AMENDED AND RESTATED
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This AMENDED
AND RESTATED EMPLOYMENT AND NON-COMPETITION AGREEMENT (this
“ Agreement ”) is made and entered into as of
December 31, 2008 by and between PowerSecure International,
Inc. , a Delaware corporation (the “ Company
”), and Sidney Hinton , an individual who resides in
Wake Forest, North Carolina (“ Officer
”).
WHEREAS, Officer
is the President and Chief Executive Officer of the Company and of
PowerSecure, Inc. (“ PowerSecure ”), a Delaware
corporation and wholly-owned subsidiary of the Company;
and
WHEREAS, the
Company and Officer had previously entered into an Employment and
Non-Competition Agreement, dated as of August 15, 2007, which
set forth the terms and conditions of Officer’s employment
with the Company; and
WHEREAS, the
Company and Officer desire to amend certain terms and conditions of
this Agreement in order to achieve compliance with
Section 409A of the Internal Revenue Code of 1986, as amended
(as amended, modified or supplemented from time to time, “
Section 409A ”), and the Treasury Regulations
promulgated thereunder (as amended, modified or supplemented from
time to time, “ Treas. Regs. ”); and
WHEREAS, the
continued involvement and leadership of Officer in the business and
affairs of the Company and its subsidiaries, including PowerSecure,
is vital to the success of the Company and its subsidiaries;
and
WHEREAS, the
Company desires to continue to employ Officer, and Officer desires
to continue to serve the Company, upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in
consideration of the premises and of the mutual covenants and
agreements set forth herein, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Officer, intending to be legally
bound hereby, agree as follows:
Section 1. Employment . The Company hereby
agrees to continue to employ Officer, and Officer hereby agrees to
continue to serve as an employee of the Company, upon the terms and
subject to the conditions set forth herein.
Section 2. Term . The term of Officer’s
employment hereunder shall continue until and expire on
August 8, 2012, unless earlier terminated in accordance with
the provisions of Section 5. In the event that this Agreement
has not been earlier terminated in accordance with the provisions
of Section 5, the term of Officer’s employment hereunder
shall be automatically extended without further action by the
Company or Officer for additional successive one-year periods
unless either party, for any reason or no reason, shall have given
written notice of termination to the other party
no less than
90 days prior to the commencement of any one-year extension
period. The term of Officer’s employment hereunder, including
any extension period, is sometimes hereinafter referred to as the
“ Employment Term .”
Section 3. Duties of Officer .
(a) General Duties and Responsibilities .
During and throughout the Employment Term, Officer shall faithfully
and diligently, to the best of his ability, serve as the President
and Chief Executive Officer and a member of the Board of Directors
of the Company and of PowerSecure, and in such additional
management offices and capacities and with such additional titles
and duties as shall be designated by the Company’s Board of
Directors (the “ Board ”) during the Employment
Term, shall have the authority and perform the duties and
responsibilities customary for such offices, and shall have such
other duties as may be assigned to him from time to time by the
Board. Officer shall perform his duties hereunder in accordance
with the policies from time to time established and amended by the
Company and in accordance with all applicable laws and regulations.
Officer shall use his best efforts to promote the best interests of
the Company. Officer shall always be subject to the direction,
approval and control of the Board in the performance of his duties.
Officer acknowledges and agrees that he may be required by the
Company, without additional compensation, to perform services for
any other entity controlling, controlled by, under common control
with or otherwise affiliated with, the Company (any such entity
hereinafter referred to as an “ Affiliate ”),
and to accept such office or position with any Affiliate as the
Board may reasonably require, including but not limited to service
as an officer and/or director of an Affiliate.
(b) Performance of Services . During and
throughout the Employment Term, Officer shall devote his full time,
attention, skill, ability and energy during normal business hours
(and outside such hours when reasonably necessary to perform
Officer’s duties hereunder) exclusively to the business and
affairs of the Company and the performance of his duties under this
Agreement. Officer shall not, directly or indirectly, render any
services of a business, commercial or professional nature to any
Person without the prior written consent of the Board; provided,
however, that the provisions this Section 3(b) shall not preclude
Officer from devoting time, ability, energy and attention outside
normal business hours throughout the Employment Term to reasonable
participation in community, civic, charitable or similar
organizations, or the pursuit of personal legal and financial
affairs which do not interfere or conflict with the performance of
Officer’s duties hereunder and are not adverse to the
business or best interests of the Company.
(c) Place of Employment . Officer shall perform
his services hereunder at the Company’s principal executive
offices in Wake Forest, North Carolina or at such other location as
mutually agreed with the Board; provided, however, that Officer
agrees to undertake all reasonable travel required by the Company
to be conducted in connection with the business of the Company and
the performance of Officer’s duties hereunder.
Section 4. Compensation . During and throughout
the Employment Term, as compensation for the services performed and
other covenants made by Officer to the Company hereunder, the
Company shall pay and provide or cause to be provided to Officer
the following:
(a) Base Salary . The Company shall pay Officer
a base salary equal to $485,000 per year (the “ Base
Salary ”), payable in approximately equal installments in
accordance with the Company’s customary payroll practices.
Officer’s Base Salary shall be reviewed by or under the
authority of the Board (through its Compensation Committee) no
less
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frequently than
annually and may be increased (but never decreased) in the sole
discretion of the Board or the Compensation Committee (although
neither the Board nor the Compensation Committee has any obligation
to do so) based upon whatever factors the Board or the Compensation
Committee deems appropriate including, but not limited to,
Officer’s individual performance, the overall performance,
profitability and prospects of the Company and prevailing economic
and industry factors.
(b) Bonuses . So long as he remains employed
with the Company, Officer shall be entitled to receive the
following bonuses:
(i) Cash Flow Bonus . Officer shall be entitled
to receive a bonus in the amount of 7% of PowerSecure’s Cash
Flow from Operations (as defined below) (the “ Cash Flow
Bonus ”) for each fiscal year of PowerSecure during the
Employment Term, on the following terms and conditions:
(A) PowerSecure’s
“ Cash Flow from Operations ” for any fiscal
year shall be an amount equal to PowerSecure’s net income
(loss) before federal income taxes, depreciation and
amortization but after interest (including interest
reasonably allocated by the Company from its interest cost due to
PowerSecure’s use of funds from the Company’s credit
facility) during such fiscal year, determined in accordance with
generally accepted accounting principles consistently applied,
adjusted to exclude (I) all items of income, gain, loss or
expense during such fiscal year determined by the Board to be
extraordinary or unusual in nature and not incurred or realized in
the ordinary course of business, whether or not such items would
otherwise be considered to be extraordinary or unusual in
accordance with generally accepted accounting principles, and
(II) any profit or loss attributable to the business
operations of any entity acquired by PowerSecure during such fiscal
year, and shall be determined by the Board in its sole discretion
based upon the Company’s financial statements for such fiscal
year.
(B) As
a condition to Officer’s receiving the Cash Flow Bonus for
any fiscal year, PowerSecure must meet the Threshold Performance
Level (as defined below) applicable to that fiscal year. For
purposes of this Agreement, the “ Threshold Performance
Level ” shall be equal to the following: (I) for
fiscal 2007, the Threshold Performance Level shall be equal to 50%
of the amount of PowerSecure’s unconsolidated operating
income included, within the Company’s internal projections,
in the lower end of the range of the Company’s consolidated
net income forecast for 2007 as included in its guidance issued
publicly on August 8, 2007, and (II) for fiscal year 2008
and each fiscal year thereafter, the Threshold Performance Level
shall be increased by 25% per annum over the prior fiscal
year’s Threshold Performance Level.
(C) The
Company shall pay any Cash Flow Bonus for a fiscal year within
90 days after the expiration of that fiscal year.
(D) It
is the intention of the Company and Officer that the terms and
conditions of the Cash Flow Bonus shall survive for the duration of
Officer’s employment, regardless of whether such employment
continues under this Agreement, a successor employment agreement,
or without an employment agreement.
(ii) General Bonus Program . Officer’s
eligibility to participate in any other bonus program or any other
form of profit-sharing participation for senior
executive
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officers of the
Company not expressly provided for in this Agreement shall be in
the sole discretion of the Board or the Compensation
Committee.
(c) Restricted Stock Grant . The Company has
granted to Officer an award of Restricted Shares (as defined below)
under the Company’s 1998 Stock Incentive Plan, as amended and
restated from time to time, upon the following terms and
conditions. The award consists of 600,000 shares of Common Stock,
par value $.01 per share, of the Company (the “ Restricted
Shares ”) that are subject to the terms and conditions of
a Restricted Stock Agreement approved by the Compensation Committee
of the Board of Directors of the Company, consistent with the terms
and conditions of the grant as set forth in this Agreement. The
Restricted Shares shall vest in accordance with the following
vesting schedule: (i) 300,000 Restricted Shares shall vest on
August 8, 2012, provided Officer has been employed
continuously with the Company from the date hereof through such
vesting date (the “ Service Restricted Shares
”); and (ii) 300,000 Restricted Shares shall vest in
five equal annual installments for fiscal years 2007 through 2011
only if the Company achieves the “ Restricted Share
Performance Goal ” for each such fiscal year (the “
Performance Restricted Shares ”). The Restricted Share
Performance Goal for fiscal year 2007 shall be equal to 90% of the
lower end of the range of the Company’s consolidated net
income forecast for 2007 as included in its guidance issued
publicly on August 8, 2007. For fiscal year 2008 and each
fiscal year thereafter, the Restricted Share Performance Goal shall
be increased by 20% over the prior fiscal year’s Restricted
Share Performance Goal. In the event that the Company fails to
achieve the Restricted Share Performance Goal for any fiscal year,
the Performance Restricted Shares that did not vest for that fiscal
year shall vest in the subsequent fiscal year but only if the
Company exceeds by 10% the Restricted Share Performance Goal for
that subsequent fiscal year. In the event of a Change in Control of
the Company (as defined below), any unvested Restricted Shares
(regardless of whether they are Service Restricted Shares or
Performance Restricted Shares) shall immediately vest in full upon
the effective date of the Change in Control.
(d) Vehicle . The Company shall provide to
Officer a Company-owned or leased vehicle suitable and appropriate
for Officer to perform his duties hereunder, and Officer shall be
permitted to use such vehicle for personal use so long as it is not
used for any purpose that violates applicable law or is detrimental
to the Company. In lieu of the foregoing, but only with the consent
of Officer, the Company may pay an automobile allowance to Officer
in an amount sufficient to meet its obligations in this
Section 4(c).
(e) Club Membership . The Company shall pay or
reimburse Officer for one country club membership, including
initiation fees and annual membership fees and dues, at a club
selected by Officer.
(f) Annuity . The Company will purchase an
annuity payable to Officer upon the terms set forth herein (the
“ Annuity ”). Under the Annuity, upon the terms
and conditions set forth herein, Officer shall receive, commencing
when Officer reaches the age of 53 and continuing until his death,
monthly payments (“ Monthly Annuity Payments ”)
in an amount equal to the product of (x) $1,500 (the “
Base Amount ”), multiplied by (y) the total
number of years Officer served as an employee of the Company and
its subsidiaries (it being acknowledged that Officer commenced
serving as an employee on May 8, 2000) as of the time his
employment with the Company is terminated; provided, however, that
(i) the amount of the Monthly Annuity Payments shall not
exceed $20,000 per month regardless of the number of years of
Officer’s
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service, and
(ii) Officer may, at his election at least five (5) years in
advance and in accordance with any other applicable requirements of
Section 409A, commence receiving the Monthly Annuity Payments
when he reaches the ages of 54, 55, 56, 57 or 58, and the Base
Amount to be used in computing the amount of the Monthly Annuity
Payments shall be increased by $100 for each year of age Officer is
above the age of 53 when he commences receiving such payments
(provided such Monthly Annuity Payments shall not in any event
exceed $20,000 per month). Officer shall have the right to receive
the Monthly Annuity Payments only if two conditions are satisfied:
(i) Officer shall have continued to remain employed with the
Company though the earlier of (A) August 8, 2012,
(B) the effective date of a Change in Control (as defined
below) of the Company, or (C) Officer’s employment is
terminated by the Company without Cause (as defined below); and
(ii) Officer’s employment with the Company has
terminated before he commences receiving the Monthly Annuity
Payments; provided that if either of events (B) or
(C) occurs, the amount of the Monthly Annuity Payments shall
be computed as if Officer had remained employed with the Company
through August 8, 2012. The Company will use its commercially
reasonable best efforts to fund the Annuity through a third party
provider such as an insurance company or similar financial
institution, provided that the Company and Officer agree to
reasonably cooperate in agreeing to the design, funding, terms and
conditions of such plan.
(g) Employee Benefit Plans . Officer shall be
entitled to participate in all pension, 401(k), retirement, life,
disability and health insurance, hospitalization, major medical and
other the employee benefit plans and arrangements, if any (as in
effect and as amended from time to time), to the extent that his
position, tenure, salary, age, health and other qualifications make
his eligible to participate, generally made available by the
Company to comparable level employees, subject to and on a basis
consistent with the terms, rules and regulations, conditions and
overall administration of such plans and arrangements.
Notwithstanding the foregoing sentence, the Company may discontinue
at any time any such employee benefit plan or arrangement, to the
extent permitted by the terms of such plans or arrangements, and
shall not be required to compensate Officer for the elimination of
any such employee benefit plans or arrangements.
(h) Expenses . The Company shall, upon presentment by
Officer of appropriate receipts and vouchers therefor, reimburse
Officer for all reasonable, ordinary and necessary out-of-pocket
business expenses incurred by Officer in connection with the
performance of his duties under this Agreement, provided that such
expenses are incurred and accounted for in accordance with and
subject to the normal policies and procedures of the
Company.
(i) Vacation . Officer shall be entitled to
reasonable paid vacation time in accordance with the policies of
the Company applicable to executive officers of the
Company.
Section 5. Termination of Employment .
Notwithstanding the provisions of Section 2, the Employment
Term and Officer’s employment hereunder shall terminate as
follows:
(a) Death . Officer’s employment
hereunder shall automatically terminate upon his death, and the
Company shall pay to his designated beneficiaries (or, if none, to
his estate) the pro rata portion of his Base Salary and all other
accrued and vested but unpaid compensation through the date of his
death. In addition, the Company shall pay for and provide for the
benefit of Officer and his beneficiaries a term life insurance
policy in the amount of $5,000,000 on the life of Officer, and
Officer shall have the unilateral right to name the beneficiaries
of such life insurance policy.
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(b) Disability . The Company shall have the
right, in its sole discretion, to terminate Officer’s
employment hereunder in the event of Officer’s Disability (as
defined below) upon giving at least 30 days written notice to
Officer of its intention to terminate Officer’s employment.
In such event, the Company shall pay to Officer the pro rata
portion of his Base Salary and all other accrued and vested but
unpaid compensation through the date of termination. In addition,
the Company shall pay for and provide for the benefit of Officer a
disability insurance policy that provides for payment benefits to
Officer in an amount equal to no less than 60% of his Base Salary.
Upon termination by the Company in the event of Officer’s
Disability, Officer shall be entitled to receive the following:
(i) the accrued but unpaid portion of his Base Salary and any
bonuses and other compensation that are earned, accrued or vested
but unpaid through the date of termination; (ii) an amount
equal to one-third of the full Severance Amount, computed and
payable as provided in Section 5(j), except that the average
of the Cash Flow Bonus shall be computed based only on the three
fiscal years preceding the fiscal year in which Officer’s
employment is terminated, and the severance shall be payable in
approximately equal installments in accordance with the
Company’s customary payroll practices over the 12 months
following the termination of Officer’s employment;
(iii) in the event such termination of employment occurs after
August 8, 2012, then Officer shall be entitled to the Annuity
and to receive the Monthly Annuity Payments as provided in
Section 4(f); (iv) for a period of three years from the
date of termination, the Company shall pay for, or otherwise
provide for at Company expense, the continuation of the same (if
available, and to the extent not available similar) life,
accidental death, disability, medical, dental and other insurance
plans and benefits in which Officer and his family participated
prior to such termination; and (v) any other rights and
benefits of any of the employee benefits earned, accrued or vested
(including under any plans in which he was participating) as of the
date of such termination, subject to the terms and conditions of
such plans and benefits, but Officer shall not attain vested status
in any plans or benefits in which he is not vested on the date of
termination. For purposes of this Agreement, “
Disability ” shall have the meaning given to such term
under Section 409A in Treas. Reg.
Section 1.409A-3(i)(4).
(c) By the Company for Cause . The Company
shall have the right, in its sole discretion, to terminate
Officer’s employment hereunder at any time for Cause (as
defined below) immediately upon giving written notice of
termination to Officer. Upon his termination for Cause, Officer
shall be entitled to receive only the accrued but unpaid portion of
his Base Salary through the date of termination, plus any accrued
and vested but unpaid bonuses and other compensation as of such
date, but Officer shall not be entitled to any other bonus or
incentive compensation for the fiscal year in which he was
terminated. In addition, any unvested portion of any option to
purchase shares of Common Stock, and any unvested portion of the
Restricted Shares, shall expire without vesting. Officer shall have
no right to receive any other or further compensation or benefits.
For purposes of this Agreement, “ Cause ” means
only the following:
(i) The
failure or refusal by Officer to perform any of his material duties
hereunder, or the breach by Officer of any of his obligations,
covenants, representations, warranties or acknowledgments
hereunder, which failure, refusal or breach is confirmed by a
resolution adopted by the Board and that remains unremedied or
uncured for a period of 30 consecutive days after specific written
notice thereof is given to Officer by on or behalf of the
Board;
(ii) Any
act of dishonesty, fraud, breach of fiduciary duty or bad faith by
Officer that is materially detrimental to the Company or that
results in substantial personal enrichment of Officer;
or
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(iii) The
conviction of Officer, or the entering of a guilty plea or a plea
of no contest by Officer with respect to (A) a felony, or
(B) a misdemeanor that involves theft, fraud or dishonesty,
results in Officer’s imprisonment or materially impairs
Officer’s ability to perform his duties hereunder or
materially damages the reputation or business of the
Company.
(d) By the Company Without Cause . The Company
shall have the right, in its sole discretion, to terminate
Officer’s employment hereunder at any time, without Cause,
which termination shall be effective upon the giving of written
notice of such termination to Officer (or at such later date as the
notice provides). In such event, Officer shall be entitled to
receive the following: (i) all amounts of the Base Salary and
any bonuses and other earned but unpaid compensation that are
earned, accrued or vested but unpaid through the date of
termination; (ii) an amount equal to the Severance Amount,
computed and payable as provided in Section 5(j);
(iii) any unvested portion of the Restricted Shares shall vest
as follows: (A) the Service Restricted Shares, if then
unvested, shall immediately vest, and (B) the unvested
Performance Restricted Shares applicable for the fiscal year in
which the termination occurs shall vest in the event the Company
attains the applicable Performance Goal for that fiscal year;
(iv) for a period of three years from the date of termination,
the Company shall pay for, or otherwise provide for at Company
expense, the continuation of the same (if available, and to the
extent not available similar) life, accidental death, disability,
medical, dental and other insurance plans and benefits in which
Officer and his family participated prior to such termination; and
(v) any rights and benefits of any of the employee benefits
earned, accrued or vested (includin
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