Exhibit 10.1
SETTLEMENT AND RETENTION AGREEMENT
THIS SETTLEMENT AND RETENTION
AGREEMENT (this “Agreement”) is entered into and made
effective for all purposes as of February 28, 2005 (the
“Effective Date”) by and between CERBCO, Inc., a
Delaware corporation (the “Company”), and George Wm.
Erikson (the “Executive”).
WHEREAS, the Company and the
Executive are parties to a Supplemental Executive Retirement Income
Agreement, which was entered into effective as of January 1, 1994,
and which was subsequently amended effective as of July 1, 1997 and
as of June 11, 1999 (the “SERP”); and
WHEREAS, the Board of Directors of
the Company (the “Board”) and the Executive have agreed
to terminate the SERP effective as of February 28, 2005, and in
connection with such termination to amend the SERP to provide the
Executive with a lump sum payment that is actuarially equivalent to
the benefit that the Executive has earned under the SERP as of
February 28, 2005, which benefit is payable pursuant to the terms
of the SERP in the form of a monthly single life annuity, with 180
monthly payments certain; and
WHEREAS, the Board and the Executive
have agreed that the annual amount that the Executive is entitled
to receive under the SERP as of February 28, 2005 is One Hundred
Thirty-Nine Thousand One Hundred Sixty-Six Dollars ($139,166) (the
“SERP Annuity Payment”); and
WHEREAS, the Board and the Executive
have agreed that the Company shall make a payment to the Executive,
based upon assumptions set forth herein, which are mutually
agreeable to the Board and the Executive, to provide compensation
to the Executive for the anticipated economic impact of the loss of
tax deferral resulting from the payment of the Executive’s
SERP benefit in the form of a lump sum payment as opposed to
monthly annuity payments; and
WHEREAS, INEI Corporation, a
Delaware corporation (“INEI”), is a subsidiary of the
Company; and
WHEREAS, INEI has sold substantially
all of its operating assets and substantially all of its material
real property and has dissolved and is in the process of winding up
its affairs; and
WHEREAS, the stock of INEI owned by
the Company represents a significant portion of the assets of the
Company; and
WHEREAS, the Board has approved a
plan of complete dissolution and liquidation of the Company in
connection with the receipt of the proceeds of the dissolution of
INEI; and
WHEREAS, in the event that the
stockholders of the Company approve the dissolution of the Company,
the Board desires to provide compensation to the Executive in order
to obtain the Executive’s commitment to provide services in
connection with the liquidation of the Company and its final
winding-up; and
WHEREAS, the Board and the Executive
desire to enter into a written agreement which sets forth their
agreements and understandings.
NOW THEREFORE, in consideration of
the mutual promises contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned parties, intending to be legally
bound, agree as follows:
1. Recitals . The foregoing
recitals are incorporated herein and made a substantive part of
this Agreement.
2. Term . The term of this
Agreement shall commence as of the Effective Date and shall
continue through the date that is three (3) years following the
effective date of the Company’s dissolution or, if earlier,
through the date that the Board authorizes a final liquidating
distribution to the Company’s stockholders or to a
liquidating trust (the “Term”).
3. Termination of the SERP
.
A. The Company and the Executive
hereby agree that the SERP shall be, and hereby is, terminated
effective as of February 28, 2005 and that a lump sum amount shall
be calculated (the “SERP Payment”) and, subject to
Section 9A hereof, paid by the Company to the Executive in
accordance with the Amendment to the SERP, a copy of which is
attached hereto as Exhibit A and made a part hereof, no later than
90 days after February 28, 2005.
B. The Company and the Executive
agree that subject to Section 9A hereof, on the same date that the
SERP Payment is made to the Executive, the Company shall pay the
Executive a lump sum amount (the “Make-Up Payment”)
equal to the amount by which the aggregate of the SERP Annuity
Payments, accumulated with interest to age 85, exceed the SERP
Payment, accumulated with interest to age 85, calculated on the
basis of the following assumptions:
(i) As provided in the SERP, that
the SERP Annuity Payments would begin at the Executive’s
current age, which is 63, and that the payments would be paid over
22 years, which is approximately the life expectancy of a person
who attains age 63; and
(ii) That the SERP Payment and each
SERP Annuity Payment (as well as all future income with respect to
the SERP Payment and all future income with respect to each SERP
Annuity Payment) would be taxed at a combined Federal, state and
local tax rate of 40%; and
(iii) That the SERP Payment and each
SERP Annuity Payment would earn annually compound interest at the
same rate of interest that is used to discount the
Executive’s SERP benefit to a lump sum amount pursuant to the
Amendment to the SERP.
C. The Executive acknowledges and
agrees that the calculations performed by Milliman, Inc. (copies of
which the Executive acknowledges he was provided on
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February 14, 2005), accurately reflect the
calculation of a SERP Payment in the amount of One Million Six
Hundred Ninety-Two Thousand Two Hundred Twelve Dollars ($1,692,212)
and a Make-Up Payment in the amount of Two Hundred Nine Thousand
Five Hundred Dollars ($209,500), in accordance with Section 3A and
Section 3B hereof, if such SERP Payment and Make-Up Payment were
determined as of December 31, 2004.
D. The Company and the Executive
agree that in full satisfaction of the Executive’s right to
receive reimbursement for legal fees and expenses pursuant to the
SERP, subject to Section 9A hereof, on the same date that the SERP
Payment is made to the Executive, the Company shall pay the
Executive $6,375.39 (the “Attorneys Fee
Payment”).
4. Retention Incentives
.
A. In the event that the
stockholders of the Company approve the dissolution of the Company,
as full and complete compensation for the Executive’s
commitment to remain in the employ of the Company and to perform
the duties set forth in Section 4C hereof, but subject to Section
8B and Section 9B hereof, and except as provided in Section 5
hereof, the Executive shall be entitled to the
following:
(i) The Company shall pay the
Executive a bonus of Fifty Thousand Dollars ($50,000) (the
“Stay Bonus”), in a lump sum, eight (8) days after the
Executive executes the Release of Employment Claims within the time
period provided for under Section 9B(i) hereof without revocation;
and
(ii) The Company shall pay the
Executive a severance payment of Two Hundred Twelve Thousand
Dollars ($212,000) (the “Severance Payment”), in a lump
sum, on the date that the Company makes the initial liquidating
distribution to the Company’s stockholders.
B. The Company and the Executive
agree that, effective as of February 28, 2005, the Executive shall
not be entitled to any other salary or other compensation from the
Company, except as provided under this Agreement.
C. The Executive hereby agrees that
in the event that the stockholders of the Company approve the
dissolution of the Company, the Executive’s principal duties
during the Term of this Agreement shall be to take any and all
actions as are needed to complete the orderly liquidation and
winding up of the Company, including without limitation, all
actions needed to evaluate and resolve any and all claims made
against the Company, including any claims made by or with respect
to any of the Company’s assets or obligations, or with
respect to any of its employees or agents, and to see to the sale
of all of the Company’s remaining assets.
5. Termination of this
Agreement . This Agreement may be terminated prior to the end
of the Term (which earlier termination date is referred to under
this Agreement as the “Termination Date”) as
follows:
A. Either the Board or the Executive
may terminate this Agreement at any time upon written notice to the
other; provided, that if the Board terminates this Agreement for
Cause, the notice to the Executive shall specify the grounds
constituting Cause.
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B. This Agreement shall
automatically terminate upon the death of the Executive.
C. At the election of the Board,
this Agreement may be terminated upon the Total Disability of the
Executive, by written notice to the Executive.
D. In the event that the Board
terminates this Agreement for Cause, or in the event that the
Executive terminates this Agreement, the Executive shall not be
entitled to the Stay Bonus or the Severance Payment.
E. In the event that the Board
terminates this Agreement without Cause, subject to the execution
by the Executive of the Release of Employment Claims within the
time period provided for under Section 9B(ii) hereof without
revocation, and subject to Section 8B hereof, the Executive shall
be paid the Stay Bonus and the Severance Payment.
F. In the event that this Agreement
is terminated as a result of the death or Total Disability of the
Executive:
(i) The Executive shall not be
entitled to the Stay Bonus; but
(ii) Subject to the execution by the
Executive of the Release of Employment Claims within the time
period provided for under Section 9B(ii) hereof without revocation,
and subject to Section 8B hereof, the Executive shall be paid the
Severance Payment eight (8) days after he executes the Release of
Employment Claims without revocation; provided, that in the event
of the death of the Executive, the Severance Payment shall be paid
to the Executive’s estate eight (8) days after the executor
of his estate executes a Release of Employment Claims in
substantially the same form as the Release of Employment Claims
attached hereto as Exhibit C, without revocation, within the time
period provided for under Section 9B(ii) hereof or sixty (60)
calendar days after the death of the Executive, whichever is
longer.
G. The Board and the Executive agree
that the termination of this Agreement pursuant to this Section 5
shall in no event, in and of itself, provide a basis for denying
the Executive the SERP Payment, the Attorneys Fee Payment or the
Make-Up Payment.
6. Definition of Cause . For
purposes of this Agreement, “Cause” shall mean: (i) the
Executive’s conviction of, or the entering of a plea of
guilty or nolo contendere by the Executive to, any felony or any
crime involving moral turpitude; (ii) dishonesty or other willful
misconduct on the part of the Executive that is materially harmful
to the Company or any subsidiary of the Company; (iii) the failure
of the Executive, within ten (10) days after receipt by the
Executive of written notice from the Board, to comply with lawful
and reasonable instructions of the Board; or
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(iv) the failure of the Executive to perform the
duties specified in Section 4C hereof in any material respect,
other than as a result of illness or other disability, following
written notice thereof from the Board and ten (10) days’
opportunity to cure such failure.
7. Definition of Total
Disability . For purposes hereof, “Total
Disability” shall mean the inability of the Executive to
perform the duties set forth in Section 4C hereof by reason of any
physical or mental impairment, as determined by a physician or
other appropriate medical evidence acceptable to the Board, which
continues for sixty (60) substantially consecutive days. The
Executive agrees to submit to reasonable examination and/or provide
other satisfactory proof of disability as the Board may
request.
8. Nonsolicitation and
Noncompetition .
A. The Executive covenants and
agrees that through the date that is three (3) years following the
effective date of the Company’s dissolution, the Executive
shall not, directly or indirectly:
(i) Perform services which are, or
own any interest in any entity whose business is, competitive with
any business historically conducted by any of the Company’s
subsidiaries, except that the foregoing shall not preclude the
Executive from owning less than a 5% interest, taking into account
interests owned by members of the Executive’s family, in a
company whose shares are publicly traded;
(ii) Divert or seek to divert any
business or business opportunity from the Company or any subsidiary
of the Company; or
(iii) Solicit or encourage any
employee of the Company or any subsidiary of the Company to cease
being an employee of the Company or any subsidiary of the
Company.
B. In the event that the Executive
breaches any of his material covenants and agreements under Section
8A hereof, and after notice fails to cure any such breach within
five (5) business days, then in addition to, and not in lieu of,
any and all other remedies that may be available to the Company
with resp
