Exhibit 10.3
EMPLOYMENT
AGREEMENT
This Employment Agreement
(“Agreement”) is made and entered into effective as of
December 5, 2005 (“Effective Date”), by and
between John F. Dullea (“Employee”), and Real Health
Laboratories, Inc., a California corporation
(“Company”) and wholly-owned subsidiary of Natural
Alternatives International, Inc., a Delaware corporation
(“NAI”). The Company and Employee may be referred to
herein collectively as the “Parties.”
RECITALS
WHEREAS, on the Effective Date, NAI
acquired all of the outstanding stock of the Company and the
Company became a wholly-owned subsidiary of NAI pursuant to the
terms of a Stock Purchase Agreement by and among NAI, and William
H. Bunten II and/or Elizabeth W. Bunten, as the trustees of The
Bunten Family Trust dated April 14, 2001, John F. Dullea and
Carolyn A. Dullea, as the trustees of The John F. and Carolyn A.
Dullea Trust dated June 20, 2001, Lincoln Fish, and Michael L.
Irwin, as trustee of The Michael L. Irwin Trust u/t/a June 25,
1991 (collectively, the stockholders of RHL prior to the Effective
Date), dated as of the Effective Date (“Stock Purchase
Agreement”);
WHEREAS, prior to the Effective
Date, Employee served as a Director and as the Chief Executive
Officer and President of the Company;
WHEREAS, pursuant to the terms of
the Stock Purchase Agreement, Employee resigned his positions as
Director and Chief Executive Officer (but not as President) of the
Company effective as of the Effective Date; and
WHEREAS, the Company and Employee
each desire to enter into this Agreement to set forth the terms and
conditions of Employee’s employment with the Company from and
after the Effective Date.
NOW, THEREFORE, in consideration of
the mutual promises and covenants set forth herein and intending to
be legally bound thereby, the Parties agree as follows:
AGREEMENT
1. Employment .
Employee hereby accepts the offer of the Company for employment as
President of the Company beginning on the Effective Date.
Employee’s employment will be at-will and may be terminated
by either Employee or the Company at any time for any reason or no
reason, with or without Cause (as hereinafter defined), upon
written notice to the other, or without any notice upon the death
of Employee. The at-will status of the employment relationship may
not be modified except by an agreement in writing signed by the
Chief Executive Officer of the Company and Employee, the terms of
which were approved in advance in writing by the Company’s
Board of Directors (which shall include any committee or
subcommittee thereof authorized to determine matters of executive
employment and compensation).
2. Employee Handbook .
Employee and the Company understand and agree that nothing in the
Company’s Employee Handbook is intended to be, and nothing in
it should be construed to be, a limitation of the Company’s
right to terminate, transfer, demote, suspend and
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administer discipline at any time for any
reason. Employee and the Company understand and agree nothing in
the Company’s Employee Handbook is intended to, and nothing
in such Employee Handbook should be construed to, create an implied
or express contract of employment contrary to this Agreement nor to
relieve either party of any of its obligations under this
Agreement.
3. Position and
Responsibilities .
a. During Employee’s
employment with the Company hereunder, Employee shall report to the
Company’s Chief Executive Officer and Board of Directors and
shall have such responsibilities, duties and authority as the
Company, through its Board of Directors, may from time to time
assign to Employee. Employee shall perform any other duties
reasonably required by the Company and, upon mutual agreement of
the Parties, shall serve as a director and/or as an additional
officer of the Company or any parent, subsidiary or affiliate of
the Company without additional compensation.
b. Employee, in Employee’s
capacity as President of the Company, shall diligently and to the
best of Employee’s ability perform all duties that such
position entails. Employee shall devote such time, energy, skill
and effort to the performance of Employee’s duties hereunder
as may be fairly and reasonably necessary to faithfully and
diligently further the business and interests of the Company and
any parent, subsidiary or affiliate of the Company. Employee agrees
not to engage in any other business activity that would materially
interfere with the performance of Employee’s duties under
this Agreement. Employee represents to the Company that Employee
has no other outstanding commitments inconsistent with any of the
terms of this Agreement or the services to be rendered under
it.
c. Employee shall render
Employee’s service at the Company’s offices in the
County of San Diego, California, or such other location as is
mutually agreed upon by the Company and Employee. It is understood,
however, and agreed that Employee’s duties may from time to
time require travel to other locations, including other offices of
the Company and/or any parent, subsidiary or affiliate of the
Company both within and outside the United States.
d. Employee will abide by all
policies and decisions made by the Company, as well as all
applicable federal, state and local laws, rules, regulations and
ordinances, to the best of Employee’s knowledge and
abilities.
4. Compensation
.
a. Salary . During the term
of Employee’s employment hereunder, the Company agrees to pay
Employee a base salary of $275,000 per year, payable in arrears no
less frequently than monthly in accordance with the Company’s
general payroll practices. In the first year of employment, the
base salary will be prorated from the Effective Date. The amount of
Employee’s base salary as set forth in this Section 4(a)
may be adjusted from time to time by an agreement in writing signed
by the Chief Executive Officer of the Company and Employee, the
terms of which were approved in advance by action of the
Company’s Board of Directors (or authorized committee or
subcommittee thereof). All references in this Agreement to
Employee’s base salary shall mean the base salary as adjusted
from time to time.
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b. Additional Benefits .
During Employee’s employment with the Company, in addition to
the other compensation and benefits set forth herein, Employee
shall be entitled to receive an amount equal to $530 per month as
payment or reimbursement for golf club membership dues and to
receive and/or participate in such other benefits of employment
generally available to the Company’s other corporate officers
and the corporate officers of NAI when and as Employee becomes
eligible for them, including, without limitation, participation in
NAI’s Executive Incentive Compensation Program as may be in
effect from time to time. The Company reserves the right to modify,
suspend or discontinue any and all benefit plans, policies and
practices at any time without notice to or recourse by the
Employee.
c. No Other Compensation .
Employee acknowledges and agrees that, except as expressly provided
herein, and as set forth in the Company’s Employee Handbook
or any other written compensation arrangement approved by the
Company’s Board of Directors, Employee is not entitled to any
other compensation or benefits from the Company or NAI.
d. Withholdings . All
compensation under this Agreement shall be paid less withholdings
required by federal and state law and less deductions agreed to by
the Company and Employee.
5. Termination
.
a. Due to Death .
Employee’s employment with the Company shall terminate
automatically in the event of Employee’s death. The Company
shall have no obligation to Employee or Employee’s estate for
base salary or any other form of compensation or benefit other than
amounts accrued through the date of Employee’s death, except
as otherwise required by law or pursuant to a specific written
policy, agreement or benefit plan of the Company. Notwithstanding
the foregoing, in the event of Employee’s termination due to
death, upon execution and delivery on behalf of Employee’s
estate of a Release (as defined under Section 5(b), the
Company shall cause each then-outstanding stock option granted by
the Company and/or NAI to the Employee as of the date of
termination to become fully exercisable.
b. Without Cause, Severance
Benefit . In the event Employee is terminated by the Company
without Cause and not as a result of death, upon Employee’s
delivery to the Company of an executed general release in a form
substantially similar to that set forth in Attachment #3 attached
hereto (“Release”), Employee shall be entitled to
receive a severance benefit, including standard employee benefits
available to the Company’s other corporate officers and to
the corporate officers of NAI, in an amount equal to two
(2) years’ base salary, if any such termination occurs
on or before December 5, 2007, or an amount equal to eighteen
(18) months’ base salary if any such termination occurs
after December 5, 2007. If Employee does not execute and
deliver the Release, Employee shall only be entitled to receive a
severance benefit in an amount equal to one (1) month’s
base salary. One half of any severance benefit owing hereunder
shall be paid within ten (10) business days of termination and
the balance shall be paid on a bi-weekly basis over the applicable
severance period of one (1) month, two (2) years or
eighteen (18) months. In addition to the above described
severance benefit, Employee shall be entitled to receive a
reasonable amount for executive outplacement services during the
applicable severance period, as determined by the Company’s
Board of Directors based on the then-current market price for such
services.
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c. With Cause, No Severance
Benefit . The Company may terminate Employee for Cause. For
purposes of this Agreement, Cause shall mean the occurrence of one
or more of the following events: (i) the Employee’s
commission of any fraud against the Company or any parent,
subsidiary or affiliate of the Company; (ii) Employee’s
intentional appropriation for Employee’s personal use or
benefit of the funds of the Company not authorized in writing by
the Board of Directors; (iii) Employee’s conviction of
any crime involving moral turpitude; (iv) Employee’s
conviction of a violation of any state or federal law that could
result in a material adverse impact upon the business of the
Company or any parent, subsidiary or affiliate of the Company;
(v) Employee engaging in any other professional employment or
consulting or directly or indirectly participating in or assisting
any business that is a current or potential supplier, customer or
competitor of the Company without prior written approval from the
Company’s Board of Directors; (vi) Employee’s
failure to comply with the Company’s written policy on
acceptance of gifts or gratuities as in effect from time to time;
or (vii) when Employee has been disabled and is unable to
perform the essential functions of the position for any reason
notwithstanding reasonable accommodation, provided Employee has
received from the Company compensation in an amount equivalent to
Employee’s severance benefit payment. No severance benefit
shall be due to Employee if Employee is terminated for Cause,
including if Employee is terminated for Cause upon or after a
Change in Control (as hereinafter defined and separately addressed
below), except in the event of disability as set forth
above.
d. Resignation or Retirement, No
Severance Benefit . This Agreement shall be terminated upon
Employee’s voluntary retirement or resignation. No severance
benefit shall be due to Employee if Employee resigns or retires
from employment for any reason or at any time, including upon or
after a Change in Control.
e. Payment Through Date of
Termination . Except as otherwise set forth herein, upon the
termination of this Agreement for any reason, Employee shall be
entitled to receive any unpaid compensation earned through the
effective date of termination. If this Agreement is terminated for
any reason before year-end bonus or other compensation becoming
payable to Employee, then such bonus and other compensation shall
be forfeited in full by Employee.
6. Termination Obligations
.
a. Return of Company Property
. Upon termination of this Agreement and cessation of
Employee’s employment, Employee agrees to return all Company
property to the Company promptly, but in no event later than two
(2) business days following termination of
employment.
b. Termination of Benefits .
Any and all benefits to which Employee is otherwise entitled shall
cease upon Employee’s termination, unless explicitly
continued either under this Agreement or under any specific written
policy or benefit plan of the Company.
c. Termination of Other
Positions . Upon termination of Employee’s employment
with the Company, Employee shall be deemed to have resigned from
all other offices and directorships then held with the Company or
any parent, subsidiary or affiliate of the Company, unless
otherwise expressly agreed in a writing signed by the
Parties.
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d. Employee Cooperation .
Following termination of Employee’s employment, Employee
shall cooperate fully with the Company in all matters including,
but not limited to, advising the Company of all pending work on
behalf of the Company and the orderly transfer of work to other
employees or representatives of the Company or any parent,
subsidiary or affiliate of the Company. Employee shall also
cooperate in the defense of any action brought by any third party
against the Company or any parent, subsidiary or affiliate of the
Company that relates in any way to Employee’s acts or
omissions while employed by the Company.
e. Survival of Obligations .
Employee’s obligations under this Section 6 shall
survive the termination of employment and the termination of this
Agreement.
7. Change in Control .
In the event of any Change in Control, the following provisions
will apply.
a. Any of the following shall
constitute a “Change in Control” for the purposes of
this Agreement:
(i) The consummation of a merger or
consolidation of the Company or NAI with or into another entity or
any other corporate reorganization, if more than 50% of the
combined voting power of the continuing or surviving entity’s
securities outstanding immediately after such merger, consolidation
or other reorganization is owned by persons who were not
stockholders of the Company or NAI, as applicable, immediately
prior to such merger, consolidation or other
reorganization;
(ii) The sale, transfer or other
disposition of all or substantially all of the Company’s or
NAI’s assets;
(iii) A change in the composition of
the Company’s or NAI’s Board of Directors, as a result
of which fewer than 50% of the incumbent directors are directors
who either (i) had been directors of the Company or NAI, as
applicable, on the date 24 months prior to the date of the event
that may constitute a Change in Control (the “original
directors”) or (ii) were elected, or nominated for
election, to the Board of Directors with the affirmative votes of
at least a majority of the aggregate of the original directors who
were still in office at the time of the election or nomination and
the directors whose election or nomination was previously so
approved; or
(iv) Any transaction as a result of
which any person is the “beneficial owner” (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(“Exchange Act”)), directly or indirectly, of
securities of the Company or NAI representing at least 20% of the
total voting power represented by the Company’s or
NAI’s then outstanding voting securities. For this purpose,
the term “person” shall have the same meaning as when
used in Sections 13(d) and 14(d) of the Exchange Act but shall
exclude (i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or of a parent or
subsidiary of the Company and (ii) a corporation owned
directly or indirectly by the stockholders of the Company or NAI in
substantially the same proportions as their ownership of the common
stock of the Company or NAI, as applicable.
A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the
Company’s or NAI’s incorporation or to create a holding
company that
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will be owned in substantially the
same proportions by the persons who held the Company’s or
NAI’s securities immediately before such
transaction.
b. In the event of a Change in
Control, this Agreement shall continue in effect unless terminated
by Employee or the Company.
c. If Employee is terminated without
Cause following a Change in Control by the Company and/or the
surviving or resulting corporation, upon Employee’s delivery
to the Company of an executed Release, Employee shall be entitled
to receive as severance pay or liquidated damages, or both, a lump
sum payment (“Change in Control Severance Payment”) in
an amount equal to two (2) years’ compensation or such
greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced
thereafter. If Employee does not execute and deliver the Release,
Employee shall only be entitled to receive a Change in Control
Severance Payment in an amount equal to one (1) month’s
compensation.
d. Subject to applicable law, any
Change in Control Severance Payment shall be made not later than
the fifteenth (15th) day following the effective date of
Employee’s termination without Cause in connection with a
Change in Control; provided, however, that if the amount of such
payment cannot be finally determined on or before such date, the
Company shall pay to Employee on such date a good faith estimate of
the minimum amount of such payment, and, subject to applicable law,
shall pay the remainder of such payment (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Internal
Revenue Code of 1986, as amended (“Code”)), as soon as
the amount thereof can be determined, but in no event later than
the thirtieth (30th) day after the applicable termination
date. If the amount of the estimated payment exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to Employee payable on the
fifteenth (15th) day after receipt by Employee of a written
demand for payment from the Company (together with interest
calculated as set forth above). The total of any payment pursuant
to this Section 7 shall be limited to the extent necessary, in
the opinion of legal counsel acceptable to Employee and the
Company, to avoid the payment of an “excess parachute”
payment within the meaning of Section 280G of the Code or any
similar successor provision.
e. In the event of termination of
Employee’s employment under Section 7(c), and provided
Employee delivers to the Company an executed Release, the Company
shall cause each then-outstanding stock option granted by the
Company and/or NAI to the Employee as of the date of termination to
become fully exercisable and to remain exercisable for the term of
the option.
8. Arbitration .
Employee and the Company hereby agree to the Mutual Agreement to
Mediate and Arbitrate Claims attached hereto as Attachment #1 and
made a part hereof. Employee’s obligations under this
Section 8 and such agreement shall survive the termination of
employment and the termination of this Agreement.
9. Confidential Information
and Inventions . Employee and the Company hereby agree to
the Confidential Information and Invention Assignment Agreement,
Covenant of Exclusivity and Covenant Not to Compete attached hereto
as Attachment #2 and made a part hereof. Employee’s
obligations under this Section 9 and such agreement shall
survive the termination of employment and the termination of this
Agreement.
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10. Competitive Activity
. Employee covenants, warrants and represents that during the
period of Employee’s employment with the Company, Employee
shall not engage anywhere, directly or indirectly (as a principal,
shareholder, partner, director, manager, member, officer, agent,
employee, consultant or otherwise), or be financially interested in
any business that is involved in business activities that are the
same as, similar to, or in competition with the business activities
carried on by the Company or any parent, subsidiary or affiliate of
the Company or any business that is a current or potential
supplier, customer or competitor of the Company without prior
written approval from the Company’s Board of Directors.
Notwithstanding the foregoing, Employee may invest in and hold up
to one percent (1%) of the outstanding voting stock of a
publicly held company that is involved in business activities that
are the same as, similar to, or in competition with the business
activities carried on by the Company or any parent, subsidiary or
affiliate of the Company or any business that is a current or
potential supplier, customer or competitor of the Company without
the prior written approval of the Company’s Board of
Directors; provided, however, that if such publicly held company is
a current or potential supplier, customer or competitor of the
Company or any parent, subsidiary or affiliate of the Company, the
Employee shall advise the Company’s Board of Directors in
writing of Employee’s investment in such company as soon as
reasonably practicable.
11. Employee Conduct .
Employee covenants, warrants and represents that during the period
of Employee’s employment with the Company, Employee shall at
all times comply with the Company’s written policy as in
effect from time to time on the acceptance of gifts and gratuities
from customers, vendors, suppliers, or other persons doing business
with the Company. Employee represents and understands that
acceptance or encouragement of any gift or gratuity not in
compliance with such policy may create a perceived financial
obligation and/or conflict of interest for the Company and shall
not be permitted as a means to influence business decisions,
transactions or service. In this situation, as in all other areas
of employment, Employee is expected to conduct himself or herself
using the highest ethical standard.
12. Miscellaneous
Provisions .
a. Entire Agreement . This
Agreement and any attachments and/or exhibits contains the entire
agreement between the Parties. It supersedes any and all other
agreements, either oral or in writing, between the Parties with
respect to Employee’s employment by the Company. Each party
to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been
made by any party, or anyone acting on behalf of any party, which
are not embodied herein and acknowledges that no other agreement,
statement or promise not contained in this Agreement shall be valid
or binding. To the extent the practices, policies or procedures of
the Company, now or in the future, are inconsistent with the terms
of this Agreement, the provisions of this Agreement shall
control.
b. Governing Law. This
Agreement shall be construed and enforced in accordance with the
laws of the State of California.
c. Severability . Should any
part or provision of this Agreement be held by a court of competent
jurisdiction to be illegal, unenforceable, invalid or void, the
remaining provisions of this Agreement shall continue in full force
and effect and the validity of the remaining provisions shall not
be affected by such holding.
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d. Attorneys’ Fees .
Except as set forth in the Mutual Agreement to Mediate and
Arbitrate Claims attached hereto as Attachment #1, should any party
institute any action, arbitration or proceeding to enforce,
interpret or apply any provision of this Agreement, the Parties
agree that the prevailing party shall be entitled to reimbursement
by the non-prevailing party of all recoverable costs and expenses,
including, but not limited to, reasonable attorneys’
fees.
e. Interpretation . This
Agreement shall be construed as a whole, according to its fair
meaning, and not in favor of or against any party. By way of
example and not in limitation, this Agreement shall not be
construed in favor of the party receiving a benefit nor against the
party responsible for any particular language in this Agreement.
The headings and captions contained in this Agreement are for
convenience of reference only and shall not constitute a part of
this Agreement and shall not be used in the construction or
interpretation of this Agreement.
f. Amendment; Waiver . This
Agreement may not be modified or amended by oral agreement or
course of conduct, but only by an agreement in writing signed by
the Chief Executive Officer of the Company and Employee, the terms
of which were approved in advance in writing by the Company’s
Board of Directors. The failure of either party hereto at any time
to require the performance by the other party hereto of any
provision hereof shall in no way affect the full right to require
such performance at any time thereafter, nor shall the waiver by
either party hereto of a breach of any provision hereof be taken or
held to be a waiver of any succeeding breach of such provision or
waiver of the provision itself or a waiver of any other provision
of this Agreement.
g. Assignment . This
Agreement is binding on and is for the benefit of the Parties and
their respective successors, heirs, executors, administrators and
other legal representatives. Neither this Agreement nor any right
or obligation hereunder may be assigned by the Company (except to a
parent or an affiliate of the Company or to a person, as defined
herein, in accordance with a Change in Control) or by the
Employee.
h. No Restrictions; No
Violation . The Employee represents and warrants that:
(i) Employee is not a party to any agreement that would
restrict or prohibit Employee from entering into this Agreement or
performing fully Employee’s obligations hereunder; and
(ii) the execution by Employee of this Agreement and the
performance by Employee of Employee’s obligations and duties
pursuant to this Agreement will not result in any breach of any
other agreement to which Employee is a party.
i. Counterparts . This
Agreement may be executed in counterparts, each of which will be
deemed an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same
agreement. The exchange of copies of this Agreement and of
signature pages by facsimile transmission shall constitute
effective execution and delivery of this Agreement as to the
Parties and may be used in lieu of the original Agreement for all
purposes. Signatures of the parties transmitted by facsimile shall
be deemed to be their original signatures for all
purposes.
j. Legal Representation;
Independent Counsel. The law firm of Fisher Thurber LLP has
prepared this Agreement on behalf of the Company based on the
Company’s instructions. Fisher Thurber LLP does not represent
any other party to this Agreement. In
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executing this Agreement, Employee
represents that Employee has neither requested nor been given legal
advice or counsel by Fisher Thurber LLP or any of its attorneys.
Employee is aware of Employee’s right to obtain separate
legal counsel with respect to the negotiation and execution of this
Agreement and acknowledges that Fisher Thurber LLP has recommended
that Employee retain Employee’s own counsel for such purpose.
Employee further acknowledges that Employee (i) has read and
understands this Agreement and its exhibits and attachments;
(ii) has had the opportunity to retain separate counsel in
connection with the negotiation and execution of this Agreement;
and (iii) has relied on the advice of separate counsel with
respect to this Agreement or made the conscious decision not to
retain counsel in connection with the negotiation and execution of
this Agreement.
[Signatures on following
page.]
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IN WITNESS WHEREOF, the Parties have
executed this Agreement effective as of the Effective
Date.
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EMPLOYEE
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/s/ John F. Dullea
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John F.
Dullea
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COMPANY
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Real Health Laboratories, Inc.,
a California corporation
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By:
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/s/ Randell Weaver
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Randell Weaver,
Chief Executive Officer
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ACKNOWLEDGED
AND AGREED:
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NAI
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Natural Alternatives International,
Inc.,
a Delaware corporation
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By:
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/s/ Randell Weaver
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Randell Weaver,
President
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ATTACHMENT #1
MUTUAL AGREEMENT TO MEDIATE AND
ARBITRATE CLAIMS
This Mutual Agreement to Mediate and
Arbitrate Claims (“Agreement”) is made and entered into
effective as of December 5, 2005 (“Effective
Date”), by and between John F. Dullea
(“Employee”), and Real Health Laboratories, Inc., a
California corporation (“Company”) and wholly-owned
subsidiary of Natural Alternatives International, Inc., a Delaware
corporation (“NAI”).
In consideration of and as a
condition of Employee’s prospective and continued employment
relationship with the Company, Employee’s employment rights
under Employee’s Employment Agreement, Employee’s
participation in the Company’s benefit programs (when and if
eligible), Employee’s access to and receipt of confidential
information of the Company, and other good and valuable
consideration, all of which Employee considers to have been
negotiated at arm’s length, Employee and Company agree to the
following:
1. Claims Covered by this
Agreement .
a. To the fullest extent permitted
by law, all claims and disputes between Employee (and
Employee’s successors and assigns) and the Company relating
in any manner whatsoever to the employment or termination of
Employee, including without limitation all claims and disputes
arising under this Agreement or that certain Employment Agreement
entered into by and between the Company and Employee on equal date
hereof, as may be amended from time to time (“Employment
Agreement”), shall be resolved by mediation and arbitration
as set forth herein. All persons and entities specified in the
preceding sentence (other than the Company and Employee) shall
b
