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[MMC
Energy, Inc. Letterhead]
April
4, 2008
Mr.
Harry Scarborough
11002
Ainswick Drive
Bakersfield,
CA 93311
RE:
Change in Control and Severance Agreement
Dear
Mr. Scarborough:
MMC
Energy, Inc. (the “
Company ”)
has determined that appropriate steps should be taken to reinforce
and encourage your continued employment and dedication. In
consideration for you remaining in its employ, the Company and you
agree as follows:
1.
TERMINATION
OF YOUR EMPLOYMENT IN CONNECTION WITH A QUALIFYING
EVENT.
In
the event of a Qualifying Termination (as defined below),
then:
(a)
subject
to your execution and nonrevocation of the release as provided
in Section 5(b) below, the Company shall pay to you a
cash amount equal to the greater of (i) two and one-half times
(2.5 times) your annual base salary in effect immediately
prior to the date of your termination of employment or (ii)
$500,000, (and you shall not be entitled to any other
severance benefits which may otherwise be payable to you upon
a termination of employment as set forth in any other
agreement between you and the Company or any of its
Subsidiaries (as defined below), if any) (the “
Payment ”).
The Payment shall be payable to you in accordance with the
Company’s normal payroll cycle over the thirty-month period
immediately following the date of such Qualifying
Termination;
provided, however, if
there shall occur a Change in Control, (A) any portion of the
Payment that is to be paid hereunder but has not yet been paid
shall be accelerated and paid to you as a lump sum within ten days
of such Change in Control
and
(B) if the relevant Qualifying Event occurs subsequent to a Change
in Control, the Payment shall be payable to you as a lump sum
within ten days of such Qualifying Event.
(b)
subject
to your execution and nonrevocation of the release as provided
in Section 5(b) below, notwithstanding any provision to
the contrary contained in any plan or agreement evidencing an
Equity Award granted to you (other than an Excluded Agreement)
the vesting and/or exercisability of each of your outstanding
Equity Awards shall be accelerated in full, effective as of
the date of your termination of employment;
provided, however ,
that such acceleration of vesting and/or exercisability shall not
apply to any Equity Award where such acceleration would be contrary
to applicable law.
2.
TERM
(a)
The
initial term of this Agreement (the “
Initial Term ”)
shall commence on the date hereof (the “
Effective Date ”)
and shall terminate on the third anniversary of the Effective Date,
except as otherwise provided in Sections 2(b) and 2(c)
below.
(b)
During
the one-year period commencing immediately prior to the
expiration of the Initial Term or any Renewal Term (as defined
below) then in effect, the Compensation Committee of the Board
of Directors (the “
Committee ”)
shall determine, in its sole discretion, whether and for what
period, if any, and upon what terms and conditions (including any
modification to the terms and conditions of this Agreement as then
in effect that the Committee shall determine to be advisable) the
Company shall offer to you to extend the term of this Agreement
(any such extension being referred to herein as a “
Renewal Term ”)
following the expiration of the then-effective Initial Term or
Renewal Term as the case may be. Following its determination, the
Committee shall advise you in writing of the terms and conditions
upon which the Company would be willing to extend the term of this
Agreement;
provided, however, that
if the Committee fails to so advise you or if you do not accept the
terms and conditions upon which the Company would be willing to
extend the term of the Agreement, the Agreement shall terminate
upon the expiration of the Initial Term or Renewal Term then in
effect except as otherwise provided in Section 2(c)
.
(c)
Notwithstanding
the provisions of Sections 2(a) and 2(b) above, the
then-effective Initial Term or Renewal Term shall
automatically be extended in the event that such term would
otherwise expire during the period commencing upon the first
public announcement of a definitive agreement that would
result in a Change in Control (even though still subject to
approval of the Company’s stockholders and other
conditions and contingencies) and ending upon the expiration
of the Change in Control Period. Such extension shall be upon
the terms and conditions of this Agreement as then in effect,
provided that such extension of the term of the Agreement
shall expire upon the first to occur of the first public
announcement of the termination of such definitive agreement
or the expiration of the Change in Control
Period.
(d)
Notwithstanding
the provisions of this Section 2, the obligation of the
Company to make payments or provide benefits pursuant to this
Agreement to which you have acquired a right in accordance
with the applicable provisions of this Agreement prior to the
expiration of the then-effective Initial Term or Renewal Term
shall survive the termination of this Agreement until such
payments and benefits have been provided in full.
(e)
Notwithstanding
the provisions of Sections 2(a), 2(b) and 2(c) but subject to
Section 2(d), prior to the occurrence of a Change in Control,
this Agreement shall immediately terminate upon your
termination of employment for any reason other than by the
Company without Cause (as defined below) or by you for Good
Reason (as defined below).
2
3.
SECTION
409A; SECTION 280G.
(a)
To
the extent applicable, this Agreement shall be interpreted in
accordance with Section 409A of the Internal Revenue Code of
1986, as amended (the “
Code ”)
and Department of Treasury regulations and other interpretive
guidance issued thereunder, including without limitation any such
regulations or other guidance that may be issued after the
Effective Date (collectively, “
409A Guidance ”).
Notwithstanding anything in this Agreement to the contrary, if a
payment obligation under this Agreement arises on account of your
separation from service while you are a “specified
employee” (as defined under 409A Guidance), any payment of
“deferred compensation” (as defined under Treasury
Regulation Section 1.409A-1(b)(1), after giving effect to the
exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through
(b)(12)) that is scheduled to be paid within six (6) months after
such separation from service shall accrue with interest and shall
be paid within fifteen (15) days after the end of the six-month
period beginning on the date of such separation from service or, if
earlier, within fifteen (15) days after the appointment of the
personal representative or executor of your estate following your
death. For purposes of the preceding sentence, interest shall
accrue at the prime rate of interest plus five percent (5%), as
published in the northeast edition of The Wall Street Journal on
the date of your separation from service. The Company shall consult
with you in good faith regarding the implementation of this Section
3;
provided ,
that neither the Company nor any of its Subsidiaries, nor any of
their respective directors, employees or representatives shall have
any liability to you with respect to such implementation provided
such implementation is done in good faith. The preceding
provisions, however, shall not be construed as a guarantee by the
Company of any particular tax effect to you under this Agreement.
The Company shall not be liable to you for any payment made under
this Agreement that is determined to result in an additional tax,
penalty, or interest under Section 409A of the Code, nor for
reporting in good faith any payment made under this Agreement as an
amount includible in gross income under Section 409A of the Code.
For purposes of Section 409A of the Code, the right to a series of
installment payments under this Agreement shall be treated as a
right to a series of separate payments. “Termination of
employment,” “resignation,” or words of similar
import, as used in this Agreement mean, for purposes of any
payments under this Agreement that are payments of deferred
compensation subject to Section 409A of the Code, your
“separation from service” as defined in Section 409A of
the Code.
(b)
Certain
Additional Payments.
(i)
Gross-Up Payment Amount .
Notwithstanding anything in this Agreement to the contrary, in the
event it shall be determined that any payment or distribution by
the Company to or for your benefit, whether paid, payable,
distributed or distributable pursuant to this Agreement or
otherwise would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986 (the “
Code ”)
(or any successor provision) or any interest or penalties with
respect to such excise tax (such excise tax, together with any such
interest and penalties, are collectively referred to in this
Agreement as the “
Excise Tax ”),
then you shall be entitled to receive an additional payment (a
“
Gross-Up Payment ”)
in an amount such that after the payment by you of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, you retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
3
(ii)
Determinations .
All determinations required to be made under this Section 3,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized
in arriving at such determination, shall be made by an accounting
firm of recognized standing reasonably selected by you (the
“
Accounting Firm ”),
which shall provide detailed supporting calculations to both you
and the Company within thirty (30) business days of the receipt of
written notice from
you that there has been a Payment. Any Gross-Up Payment, as
determined pursuant to this Section 3, shall be paid by the
Company to you within five (5) days of the receipt of the
Accounting Firm’s determination. All fees and expenses of the
Accounting Firm shall be borne by the Company. Any determination by
the Accounting Firm shall be binding upon you and the Company. As a
result of the possible uncertainty in application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments
will not have been made by the Company that should have been made
(“
Underpayment ”),
consistent with the calculations required to be made hereunder. In
the event that you thereafter are required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for your
benefit.
(iii)
409A Payment Deadline .
In all events and without in any way tolling the time periods
provided for in Section 3(b)(ii) above, the Gross-Up Payment, if
any, including any Underpayment, shall not be made later than the
December 31 following your taxable year in which you remit the
Excise Tax.
4.
DEFINITIONS.
For
purposes of this Agreement, the following terms shall have the
following meanings:
(a)
“
Cause ”
shall be defined as the occurrence of: (i)
your conviction for a felony, excluding convictions associated with
traffic violations; (ii) you
being under the influence of drugs or alcohol (other than
prescription medicine or other medically-related drugs to the
extent that they are taken in accordance with their directions)
during the performance of your duties under this Agreement, or,
while under the influence of such drugs or alcohol, engaging in
grossly inappropriate conduct during the performance of your duties
under this Agreement; or engaging in behavior that would constitute
grounds for liability for harassment (as proscribed by the U.S.
Equal Employment Opportunity Commission Guidelines or any other
applicable state or local regulatory body) or other egregious
conduct that violates laws governing the workplace,
(iii)
an egregious and material act of dishonesty (including without
limitation theft or embezzlement) whether or not involving the
Company but relating to your business affairs; (iv) a willful and
material violation of any provision of the Company’s Code of
Conduct, Policy Memorandum Concerning Insider Trading or that
certain Assignment of Inventions, Non-Disclosure and
Non-Competition Agreement, dated December 11, 2006, between you and
the Company; (v) intentional reckless conduct that is materially
detrimental to the business or reputation of the Company; or (vi)
material and continued failure (other than by reason of Disability)
to carry out reasonably assigned duties or instructions consistent
with the title of Senior Vice President of MMC Energy North
America, LLC (provided that material failure to carry out
reasonably assigned duties shall be deemed to constitute Cause only
after a finding by the Board of Directors of such material failure
on your part, which shall include the specifics giving rise to such
failure, and the failure by you to remedy such material failure
within 30 days after delivery of a written version of such finding
to you).
4
(b)
“
Change in Control ”
means the occurrence of any of the following,
provided that the
occurrence also constitutes, within the meaning of 409A Guidance, a
change in the ownership or effective control of the Company or a
change in the ownership of a substantial portion of the assets of
the Company:
(i)
any
“person” (as such term is used in
Sections&n
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