EXECUTION COPY
NON-COMPETITION AND COMMITMENT
AGREEMENT
THIS
NON-COMPETITION AND COMMITMENT AGREEMENT (this “
Agreement ”), dated as of April 25, 2005, is by
and between PEC SOLUTIONS, INC., a Delaware corporation (the
“ Company ”), and ALAN H. HARBITTER, an
individual residing at 12164 Richland Lane, Oak Hill, VA 20171
(“ Executive ”). Capitalized terms not
defined herein have the meanings ascribed to such terms in the
Agreement and Plan of Merger dated of even date herewith (as the
same may be amended from time to time, the “ Merger
Agreement ”), by and among the Company, NORTEL
NETWORKS INC., a Delaware corporation (“ Parent
”), and PS MERGER SUB, INC., a Delaware corporation and
wholly-owned subsidiary of Parent (“ Purchaser
”).
WHEREAS, Parent,
Purchaser and the Company propose to enter into the Merger
Agreement which provides for Purchaser to make a tender offer (the
“ Offer ”) for the outstanding shares of
Company Common Stock and the merger of Purchaser with and into the
Company (the “ Merger ”), upon the terms
and subject to the conditions of the Merger Agreement;
WHEREAS, Executive
is a founder and senior executive of the Company, and Parent
believes that Executive’s continued service and loyalty to
the Company after the Merger is critical to preserving and assuring
the value of the business being acquired by Parent through the
Merger Agreement;
WHEREAS, Executive
and certain Affiliates of Executive own a substantial number of
shares of Company Common Stock and Company Stock Options and, by
virtue of such ownership, will be paid significant cash
consideration pursuant to the terms of the Merger Agreement upon
completion of the Offer and Merger;
WHEREAS, as a
condition to its willingness to enter into the Merger Agreement,
Parent has required that Executive agree, and, in order to induce
Parent and Purchaser to enter into the Merger Agreement and in
recognition of the significant consideration that will be paid to
Executive and his Affiliates in their capacity as stock and option
holders of the Company, Executive is willing to agree, to
(a) certain non-competition and other restrictive covenants,
(b) continue to serve as a regular full-time executive of the
Company through the second anniversary of the Closing Date,
(c) forfeit certain investment property to the Company as
liquidated damages in the event he fails to fulfill his employment
commitment to the Company, (d) utilize the cash payment he
will receive in connection with the cancellation of his vested
Company Stock Options pursuant to Section 3.3(a) of the Merger
Agreement to purchase certain marketable securities for deposit
into an escrow account to fund such liquidated damages obligation,
(e) the termination of his rights under the Company’s
Key Executive Severance Plan, and (f) such other matters as
are set forth herein, in each case as more fully described in this
Agreement; and
WHEREAS, prior to
the date of this Agreement, Executive and the Company entered into
that certain Employment Agreement dated January 1, 2000 (the
“ Employment Agreement ”) and that
certain Employee Confidentiality and Inventions Agreement dated
October 1, 1985 (the “ Inventions
Agreement ,” and together with the Employment
Agreement, the “ Existing Agreements
”).
NOW, THEREFORE, in
consideration of the foregoing and the representations, warranties,
covenants and agreements set forth herein, the Company and
Executive agree as follows:
ARTICLE I
EFFECTIVENESS OF AGREEMENT
This Agreement
shall become effective on the date hereof but shall be null and
void ab initio and of no further force and effect if the
Merger Agreement is terminated pursuant to Section 9.1 thereof
prior to the date Parent accepts for payment any shares of Company
Common Stock pursuant to the Offer.
ARTICLE II
EMPLOYMENT AGREEMENT; KEY EXECUTIVE SEVERANCE
PLAN
2.1
Ratification of Employment Agreement . Executive confirms
that Executive has executed and delivered to the Company the
Employment Agreement and the Invention Agreement in the forms of
Exhibits A and B hereto, respectively,
and that there have been no oral or written modifications or
amendments to, or waivers of, the provisions of the Existing
Agreements. Executive agrees with the Company that the Existing
Agreements shall continue in full force and effect after the Merger
with respect to Executive’s employment with the Company. In
the event of any inconsistency or conflict between this Agreement
and the Existing Agreements, the provisions of this Agreement shall
control.
2.2
Agreement to Continue Service as a Company Executive .
Except for Good Reason (as defined below), Executive hereby agrees
not to terminate his regular full-time employment with the Company
prior to the second anniversary of the Closing Date. Executive,
however, acknowledges that this Agreement does not constitute a
contract of employment; and nothing in this Agreement shall limit
the Company’s right to terminate Executive’s employment
at any time and for any reason (subject only to the express terms
of the Employment Agreement).
2.3
Cross Default . Any breach or failure to perform by
Executive under this Agreement shall constitute a breach or failure
to perform by Executive under the Employment Agreement.
2.4
Employment Programs; Changes in Job Title and Reporting
Lines . Executive understands and agrees that, after completion
of the Offer and the Merger, the Company and Parent may commence
the integration of some or all of the Company’s existing
compensation, benefits and other employment plans, policies,
programs and practices (“ Employment Programs
”) with those of Parent and/or other Affiliates of the
Company, and that the Company and its Affiliates may make changes
in their Employment Programs as it or they deem appropriate subject
to applicable legal requirements, required corporate approvals and
the terms of any applicable plans, policies, programs and
practices; and it is understood and agreed that no such changes
shall constitute a breach of the Employment Agreement or this
Agreement, be deemed to be a termination of Executive’s
employment without Good Cause (under this
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Agreement or the Employment
Agreement) or be deemed to give rise to Good Reason. Executive
further understands and agrees that the Offer and Merger will
result in changes in job titles, reporting lines and duties as a
result of the Company becoming a Subsidiary of Parent and the
subsequent evolution of the businesses of the Company, Parent and
their Affiliates, and that the Company and its Affiliates will be
entitled to change Executive’s reporting lines, job title(s)
and duties in the future to address business needs (including
changes that result in Executive holding a position or performing
duties for an Affiliate of the Company), so long as Executive
continues to be employed in an executive-level position; and it is
understood and agreed that no such changes shall constitute a
breach of the Employment Agreement or this Agreement, be deemed to
be a termination of Executive’s employment without Good Cause
(under this Agreement or the Employment Agreement) or be deemed to
give rise to Good Reason.
2.5
Termination of Key Executive Severance Plan Rights .
Effective as of the date of this Agreement, all rights and
entitlements of Executive under the Company’s Key Executive
Severance Plan and the Letter Agreement dated July 23, 2003,
between Executive and the Company thereunder are hereby terminated
and canceled; and Executive shall hereafter cease to be a
participant under such plan. In addition, Executive agrees that,
except for the severance entitlements expressly provided for in the
Employment Agreement, he will not have any right or entitlement to
severance or other compensation following the termination of his
employment with the Company and its Affiliates.
2.6
No Payment for Shares; No Increase in Compensation or
Benefits . Executive and the Company each hereby confirm and
agree that all payments and other obligations owing from the
Company to Executive under the Employment Agreement or otherwise
are in respect of Executive’s employment by the Company, and
are in no way are related to the purchase of shares of Company
Common Stock pursuant to the Offer. In the event any such payments
are found by a court of competent jurisdiction to represent
payments in respect of shares of Company Common Stock pursuant to
the Offer, Executive hereby agrees to waive any right to such
payment and to reimburse the Company for any such payment. For the
avoidance of any doubt, nothing in this Agreement is intended to
cause the level of compensation or benefits provided to Executive
by the Company to be increased, enhanced or improved in any
way.
ARTICLE III
LIQUIDATED DAMAGES; ESCROW OF
FUNDS
3.1
Acknowledgements . Executive acknowledges and understands
that his continued service and loyalty to the Company and its
Affiliates after the Merger is, in Parent’s and the
Company’s view, critical to preserving and assuring the value
of the business being acquired by Parent through the Merger
Agreement, and that Parent would not enter into the Merger
Agreement or proceed with the Offer or Merger absent
Executive’s promise and commitment continuously to serve as a
regular full-time executive employee of the Company through the
second anniversary of the Closing Date. Executive further
acknowledges and agrees that (i) Parent, the Company and their
Affiliates will suffer substantial economic loss and damages if
Executive fails continuously to serve as a regular full-time
executive employee of the Company (and/or one or more Affiliates of
the Company) through the second anniversary of the Closing Date,
(ii) the amount of such loss and damages is and would be
incapable of precise estimation,
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(iii) the liquidated damages
specified in Section 3.2 below are, in the view
of the Company, Parent and Executive, reasonable estimates of the
amount of the actual loss and damages Parent and the Company would
suffer in the event Executive fails to so serve the Company through
such date, and are not disproportionate to such loss and damages,
and (iv) the liquidated damages specified in
Section 3.2 are not intended as and do not
constitute a penalty.
3.2
Liquidated Damages .
(a) In the
event that Executive’s employment with the Company (and all
Affiliates of the Company) is terminated prior to the first
anniversary of the Closing Date, by (i) the Company (or an
Affiliate of the Company) for Good Cause (as defined below) or
(ii) Executive without Good Reason, then, on the later to
occur of the third (3 rd )
Business Day after the date Executive’s employment is
terminated or the Closing Date (the “ Payment
Date ”), Executive shall be obligated to pay,
transfer, deliver and forfeit to the Company, as liquidated
damages, all of the Escrowed Property (as defined below). In such
event, the Company shall be entitled, at any time on or after the
Payment Date, to direct and cause Escrow Agent (as defined below)
to transfer and deliver, on Executive’s behalf, all of the
Escrowed Property to the Company.
(b) In the
event that Executive’s employment with the Company (and all
Affiliates of the Company) is terminated on or after the first
anniversary of the Closing Date and prior to the second anniversary
of the Closing Date, by (i) the Company (or an Affiliate of
the Company) for Good Cause or (ii) Executive without Good
Reason, then, on the Payment Date, Executive shall be obligated to
pay, transfer, deliver and forfeit to the Company, as liquidated
damages, all of the Escrowed Property then held by Escrow Agent. In
such event, the Company shall be entitled, at any time on or after
the Payment Date, to direct and cause Escrow Agent to transfer and
deliver, on Executive’s behalf, all of the Escrowed Property
to the Company.
(c) In the
event that Executive’s employment with the Company (and all
Affiliates of the Company) is terminated by the Company without
Good Cause or as a result of Executive’s death or Total and
Permanent Disability (as defined in the Employment Agreement) or
Executive resigns his employment with the Company for Good Reason,
(i) Executive shall have no obligation to pay or deliver
liquidated damages to the Company under this
Section 3.2 , and (ii) immediately after
such termination or resignation, Executive shall be entitled to
direct and cause Escrow Agent to transfer and deliver to Executive
all the Escrowed Property then held by Escrow Agent.
(d) In the
event that Executive remains a regular full-time executive employee
of the Company or an Affiliate of the Company on the first
anniversary of the Closing Date, Executive shall be immediately
entitled to direct and cause Escrow Agent to transfer and deliver
to Executive fifty percent (50%) of the Escrowed Property then held
by Escrow Agent (measured in accordance with its then-current fair
market value); and the remainder of the Escrowed Property shall
remain subject to Sections 3.2(b) and
3.2(c) .
(e) In the
event that Executive serves as a regular full-time executive
employee of the Company or an Affiliate of the Company through and
including the second anniversary of the Closing Date, then at any
time on or after such second anniversary date, Executive shall
be
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entitled to direct and cause
Escrow Agent to transfer and deliver to Executive all of the
Escrowed Property then held by Escrow Agent.
3.3
Escrow Account .
(a) The
parties hereby agree that J.P. Morgan, Branch Banking & Trust
or any other bank mutually agreeable to the parties will serve as
escrow agent hereunder (the “ Escrow Agent
”). Prior to the Closing Date, the Company, Escrow Agent and
the Executive shall execute an escrow agreement substantially in
the form attached hereto as Exhibit C , subject
to any changes proposed by Escrow Agent which are reasonably
acceptable to Parent, the Company and Executive (the “
Escrow Agreement ”).
(b) On
the Closing Date, immediately after Executive receives the cash
payment from the Company in connection with the cancellation of his
vested Company Stock Options pursuant to Section 3.3(a) of the
Merger Agreement (less any deduction by the Company for required
withholding of Taxes pursuant to Section 3.3(b) of the Merger
Agreement) (the “ After Tax Option Proceeds
”), Executive shall apply and utilize the After Tax Option
Proceeds to purchase from the Company, and the Company shall sell
to Executive, free and clear of all Liens, marketable obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities with maturities of two years or less having an
aggregate fair market value equal to U.S. $4,200,000 (the “
Escrow Securities ”). The purchase price for
the Escrow Securities shall be U.S. $4,200,000 and shall be payable
in full by Executive on the Closing Date, in cash by wire transfer
of immediately available funds to the bank account designated by
the Company at least two (2) business days prior to the
Closing Date.
(c) On
the Closing Date, immediately after purchasing the Escrow
Securities from the Company pursuant to
Section 3.3(b) and in accordance with the terms
of the Escrow Agreement, Executive shall deliver to, and deposit
with, Escrow Agent, free and clear of all Liens, all of the Escrow
Securities for disbursement in accordance with the terms of the
Escrow Agreement and this Agreement (the Escrow Securities,
together with all proceeds and reinvestments thereof and all
interest and income earned thereon, being referred to herein as the
“ Escrowed Property ”). The Escrowed
Property shall be available, in accordance with the terms of the
Escrow Agreement and this Agreement, to satisfy Executive’s
liquidated damages obligations under Section 3.2
.
(d) Executive
shall timely file an election pursuant to Section 83(b) of the Code
with respect to the transactions described in
Sections 3.3(b) and 3.3(c)
.
3.4
Exclusive Remedy . The liquidated damages specified in
Section 3.2 shall be the sole and exclusive
remedy for the Company and its Affiliates in connection with any
failure of Executive continuously to serve as a regular full-time
executive employee of the Company (and/or an Affiliate of the
Company) through the second anniversary of the Closing Date.
Notwithstanding the preceding sentence, neither the provisions of
this Article III nor any payment of liquidated
damages by Executive hereunder shall limit the legal or equitable
remedies available to the Company and its Affiliates to redress any
breach by Executive of his obligations under the Existing
Agreements or this Agreement (excluding any breach solely arising
from an election by Executive to resign or otherwise terminate his
employment with the
5
Company for other than Good
Reason) even if such breach directly or indirectly resulted in the
termination of his employment with the Company (or an Affiliate of
the Company).
3.5
Good Cause . For purposes of this Agreement, “Good
Cause” shall have the meaning given to such term in the
Employment Agreement except that the phrase “which involves
personal profit” set forth in clause (C) of such
definition shall be omitted.
3.6
Good Reason . For purposes of this Agreement, “
Good Reason ” means, as of a given date, the
occurrence not more than sixty (60) days prior to such date of
any of the following: (a) relocation of Executive’s
principal work location by more than fifty (50) miles from the
Company’s current location in Fairfax, Virginia;
provided , however , that any relocation of
Executive’s principal work location to his residence shall
not constitute Good Reason; (b) a reduction in the base salary
paid to Executive by the Company after the Merger from
Executive’s base salary in effect on April 1, 2005;
(c) a fundamental change in Executive’s position that
results in Executive ceasing to be employed at an executive-level
or the assignment of duties and responsibilities to Executive that
are not, in the aggregate, consistent with those of an executive
level position; or (d) a material breach by the Company of its
obligations under the Employment Agreement, unless Executive in
writing consents to such relocation, reduction, change or waives
such breach; provided , however , that the
occurrences described above shall not constitute Good Reason if
they occur prior to the Effective Time or if the Company or an
Affiliate of the Company cures such occurrences within thirty
(30) Business Days from receipt by Parent and the Company of
written notice thereof from Executive; and provided ,
further , that the occurrence described in clause
(c) of this sentence shall not be deemed to have occurred by
reason of Executive’s position, duties or responsibilities no
longer being consistent with Executive’s current position of
Chief Operating Officer or being performed for Company and/or its
Affiliates, which are part of a larger organization on or after the
Closing Date.
ARTICLE IV
NON-COMPETITION AND
NON-SOLICITATION
4.1
Acknowledgments .
(a) Executive
acknowledges that the Company and its Affiliates have expended and
shall continue to expend substantial amounts of time, money and
effort to develop business strategies, employee and customer
relationships, relationships and goodwill and build an effective
organization. Executive acknowledges that during Executive’s
prior employment and association with the Company, Executive has
become familiar with the Company’s and its Affiliates’
Confidential Information (as defined below), including trade
secrets, and that following the consummation of the Offer and
Merger, Executive will become familiar with further Confidential
Information of the Company and its Affiliates, including trade
secrets, and that Executive’s services are of special, unique
and extraordinary value to the Company and its Affiliates.
Executive acknowledges that the Company and its Affiliates have a
legitimate business interest and right in protecting such
Confidential Information, goodwill, employee and customer
relationships, and that the Company and its Affiliates would be
seriously damaged by the disclosure of such Confidential
Information and the
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