attorneys’ fees and
costs; provided, however, the Corporation shall pay (or reimburse the Executive
for, as the case may be) the Executive’s reasonable attorneys’ fee and costs in
any proceeding to enforce the terms of this Agreement (to the extent of the
material claim set forth in (ii) below) if (i) such proceeding
commences after a Change in Control Event and (ii) the Executive is a
prevailing party on a material claim in such proceeding.  Notwithstanding 

 

20

 

this provision, the parties
hereto may mutually agree to mediate any dispute prior to or following
submission to arbitration.

 

18.          Notices.

 

(a)           All
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
and made if (i) delivered by hand, (ii) otherwise delivered against
receipt therefor, or (iii) sent by registered or certified mail, postage
prepaid, return receipt requested.  Any
notice shall be duly addressed to the parties hereto as follows:

 

if to the Corporation:

 

International Rectifier
Corporation

233 Kansas Street

El Segundo, California 90245

Attn: General Counsel

 

with a copy to:

 

Board of Directors

International Rectifier
Corporation

233 Kansas Street

El Segundo, California 90245

Attn: Lead Independent
Director

 

(ii)   if to the Executive, at the last address of
the Executive on the books of the Corporation.

 

(b)           Any
party may alter the address to which communications or copies are to be sent by
giving notice of such change of address in conformity with the provisions of
this Section 18 for the giving of notice. 
Any communication shall be effective when delivered by hand, when
otherwise delivered against receipt therefor, or five (5) business days
after being mailed in accordance with the foregoing.

 

19.                               Legal Counsel; Mutual Drafting.  Each party recognizes that this is a legally binding contract and
acknowledges and agrees that they have had the opportunity to consult with
legal counsel of their choice.  Each
party has cooperated in the drafting, negotiation and preparation of this
Agreement.  Hence, in any construction to
be made of this Agreement, the same
shall not be construed against either party on the basis of that party being
the drafter of such language.  Executive
agrees and acknowledges that he has read and understands this Agreement, is
entering into it freely and voluntarily, and has been advised to seek counsel
prior to entering into this Agreement and has had ample opportunity to do so.

 

20.          Insurance.  The
Corporation shall cover Executive under directors and officers liability
insurance both during and, while potential liability exists, after the Period
of Employment on substantially the same terms as the Corporation then covers
its active officers and 

 

21

 

directors (except in no event shall the Corporation be
required to maintain such coverage for Executive for a period of more than
three years after the last day that the Executive served as an employee of the
Corporation or a member of the Board).

 

21.           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which together shall constitute one
and the same instrument.  This Agreement shall become binding when one
or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties hereto reflected hereon as the
signatories.  Photographic copies of such
signed counterparts may be used in lieu of the originals for any purpose.

 

 [The remainder
of this page has intentionally been left blank.]

 

22

 

IN WITNESS WHEREOF, the Corporation and the
Executive have executed this Agreement as of the date first set forth above.

 

	
   

  	
  “CORPORATION”

  
	
   

  	
   

  
	
   

  	
  International
  Rectifier Corporation,

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Donald
  R. Dancer

  
	
   

  	
   

  	
  Chief
  Executive Officer (acting)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “EXECUTIVE”

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Oleg
  Khaykin

  

 

23

EXHIBIT A

 

FORM OF GENERAL RELEASE AGREEMENT

 

1.             Release by Executive.  Oleg Khaykin (“Executive”), on his own
behalf and on behalf of his descendants, dependents, heirs, executors,
administrators, assigns and successors, and each of them, hereby acknowledges
full and complete satisfaction of and releases and discharges and covenants not
to sue International Rectifier Corporation (the “Corporation”), its
divisions, subsidiaries, parents, or affiliated corporations, past and present,
and each of them, as well as its and their assignees, successors, directors,
officers, stockholders, partners, representatives, attorneys, agents or
employees, past or present, or any of them (individually and collectively, “Releasees”),
from and with respect to any and all claims, agreements, obligations, demands
and causes of action, known or unknown, suspected or unsuspected, arising out
of or in any way connected with Executive’s employment or any other
relationship with or interest in the Corporation or the termination thereof,
including without limiting the generality of the foregoing, any claim for
severance pay, profit sharing, bonus or similar benefit, pension, retirement,
life insurance, health or medical insurance or any other fringe benefit, or
disability, or any other claims, agreements, obligations, demands and causes of
action, known or unknown, suspected or unsuspected resulting from any act or
omission by or on the part of Releasees committed or omitted prior to the date
of this General Release Agreement (this “Agreement”) set forth below,
including, without limiting the generality of the foregoing, any claim under
Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act,
the Family and Medical Leave Act, the California Fair Employment and Housing
Act, California Labor Code Section 132a, the California Family Rights Act,
or any other federal, state or local law, regulation or ordinance
(collectively, the “Claims”); provided, however, that the foregoing
release does not apply to any obligation of the Corporation to Executive
pursuant to any of the following: (1) Section 5.3 of the Employment
Agreement dated as of February 6, 2008 by and between the Corporation and
Executive (the “Employment Agreement”); (2) any equity-based awards
previously granted by the Corporation to Executive, to the extent that such
awards continue after the termination of Executive’s employment with the
Corporation in accordance with the applicable terms of such awards (and subject
to any limited period in which to exercise such awards following such
termination of employment); (3) any right to indemnification that
Executive may have pursuant to the Bylaws of the Corporation, its Certificate
of Incorporation or under any written indemnification agreement with the
Corporation (or any corresponding provision of any subsidiary or affiliate of
the Corporation) or applicable state law with respect to any loss, damages or
expenses (including but not limited to attorneys’ fees to the extent otherwise
provided) that Executive may in the future incur with respect to his or her
service as an employee, officer or director of the Corporation or any of its
subsidiaries or affiliates; (4) with respect to any rights that Executive
may have to insurance coverage for such losses, damages or expenses under any
Corporation (or subsidiary or affiliate) directors and officers liability
insurance policy; (5) any rights to continued medical or dental coverage
that Executive may have under COBRA (or similar applicable state law); or (6) any
rights to payment of benefits that Executive may have under the Corporation’s
Retirement Savings Plan.  In addition,
this Release does not cover any Claim that cannot be so released as a matter of
applicable law.  Executive acknowledges
and agrees that he has received any and all leave and other benefits that he
has been and is entitled to pursuant to the Family and Medical Leave Act of
1993.

 

 

2.             Waiver of Civil Code Section 1542.  This Agreement is intended to be effective as
a general release of and bar to each and every Claim hereinabove
specified.  Accordingly, Executive hereby
expressly waives any rights and benefits conferred by Section 1542 of the
California Civil Code and any similar provision of any other applicable state
law as to the Claims.  Section 1542 of
the California Civil Code provides:

 

“A
GENERAL RELEASE DOES NOT EXTEND TO A CLAIM WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.”

 

Executive
acknowledges that he later may discover claims, demands, causes of action or
facts in addition to or different from those which Executive now knows or
believes to exist with respect to the subject matter of this Agreement and
which, if known or suspected at the time of executing this Agreement, may have
materially affected its terms. 
Nevertheless, Executive hereby waives, as to the Claims, any claims,
demands, and causes of action that might arise as a result of such different or
additional claims, demands, causes of action or facts.

 

3.             ADEA Waiver.  Executive expressly acknowledges and agrees
that by entering into this Agreement, he is waiving any and all rights or
claims that he may have arising under the Age Discrimination in Employment Act
of 1967, as amended (“ADEA”), which have arisen on or before the date of
execution of this Agreement.  Executive
further expressly acknowledges and agrees that:

 

(a)           In return for this Agreement, he will
receive consideration beyond that which he was already entitled to receive
before entering into this Agreement;

 

(b)           He is hereby advised in writing by
this Agreement to consult with an attorney before signing this Agreement;

 

(c)           He was given a copy of this Agreement
on [                        ]
and informed that he had twenty-one (21) days within which to consider this
Agreement and that if he wished to executive this Agreement prior to expiration
of such 21-day period, he should execute the Acknowledgement and Waiver
attached hereto as Exhibit A-1;

 

(d)           Nothing in this Agreement prevents or
precludes Executive from challenging or seeking a determination in good faith
of the validity of this waiver under the ADEA, nor does it impose any condition
precedent, penalties or costs from doing so, unless specifically authorized by
federal law; and

 

(e)           He was informed that he has seven (7) days
following the date of execution of this Agreement in which to revoke this
Agreement, and this Agreement will become null and void if Executive elects
revocation during that time.  Any
revocation must be in writing and must be received by the Corporation during
the seven-day revocation period.  In the
event that Executive exercises his right of revocation, neither the Corporation
nor Executive will have any obligations under this Agreement.

 

A-2

 

4.             No
Transferred Claims.  Executive
represents and warrants to the Corporation that he has not heretofore assigned
or transferred to any person not a party to this Agreement any released matter
or any part or portion thereof.

 

5.             Miscellaneous.  The following provisions shall apply for
purposes of this Agreement:

 

(a)           Number and Gender.  Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.

 

(b)           Section Headings.  The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.

 

(c)           Governing
Law.  This
Agreement shall be deemed to have been executed and delivered within the State
of California, and the rights and obligations of the parties hereunder shall be
construed and enforced in accordance with, and governed by, the laws of the
State of California without regard to principles of conflict of laws.

 

(d)           Severability.  If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other provisions or applications of
this Agreement which can be given effect without the invalid provisions or
applications and to this end the provisions of this Agreement are declared to
be severable.

 

(e)           Modifications.  This Agreement may not be amended, modified or changed (in whole or in
part), except by a formal, definitive written agreement expressly referring to
this Agreement, which agreement is executed by both of the parties hereto.

 

(f)            Waiver.  No
waiver of any breach of any term or provision of this Agreement shall be
construed to be, nor shall be, a waiver of any other breach of this
Agreement.  No waiver shall be binding
unless in writing and signed by the party waiving the breach.

 

(g)           Arbitration.  Any controversy arising out of or relating to this Agreement shall be
submitted to arbitration in accordance with the arbitration provisions of the
Employment Agreement.

 

(h)           Counterparts.  This Agreement may be executed in counterparts, and each counterpart,
when executed, shall have the efficacy of a signed original.  Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.

 

[Remainder of page intentionally left blank]

 

A-3

 

The undersigned have read and understand the consequences
of this Agreement and voluntarily sign it. 
The undersigned declare under penalty of perjury under the laws of the
State of California that the foregoing is true and correct.

 

EXECUTED
this
                
day of
                
200    , at                                             
County,                     .

 

 

	
   

  	
  “Executive”

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Oleg Khaykin

  

 

EXECUTED
this
                
day of
                
200    , at                                             
County,
                    .

 

 

	
   

  	
  INTERNATIONAL
  RECTIFIER CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   [Name]

  
	
   

  	
   

  	
   [Title]

  

 

A-4

 

EXHIBIT A-1

 

ACKNOWLEDGMENT AND WAIVER

 

I, Oleg Khaykin, hereby acknowledge that I was given 21 days to
consider the foregoing General Release Agreement and voluntarily chose to sign
the General Release Agreement prior to the expiration of the 21-day period.

 

I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.

 

EXECUTED this        day of
                        
200    , at                       
County,
                  .

 

 

	
   

  	
   

  
	
   

  	
  Oleg
  Khaykin

  

 

A-5

 

EXHIBIT B

 

TAX GROSS-UP PROVISIONS

 

1.             Possible Gross-Up Payment.

 

(a)                                  Subject to Section 1(b), in the
event it is determined (pursuant to Section 2 below) or finally determined
(as defined in Section 3(c) below) that any payment, distribution,
transfer, benefit or other event with respect to the Corporation or a
successor, direct or indirect subsidiary or affiliate of the Corporation (or
any successor or affiliate of any of them, and including any benefit plan of
any of them), and arising in connection with an event described in Section 280G(b)(2)(A)(i) of
the Code, occurring after the Commencement Date, to or for the benefit the
Executive or the Executive’s dependents, heirs or beneficiaries (whether such
payment, distribution, transfer, benefit or other event occurs pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 1(a)) (each a “Payment”
and collectively the “Payments”) is or was subject to the excise tax
imposed by Section 4999 of the Code, and any successor provision or any
comparable provision of state or local income tax law (collectively, “Section 4999”),
or any interest, penalty or addition to tax is or was incurred by Executive
with respect to such excise tax (such excise tax, together with any such
interest, penalty, addition to tax, and costs (including professional fees)
hereinafter collectively referred to as the “Excise Tax”), then, within
10 days after such determination or final determination, as the case may be,
the Corporation shall pay to the Executive (or to the applicable Taxing
Authority (as defined in Section 3(a), on Executive’s behalf, at the
Corporation’s discretion) an additional cash payment (hereinafter referred to
as the “Gross-Up Payment”) equal to an amount such that after payment by
the Executive of all taxes, interest, penalties, additions to tax and costs
imposed or incurred with respect to the Gross-Up Payment (including, without
limitation, any income and excise taxes imposed upon the Gross-Up Payment), the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon such Payment or Payments. 
The Gross-Up Payment, if triggered pursuant to this Section 1(a),
is intended to put the Executive in the same position as the Executive would
have been had no Excise Tax been imposed upon or incurred as a result of any
Payment.

 

(b)                                 Notwithstanding anything contained in Section 1(a) or
any other provision of this Agreement to the contrary, if a reduction in the
amount of the Payments by an amount up to but not in excess of fifteen percent
(15%) of the amount of the Payments otherwise required (as determined before
giving effect to any Gross-Up Payment pursuant to Section 1(a) and
before any reduction pursuant to this Section 1(b)) would avoid the
imputation of any Excise Tax on the remaining Payments (after such reduction),
then the Payments shall be reduced (but not below zero) so that the maximum
amount of the Payments (after reduction) shall be one dollar ($1.00) less than
the amount which would cause the Payments to be subject to the Excise Tax.  Unless the Executive shall have given prior
written 

 

B-1

 

notice to the Corporation
to effectuate a reduction in the Payments if such a reduction is required, the
Corporation shall reduce or eliminate the Payments by first reducing or
eliminating any cash severance benefits, then by reducing or eliminating any
other cash benefits, then by reducing or eliminating any accelerated vesting of
stock options, then by reducing or eliminating any accelerated vesting of other
equity-based awards, then by reducing or eliminating any other remaining
Payments.

 

(c)                                  The preceding provisions of this Section 1
shall take precedence over the provisions of any other plan, arrangement or
agreement governing the Executive’s rights and entitlements to any benefits or
compensation.

 

2.             Determination of Gross-Up.

 

(a)                                  Except as provided in Section 3, the
determination that a Payment is (or, if no reduction were made pursuant to Section 1(b),
would be) subject to an Excise Tax, and whether a Gross-Up Payment or reduction
pursuant to Section 1(b) is required in the circumstances, shall be
made in writing by a nationally recognized accounting firm or executive
compensation consulting firm selected by the Corporation (the “Accounting
Firm”).  If no reduction is required
pursuant to Section 1(b), such determination shall include the amount of
the Gross-Up Payment.  The Accounting
Firm’s determination shall include detailed computations thereof, including any
assumptions used in such computations. 
Any determination by the Accounting Firm will be binding on the
Corporation and the Executive.

 

(b)                                 For purposes of determining the amount of
any Gross-Up Payment, the Executive shall be deemed to pay Federal income taxes
at the highest marginal rate of Federal individual income taxation in the
calendar year in which the Gross-Up Payment is to be made.  Such highest marginal rate shall take into
account the loss of itemized deductions by the Executive and shall also include
the Executive’s share of the hospital insurance portion of FICA and state and
local income taxes at the highest marginal rate of individual income taxation
in the state and locality of the Executive’s residence on the date that the
Payment is made, net of the maximum reduction in Federal income taxes that
could be obtained from the deduction of such state and local taxes.

 

3.             Notification.

 

(a)                                  The Executive shall notify the
Corporation in writing of any claim by the Internal Revenue Service (or any
successor thereof) or any state or local taxing authority (individually or
collectively, the “Taxing Authority”) that, if successful, would require
the payment by the Corporation of a Gross-Up Payment.  Such notification shall be given as soon as
practicable but no later than 30 days after the Executive receives written
notice of such claim and shall apprise the Corporation of the nature of such
claim and the date on which such claim is requested to be paid; provided,
however, that failure by the Executive to give such 

 

B-2

 

notice within such 30-day period shall not result in a
waiver or forfeiture of any of the Executive’s rights under this Exhibit B
except to the extent of actual damages suffered by the Corporation as a result of such failure.  The Executive shall not pay such claim prior
to the expiration of the 15-day period following the date on which the
Executive gives such notice to the Corporation (or such shorter period ending
on the date that any payment of taxes, interest, penalties or additions to tax
with respect to such claim is due).  If
the Corporation notifies the Executive in writing prior to the expiration of
such 15-day period (regardless of whether such claim was earlier paid as
contemplated by the preceding parenthetical) that it desires to contest such
claim, the Executive shall:

 

(1)                                  give the Corporation any information
reasonably requested by the Corporation relating to such claim;

 

(2)                                  take such action in connection with
contesting such claim as the Corporation shall reasonably request in writing
from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney selected by the
Corporation;

 

(3)                                  permit the Corporation to participate in
any Proceedings (as defined below) relating to such claim; and

 

(4)                                  cooperate with the Corporation in good
faith in connection with any Proceedings and to contest such claim;

 

provided,
however, that the Corporation shall bear and pay directly all attorneys fees, costs
and expenses (including additional interest, penalties and additions to tax)
incurred in connection with such contest and Proceedings and shall indemnify
and hold the Executive harmless, on an after-tax basis, for all taxes
(including, without limitation, income and excise taxes), interest, penalties
and additions to tax imposed in relation to such claim and in relation to the
payment of such costs and expenses or indemnification.

 

As
used in this Exhibit, “Proceeding” or “Proceedings” means, with respect to any
claim by a Taxing Authority, the contest of such claim through:  (i) any applicable administrative remedy
or remedies that may be pursued with the Taxing Authority, or the
administrative agency or tribunal having jurisdiction over the Taxing Authority
or claim, including, but not limited to, protests, petitions, administrative
appeals, claims for refund, conferences (including settlement conferences),
hearings and any combination of the foregoing; and (ii) any other remedy
or remedies, including suits for refund, appeals of administrative
determinations, appeals of trial court decisions and further appeals, including
to the court of last resort, settlement of any such suits or appeals, and any
other remedy that the Corporation chooses to pursue.

 

(b)                                 Without limitation on the foregoing
provisions of this Section 3, and to the extent its actions do not
unreasonably interfere with or prejudice the Executive’s 

 

B-3

 

disputes with the Taxing Authority as to other issues,
the Corporation shall control all Proceedings related to such claim.  Any settlement of any claim shall be
reasonably acceptable to the Executive, and the Corporation’s control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue.

 

If
the Corporation directs the Executive to pay an amount claimed in connection
with any Proceeding, the Corporation shall make a tentative payment to the
Executive (or to the applicable Taxing Authority on the Executive’s behalf, in
the Corporation’s discretion) of the amount then directed to be paid by the
Corporation, and the Corporation shall indemnify and hold the Executive
harmless, on an after-tax basis, from all taxes (including, without limitation,
income and excise taxes), interest, penalties and additions to tax imposed with
respect to such tentative payment or with respect to any imputed income with
respect to such tentative payment, as any such amounts are incurred.

 

Any
extension of the statute of limitations relating to payment of taxes, interest,
penalties or additions to tax for the Executive’s taxable year with respect to
which such claim relates shall be limited solely to the claimed amount.

 

(c)                                  If, after receipt by the Executive of a
payment by the Corporation pursuant to this Section 3, the Executive
receives any refund with respect to such claim, the Executive shall (subject to
the Corporation’s
compliance with the requirements of this Exhibit B) promptly pay to the Corporation an amount equal to such refund (together
with any interest paid or credited thereof after taxes applicable thereto), net
of any taxes (including, without limitation, any income or excise taxes),
interest, penalties or additions to tax and any other costs incurred by the
Executive in connection with such payment, after giving effect to such
repayment.  If, after the receipt by the
Executive of any payment by the Corporation pursuant to this Section 3, it is
finally determined that the Executive is not entitled to any refund with
respect to such claim, then the Executive shall not be required to repay any
portion of such payment and such payment shall be treated as a Gross-Up Payment
and shall offset, to the extent thereof, the amount of any Gross-Up Payment
otherwise required to be paid.

 

(d)                                 For purposes of this Exhibit B,
whether the Excise Tax is applicable to a Payment shall be deemed to be “finally
determined” upon the earliest of: (1) the expiration of the 15-day period
referred to in Section 3(a) if the Corporation or the Executive’s
Employer has not notified the Executive that it intends to contest the
underlying claim, (2) the expiration of any period following which no
right of appeal exists, (3) the date upon which a closing agreement or
similar agreement with respect to the claim is executed by the Executive and
the Taxing Authority (which agreement may be executed only in compliance with
this section), or (4) the receipt by the Executive of notice from the
Corporation that it no longer seeks to pursue a contest (which shall be deemed
received if the Corporation does not, within 15 days following receipt of a
written inquiry from the Executive, 

 

B-4

 

affirmatively indicate in writing to the Executive
that the Corporation intends to continue to pursue such contest).

 

4.                                      Underpayment and
Overpayment.  It is possible that no Gross-Up Payment will
initially be made but that a Gross-Up Payment should have been made, or that a
Gross-Up Payment will initially be made in an amount that is less than what
should have been made (either of such events is referred to as an “Underpayment”).  It is also possible that a Gross-Up Payment
will initially be made in an amount that is greater than what should have been
made, or that a reduction in Payments pursuant to Section 1(b) should
have been made (or made in a greater amount, as applicable) that was not
initially made (an “Overpayment”). 
The determination of any Underpayment or Overpayment shall be made by
the Accounting Firm in accordance with Section 2.  In the event of an Underpayment, the amount
of any such Underpayment shall be paid to the Executive as an additional
Gross-Up Payment.  In the event of an
Overpayment, the Executive shall promptly pay to the Corporation the amount of
such Overpayment together with interest on such amount at the applicable
Federal rate provided for in Section 1274(d) of the Code for the
period commencing on the date of the Overpayment to the date of such payment by
the Executive to the Corporation.  The
Executive shall make such payment to the Corporation as soon as
administratively practicable after the Corporation notifies the Executive of (a) the
Accounting Firm’s determination that an Overpayment was made and (b) the
amount to be repaid.

 

5.                                      Compliance with Law; Section 409A.  Nothing in this Exhibit B is
intended to violate the Sarbanes-Oxley Act of 2002, and to the extent that any
advance or repayment obligation hereunder would constitute such a violation,
such obligation shall be modified so as to make the advance a nonrefundable
payment to the Executive and the repayment obligation null and void to the
extent required by such Act.  Any payment
due to the Executive pursuant to this Exhibit will be paid no later than
the last day of the end of the Executive’s taxable year following the taxable
year in which the Executive pays or remits the related taxes.

 

B-5

 

EXHIBIT C

 

CALIFORNIA LABOR CODE SECTION 2870

 

EMPLOYMENT AGREEMENTS; ASSIGNMENT
OF RIGHTS

 

“Any
provision in an employment agreement which provides that an employee shall
assign, or offer to assign, any of his or her rights in an invention to his or
her employer shall not apply to an invention that the employee developed
entirely on his or her own time without using the employer’s equipment,
supplies, facilities, or trade secret information except for those inventions
that either:

 

(a)           Relate at the time of conception or
reduction to practice of the invention to the employer’s business, or actual or
demonstrably anticipated research or development of the employer.

 

(b)           Result from any work performed by the
employee for the employer.

 

1.             To the extent a provision in an
employment agreement purports to require an employee to assign an invention
otherwise excluded from being required to be assigned under subdivision (a),
the provision is against the public policy of this state and is unenforceable.”

 

	
  Received and Acknowledged:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
  , 2008

  
	
   

  	
   

  
	
  Employee Signature:

  	
   

  	
   

  
	
   

  	
  Oleg Khaykin

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