EXECUTION COPY
EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
“ Agreement ”) is entered into as of
April 6, 2005 (the “ Effective Date ”)
between Mark S. Thompson (the “ Executive ”), on
the one hand, and Fairchild Semiconductor International, Inc.
(“ FSII ”), a Delaware corporation, and
Fairchild Semiconductor Corporation (the “ Company
”), a Delaware corporation and wholly owned subsidiary of
FSII, on the other hand. Except as otherwise provided herein, this
Agreement replaces and supersedes in its entirety the employment
agreement entered into by and between the Executive and the Company
as of December 1, 2004.
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For ease of reference, this Agreement is
divided into the following parts:
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PART 1—
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DUTIES AND SCOPE, COMPENSATION AND BENEFITS
DURING EMPLOYMENT
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Other
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PART 2— COMPENSATION AND BENEFITS IN
CASE OF ACTUAL OR CONSTRUCTIVE TERMINATION (Sections 5-6)
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Termination
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PART 3— COMPENSATION AND BENEFITS IN
CASE OF A CHANGE IN CONTROL (Section 7)
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PART 4— CONFIDENTIALITY AND
NON-DISCLOSURE, FORFEITURE, INTELLECTUAL PROPERTY, NON-COMPETITION
AND NON-SOLICITATION, REMEDIES, SUCCESSORS, MISCELLANEOUS
PROVISIONS, SIGNATURE PAGE (Sections 8-14)
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Confidentiality and Non-Disclosure
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Forfeiture in Case of Certain Events
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Non-Competition and Non-Solicitation
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1
Terms
For good and valuable consideration,
the adequacy and receipt of which are hereby acknowledged, FSII,
the Company and the Executive, intending to be legally bound, agree
as follows:
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DUTIES AND SCOPE, COMPENSATION AND BENEFITS
DURING
EMPLOYMENT
Term of Agreement; Termination of Employment
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(a)
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Unless sooner terminated as provided in this
Agreement, the term of this Agreement will begin on the Effective
Date and will end on the third anniversary of the Effective Date
(the “ Initial Term ”). Upon the first and each
subsequent anniversary of the Effective Date, the term of this
Agreement will be automatically extended so as to end three years
after the date of such anniversary (each such three-year period, a
“ Renewal Term ”) unless, prior to such
anniversary, either the Company or the Executive gives the other
written notice of non-renewal. The Initial Term and any Renewal
Terms are collectively referred to as the “ Term
”.
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(b)
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Subject to the other terms of this Agreement,
including those in Part 2, either the Company or the Executive
may terminate the Executive’s employment with the Company at
any time and for any reason or no reason upon written notice to the
other party, with effect as of the subsequent date specified in
such notice.
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Section 2. Duties and Scope of Employment
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(a)
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Position . As of the date of the 2005
annual stockholders’ meeting (the “
Stockholders’ Meeting Date ”) of FSII, each of
FSII and the Company will employ the Executive in the position of
President and Chief Executive Officer, reporting to the board of
directors of FSII and the Company, respectively. As of the
Stockholders’ Meeting Date, the Executive will be appointed
as a member of the board of directors of FSII (the “
Board ”) and the board of directors of the Company,
which will be comprised of the same members as the Board. Until the
Stockholders’ Meeting Date, the Executive shall continue to
be employed in the positions and have the responsibilities he held
immediately prior to the Effective Date.
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(b)
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Obligations . The Executive shall have
such duties, responsibilities and authority as customarily held or
exercised by a President and CEO of a public corporation, including
but not limited to general supervision over all of the business,
operations and other affairs of FSII and the Company and sole
supervisory authority over all of the executive officers of FSII
the Company, subject to the oversight of the Board. During the
Term, the Executive shall devote the Executive’s full
business efforts and time to the business and affairs of the
Company as needed to carry out his duties and responsibilities
hereunder. The foregoing shall not preclude the Executive from
engaging in appropriate civic, charitable, religious or other
non-profit activities or from devoting a reasonable amount of time
to private investments or from serving on the boards of directors
of other entities, provided that those activities do not interfere
or conflict with the Executive’s duties or responsibilities
to the Company.
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Section 3. Base Compensation
While employed hereunder, the Company shall pay the Executive,
as compensation for services, a base salary of at least $630,000
per year. Salary increases will be considered after the first
anniversary of the Effective Date, or sooner in the discretion of
the Board or its compensation committee, so as to be competitive
with compensation paid to similarly situated CEOs and on a basis
consistent with Company policies.
Section 4. Other Compensation
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(a)
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EFIP. While employed hereunder, the
Executive will be enrolled in the Enhanced Fairchild Incentive Plan
(EFIP), at a participation level of at least 150%. By way of
example only, if an EFIP bonus is paid at the 100% target level,
the Executive would receive a bonus equal to 150% of his qualified
earnings under EFIP during the measurement period. Notwithstanding
the foregoing, the Executive shall remain entitled to any bonus
commitment contained in his employment agreement dated
December 1, 2004.
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(b) Equity Awards.
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(A)
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Promotion Grants . The Executive shall
receive a grant of 45,000 FSII deferred stock units (“
DSUs ”), a grant of 46,000 FSII performance shares
(“ Performance Shares ”) and a grant of options
to purchase 275,000 shares of FSII common stock (“
Options ”), subject to the following terms
(collectively, the “ Promotion Grants ”). The
Promotion Grants will be made under the Fairchild Semiconductor
Stock Plan as such plan may be amended from time to time (the
“ Plan ”) and standard executive forms of
agreements (the “ Equity Award Agreements ”) as
in effect on the date of the Promotion Grants, the terms of which
shall be consistent with the terms hereof. The Promotion Grants are
subject to FSII stockholder approval of certain amendments to the
Plan at FSII’s 2005 annual stockholders’ meeting. If
such approval is not obtained the Company and the Executive shall
renegotiate the terms of this Agreement in good faith so as to
provide a similar measure of total compensation as contemplated
herein. The grant date or dates for the Promotion Grants will be
the same date or dates as the date or dates of annual stock option
(in the case of the DSUs and Options) and performance share (in the
case of the Performance Shares) grants to other executive officers
and key employees under the Plan, and in any case will not be later
than July 15, 2005. The DSUs will vest in one-third increments
on each of the first three anniversaries of the grant date, if in
each case the Executive remains employed by the Company under this
Agreement on such anniversary, and vested DSUs must be settled by
delivery of stock promptly following the earliest to occur of
(i) the Executive’s death, (ii) the
Executive’s disability (as defined in Section 409A of
the Internal Revenue Code of 1986, as amended (the “
Code ”)), (iii) termination of the Executive’s
employment, subject to Section 8(d), or (iv) a date
chosen by the Executive at the time of grant, which chosen date
must be at least three years after the grant date. The Options will
vest in one-quarter increments on each of the first four
anniversaries of the grant date, if in each case the Executive
remains employed by the Company under this Agreement on such
anniversary. The actual number of shares of stock issued under the
Performance Shares will be determined in accordance with the Plan
and terms generally applicable to 2005 performance share grants to
executive officers of the Company, and the Performance Shares will
vest over the period from their grant to February 2008,
subject to the Plan and other terms of this Agreement. The
Executive will be solely responsible for any taxes associated with
the receipt, vesting, exercise or delivery of shares or cash under
the Promotion Grants, and the Company will make appropriate
withholdings from any distributions of shares or cash
thereunder.
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(C)
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No Eligibility for Other Grants in 2005
. A portion of the Promotion Grants are made in lieu of any that
would otherwise be made to the Executive as part of the
Company’s annual grant program for 2005, and, accordingly,
the Executive shall not receive any grants of DSUs or options under
such program in 2005, other than the Promotion Grants. The
Executive will be eligible to receive additional awards that the
Company may undertake under any other program, with respect to the
Executive or otherwise, in 2005.
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(D)
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Additional Grants After 2005 . So long
as he is employed by the Company after 2005, the Executive shall
receive grants of stock options, performance shares and other
equity-based awards, subject to the applicable Company plans
governing such awards, and covering a number of shares as
recommended by compensation consultants and determined by the
compensation committee of the Board. Since a portion of the
Promotion Grants are made in connection with the Executive’s
promotion to President and CEO, future annual awards may be smaller
than the Promotion Grants.
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(c)
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Tax and Financial Planning Assistance.
The Executive will be entitled to receive up to $15,000 per year in
supplemental life insurance premiums, non-reimbursed medical
expenses and personal tax services at the Company’s expense
and on a tax-assisted (or “fully grossed-up”)
basis.
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(d)
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Other Benefits. The Executive will be
entitled to participate in Company-paid executive long-term
disability insurance, Company-paid executive long-term care
insurance, and Company-paid basic life insurance programs, and to
participate in the Company’s health insurance, dental
insurance, vision care, short-term disability and personal savings
(including 401(k) and 401(k) benefit restoration) plans, as well as
other benefit plans and fringe benefits and perquisites available
to senior executives of the Company. Additionally, while employed
hereunder, the Executive shall be reimbursed (or the Company shall
directly pay) for the leasing, maintenance, insurance and
operational costs for an automobile of his choosing and approved by
the Company, up to $2,000 per month, net of taxes. To the extent
any of the payments, perquisites or benefits under this Section
4(d) are taxable to the Executive, they will be provided on a
tax-assisted (or “fully grossed-up”) basis.
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(e)
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Paid Vacation . While employed
hereunder, the Executive shall be entitled to a minimum of five
weeks paid vacation per calendar year, such vacation to extend for
such periods and to be taken at such intervals as shall be
appropriate and consistent with the proper performance of the
Executive’s duties hereunder.
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(f)
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Business Expenses and Travel . While
employed hereunder, the Executive shall be authorized to incur and
shall be reimbursed for all necessary and reasonable travel,
entertainment and other business expenses in connection with the
Executive’s duties hereunder.
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(g)
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Retirement . If the Executive retires
upon or following the third anniversary of the Effective Date and
does not engage, and has no intention of engaging, in full-time
employment with a for-profit business enterprise (“
Retires ” or takes “ Retirement ”),
or if, upon or following such anniversary, the Company terminates
the Executive’s employment for any reason other than Cause
(including as a result of his death or Disability) or the Executive
terminates his employment for Good Reason, then the
Executive’s stock option and other equity awards shall fully
vest or be otherwise affected as if Section 7(a)(2) were
effective with respect thereto. For purposes of this Agreement and
the retirement-related vesting provisions of equity compensation
under any equity compensation plans or agreements of the Company,
or with respect to any other benefit relating to retirement, the
Executive shall be deemed to have qualified for retirement under
any applicable definition thereof, if he is an employee in good
standing on or after three years from the Effective Date,
regardless of age.
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(h)
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Legal Fee Reimbursement . The Company
agrees to directly pay Executive’s reasonable advisory and
legal fees associated with entering into this Agreement, up to
$5,000, upon receiving invoices for such services. In the event of
one or more disputes regarding this Agreement or any other
agreement relating to Executive’s employment with the Company
or its successor that arises on or after the occurrence of a Change
in Control (as defined in Section 7 hereof), the Company or
its successor agrees to pay all of Executive’s legal fees and
expenses associated with such disputes.
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(i)
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Indemnification . Executive shall
receive indemnification as a corporate officer and director of the
Company to the maximum extent extended to the other officers and
directors of the Company. Following the termination of
Executive’s employment or directorship for any reason, the
Company agrees to honor the indemnification agreement previously
entered into with Executive.
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COMPENSATION AND BENEFITS IN CASE OF
TERMINATION
WITHOUT CAUSE OR FOR GOOD REASON OUTSIDE OF A CHANGE OF
CONTROL
Terminations and Related Definitions
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Part 2 of the Agreement, consisting of Sections 5 and
6, describes the benefits and compensation, if any, payable in case
of certain terminations of employment prior to six months before a
Change in Control and more than twelve months after a Change in
Control.
In this Agreement,
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(a)
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“ Cause ” means (1) a
willful failure by the Executive to substantially perform the
Executive’s duties under this Agreement, other than a failure
resulting from the Executive’s complete or partial incapacity
due to physical or mental illness or impairment, (2) a willful
act by the Executive that constitutes gross misconduct and that is
materially injurious to the Company, (3) a willful breach by
the Executive of a material provision of this Agreement (including
Sections 8 or 10) or (4) a material and willful violation
of a federal, state or foreign law or regulation applicable to the
business of the Company that is materially and demonstrably
injurious to the Company, provided that no act, or failure
to act, by the Executive shall be considered “willful”
unless committed without good faith and without a reasonable belief
that the act or omission was in the Company’s best interest;
and provided, further , that, if the failure, act, breach or
other basis for finding Cause under this Agreement is capable of
being cured without material injury to the Company, then no finding
of Cause shall be made unless the Executive has failed to cure such
failure, act, breach or other basis within 30 days after
receiving written notice thereof from the Company, and
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(b)
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“Disability” means that the
Executive, at the time the notice is given, has been unable to
perform the Executive’s duties under this Agreement for a
period of not less than six consecutive months as a result of the
Executive’s incapacity due to physical or mental illness,
and
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(c)
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“ Good Reason ” means any
of the following or as otherwise provided in this Agreement:
(1) a reduction in the Executive’s base salary other
than as part of a broader executive pay reduction, (2) a
reduction in the Executive’s incentive compensation
(EFIP) participation level other than as part of a broader
executive reduction, (3) a material change in the employment
benefits available to the Executive, if such change does not
similarly affect all employees of the Company eligible for such
benefits, (4) a material reduction in Executive’s
duties, responsibilities or authority as then in effect, (5) a
requirement to relocate, except for office relocations that would
not increase the Executive’s one-way commuting distance by
more than 35 miles, or (6) failure to recommend the Executive
for re-election to the Board to the FSII’s stockholders when
his Board term expires or to re-election to the board of directors
of the Company.
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Section 6. Termination By Company Without Cause or By
Executive for Good Reason
(a) Severance . If the
Company terminates the Executive’s employment for any reason
other than Cause (including as a result of the Executive’s
death or Disability), or if the Executive terminates his employment
for Good Reason, then, provided the Executive (or his legal
representative, if applicable) executes the release of claims
described in Section 6(b), and subject to Section 6(c), then
the Company will promptly pay the Executive, in a lump sum, an
amount equal to two times the sum of (i) the Executive’s
base salary in effect on such termination date and (ii) the
amount of the bonus the Executive would receive under the
Company’s Enhanced Fairchild Incentive Program (EFIP),
assuming a 100% payout based on the Executive’s base salary
and EFIP incentive level in effect immediately prior to such
termination (whether or not such a bonus has been or is expected to
be paid to other executives or employees of the Company for the
fiscal period in which such termination occurs). If EFIP bonuses
are later paid to EFIP participants at a level higher than 100% in
respect of the last fiscal period during which the Executive had
been employed by the Company, then the Company shall pay the
Executive two times the difference between the amount that would
have been paid to the Executive had the Executive remained employed
by the Company, and been entitled to receive such bonus, and the
amount determined under clause (ii) above. If at the time of
such a termination the EFIP program has been discontinued or
replaced, then the amount payable under clause (ii) above
shall be the target or actual amount that the Executive is entitled
to receive under any incentive bonus program in which he is then
participating. The Executive will be responsible for all taxes
relating to such payments and the Company will make all required
withholdings of all such taxes. In addition, any of the 50,000
deferred stock units awarded to the Executive in connection with
his hiring by the Company in 2004 that are outstanding as of the
date of such termination, and which are not then vested, shall
become fully vested and shall be considered to be earned and
payable in full, and any deferral or other restrictions on such
DSUs shall lapse and such DSUs shall be settled as promptly as is
practicable following such termination. The Executive will be
responsible for all taxes relating to such payments and vesting and
the Company will make all required withholdings of all such taxes.
In addition, the Company will provide continued medical benefits
for the Executive and his eligible dependents, under COBRA
coverage, at the Company’s expense for two years following
the effective date of such termination. At the time of such
termination, the Company shall pay the Executive in cash for all
accrued and unused vacation time.
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(b)
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Release of Claims . As a condition to
the receipt of the payments and benefits described in
Section 6(a), the Executive (or his legal representative, if
applicable) shall be required to execute a release of all claims
arising out of the Executive’s employment or the termination
thereof, including any claim of discrimination under U.S. state or
federal law or any non-U.S. law, but excluding claims for
indemnification from the Company under any indemnification
agreement with th
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