EXHIBIT 10.3
NETGURU, INC.
00000 XXXX XXXXX XXXXXXX
XXXXX XXXXX, XXXXXXXXXX 00000
CHANGE IN CONTROL
AND
EXECUTIVE RETENTION AGREEMENT
June __, 2005
_________________________
_________________________
__________________, California 9____
Dear ________________:
netGuru, Inc., for itself, its successors and assigns (collectively,
the "COMPANY") considers it essential to the best interests of its stockholders
to xxxxxx the continued employment of key management personnel. As is the case
with many publicly-held corporations, the Board of Directors of the Company (the
"BOARD") recognizes that the possibility of a change in control of the Company
may exist. This possibility raises a great deal of uncertainty and questions
among management, and could lead to the departure or distraction of management
personnel to the detriment of the Company and its stockholders. The Board has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of certain members of the Company's senior
management, including yourself, to their assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a change in control of the Company.
In order to induce you to remain in the employ of the Company so that
you may continue to exercise your special skills and knowledge on behalf of the
Company, and to assist the Board of Directors if a change in control transaction
is considered, the Company agrees that you shall receive the severance benefits
set forth in this letter agreement ("AGREEMENT") in the event your employment
with the Company is terminated within the meaning of this Agreement following a
change in control of the Company (as "CHANGE IN CONTROL" is defined below)
during the term or any extended term of this Agreement.
This Agreement is not intended to alter materially the compensation and
benefits that you could reasonably expect in the absence of a Change in Control
of the Company and, accordingly, this Agreement, though taking effect upon
execution hereof, will be operative only upon a Change in Control of the
Company, in which event, it will supercede any then existing or operative
employment agreements.
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall
continue in effect through March 31, 2006; provided, however, that (i)
commencing on April 1, 2006 and each April 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than December 31 of the preceding year, the Company gives notice to you
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that it does not wish to extend this Agreement; (ii) if a "Change in Control" of
the Company occurs during the original or extended term of this Agreement, this
Agreement shall continue in effect for a period of twenty-four (24) months
beyond the month in which such Change in Control occurs; and (iii) the Company
shall have no right to give notice that it does not wish to extend this
Agreement during any period while a tender offer for the purchase of a
substantial portion of the Company's common shares is outstanding or a proxy
contest for the election of directors to the Board is in progress or the Company
is conducting discussions or taking any other action which is reasonably likely
to lead to a Change in Control, and no purported notice by the Company that it
does not wish to extend this Agreement shall become effective if a Change in
Control actually occurs during the period of 180 days following the delivery of
such notice to you.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall
have been a Change in Control of the Company as set forth below. For purposes of
this Agreement a Change in Control of the Company shall mean a change in control
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), whether or not the Company is then
subject to such reporting requirement; provided that, without limitation, such a
Change in Control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing thirty-five percent (35%) or more of the combined voting power of
the Company's then outstanding voting securities; (ii) there is a merger or
consolidation of the Company in which the Company does not survive as an
independent public company; (iii) the business or businesses of the Company for
which your services are principally performed are disposed of by the Company
pursuant to a partial or complete liquidation of the Company, a sale of assets
(including stock of a subsidiary) of the Company, or otherwise; or (iv) during
any period of two (2) consecutive years during the term of this Agreement,
individuals who, at the beginning of such period constitute the Board, cease for
any reason to constitute at least a majority thereof, unless the election of
each director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period. No
transaction which effects a mere reincorporation of the Company, or a
transaction which reorganizes the Company, shall be considered a "Change in
Control" for purposes of this Agreement.
3. TERMINATION AFTER CHANGE IN CONTROL. If any of the events described in
SECTION 2 constituting a Change in Control have occurred, you shall be entitled
to the benefits provided in SECTION 4.4 upon the termination of your employment
during the term of this Agreement, unless such termination is (A) because of
your death or Disability; (B) by the Company for Cause; or (C) by you other than
for Good Reason.
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3.1 DISABILITY. If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six (6) consecutive months, and within thirty
(30) days after written notice of termination is given you shall not have
returned to the full-time performance of your duties, your employment may be
terminated for "DISABILITY." Termination by the Company or you of your
employment based on "RETIREMENT" shall mean termination in accordance with the
Company's retirement policy at normal retirement age generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with your consent with respect to you.
3.2 CAUSE. Termination by the Company of your employment for "CAUSE"
shall mean termination upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination, as
defined in SECTION 3.4, by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties, or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted to be done,
by you not in good faith and without reasonable belief that your action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in clauses (A) or (B) of the
first sentence of this SECTION 3.2 and specifying the particulars thereof in
detail.
3.3 GOOD REASON. You shall be entitled to terminate your employment for
Good Reason. For purposes of this Agreement, "GOOD REASON" shall mean, without
your express written consent, any of the following:
(a) a substantial adverse alteration in the nature or status of
your responsibilities from those in effect immediately prior to a Change in
Control;
(b) the transfer of your responsibilities to an office or location
more than 35 miles more distant from your place of residence immediately prior
to a Change in Control, or the Company requiring you to be based anywhere other
than the metropolitan area in which you are based prior to a Change in Control,
except for required travel on the Company's business to an extent substantially
consistent with your business travel obligations prior to the Change in Control;
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(c) a reduction by the Company in your annual base salary, bonus
computation, as in effect on the date hereof or as the same may be increased
from time to time;
(d) the failure by the Company, without your consent, to pay to
you any portion of your current compensation, or to pay to you any portion of an
installment of deferred compensation under any deferred compensation program of
the Company within seven (7) days of the date such compensation is due;
(e) the failure by the Company to continue in effect any
compensation plan in which you participate, unless an equitable and
substantially equivalent arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue your participation therein on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level of
your participation relative to other participants, as existed at the time of the
Change in Control;
(f) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's pension, retirement, savings, deferred compensation, auto allowance,
life insurance, medical, health and accident, or disability plans (whether or
not qualified under the Internal Revenue Code) in which you were participating
at the time of a Change in Control, the taking of any action by the Company
which would directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the time of the
Change in Control, or the failure by the Company to provide you with the number
of paid vacation days to which you are entitled on the basis of years of service
with the Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; (
g) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in SECTION 5(a), or
(h) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 3.4 (and, if applicable, the requirements of SECTION 3.2); for purposes
of this Agreement, no such purported termination shall be effective.
Your right to terminate your employment pursuant to this SECTION 3.3
shall not be affected by your incapacity due to physical or mental illness. Your
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
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3.4 NOTICE OF TERMINATION. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with SECTION 6. For purposes of this
Agreement, a "NOTICE OF TERMINATION" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so indicated.
3.5 DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (A) if your
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to SECTION 3.2 or SECTION 3.3 or for any
reason other than Disability, the date specified in the Notice of Termination
(which, in the case of a termination pursuant to SECTION 3.2 shall not be less
than thirty (30) days, and in the case of a termination pursuant to SECTION 3.3
shall not be less than thirty (30) nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given); provided that if within
thirty (30) days after any Notice of Termination is given the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or the time for
appeal therefrom having expired and no appeal having been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue you
as a participant in all compensation, pension, benefit and insurance plans in
which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this Section
3.5. Amounts paid under this Section 3.5 are in addition to all other amounts
due under this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
4. COMPENSATION FOLLOWING TERMINATION. Following a Change in Control, as defined
in SECTION 2, upon termination of your employment or during a period of
disability you shall be entitled to the following benefits:
4.1 DISABILITY. During any period that you fail to perform your
full-time duties with the Company as a result of incapacity due to physical or
mental illness, you shall continue to receive your base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to you under the Company's short-term and long-term disability insurance
program or other plan during such period, until this Agreement is terminated
pursuant to SECTION 3.1. Thereafter, your benefits shall be determined in
accordance with the Company's insurance and retirement programs then in effect.
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4.2 CAUSE; VOLUNTARY TERMINATION. If your employment shall be
terminated by the Company for cause or by you other than for Good Reason,
Disability, Death or Retirement, the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled under any
compensation plan of the Company at the time such payments are due, and the
Company shall have no further obligations to you under this Agreement.
4.3 RETIREMENT; DEATH. If your employment shall be terminated by the
Company or by you for Retirement, or by reason of your Death, your benefits
shall be determined in accordance with the Company's retirement and insurance
programs then in effect.
4.4 GOOD REASON. If your employment shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by you for Good
Reason, then you shall be entitled to the benefits provided below:
(a) The Company shall pay you your full base salary through
your Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company, at the time
such payments are due except as otherwise provided below;
(b) In lieu of any further salary payments to you for periods
subsequent to your Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (the "SEVERANCE
PAYMENT") equal to the sum of (x) your annual base salary in
effect immediately prior to the occurrence of the circumstance
giving rise to the Notice of Termination given in respect thereof,
and (y) the amount of any bonus paid to you during the twelve (12)
calendar months preceding the occurrence of the circumstance which
provided the reason for the Notice of Termination given in respect
thereof.
(c) Effective upon your Date of Termination you shall become
vested with all unvested benefits which you have then accrued
under any stock option, retirement or deferred compensation plan,
program or agreement of the Company in which you participate,
payable subject to the same actuarial and interest factors
applicable and in accordance with the options available and
selected by you under such plans or programs.
(d) For a twelve (12) month period after such termination,
the Company shall arrange to provide you and any of your
dependents with life, disability, accident and health insurance
benefits substantially similar to those which you and any of your
dependents were receiving from the Company immediately prior to
the Notice of Termination (however, you must make the required
"employee contribution payments," if any, to the Company on a
monthly basis in the same amount as before the Date of Termination
or, in the case of termination for Good Reason under SECTION
3.3(f), immediately prior to the reduction of benefits.
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(e) The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this
Agreement), except to the extent that the payment of such fees and
expenses would constitute, or would cause any other portion of the
Total Payments to constitute, an "excess parachute payment" as
defined in Section 280G(b) of the Internal Revenue Code or any
successor provision ("EXCESS PARACHUTE PAYMENT").
(f) If any payment or benefit received or to be received by
you in connection with a Change in Control or the termination of
your employment following a Change in Control (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, with any person whose actions result
in a Change in Control or any person affiliated with the Company
or such person (collectively with the Severance Payment, "TOTAL
PAYMENTS") would constitute (in whole or in part) an Excess
Parachute Payment, the Severance Payment shall be reduced until no
portion of the Total Payments shall constitute an Excess Parachute
Payment.
(i) Within six (6) days following delivery of written
notice by the Company to you of the Company's belief that
there is a payment due or benefit due which will result in an
Excess Parachute Payment, the Company and you, at the
Company's expense, shall obtain the opinion of legal counsel
and certified public accountants, as the Company and you may
mutually agree upon, which opinions need not be unqualified,
which sets forth (A) the amount of your "annualized
includible compensation for the base period," as defined in
Section 280G(d) of the Internal Revenue Code, (B) the present
value of Total Payments, and (C) the amount and present value
of any Excess Parachute Payments.
(ii) If such opinions determine that there would be an
Excess Parachute Payment, the Termination Payment hereunder
or any other payment determined by such counsel to be
includable in Total Payments shall be reduced or eliminated
in the following order: (A) by the amount of any options to
purchase shares of the Company's capital stock which have had
their vesting rights accelerated hereunder, and then (B) by
the amount of any cash received hereunder, so that under the
bases of calculation set forth in such opinions there will be
no Excess Parachute Payment.
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(iii) The provisions of this SECTION 4.4(f), including
the calculations, notices, and opinions provided for herein
shall be based upon the conclusive presumption that (A) the
compensation and benefits provided herein and (B) any other
compensation, including but not limited to any accrued
benefits, earned by you prior to the Change in Control of the
Company pursuant to the Company's compensation programs if
such payments would have been made in the future in any
event, even though the timing of such payment is triggered by
the Change in Control of the Company, is reasonable,
provided, however, that in the event such legal counsel so
requests in connection with the Section 280G opinion required
by this SECTION 4.4(f), the Company and you shall obtain, at
the Company's expense, and the legal counsel may rely on in
providing the opinion, the advice of a firm of recognized
executive compensation consultants as to the reasonableness
of any item of compensation to be received by you.
(iv) For purposes of this limitation (i) no portion of
the Total Payments, the receipt or enjoyment of which you
shall have effectively waived in writing prior to the date of
payment of the Severance Payment shall be taken into account;
and (ii) no portion of the Total Payments shall be taken into
account which in the opinion of the tax counsel selected by
the Company and acceptable to you does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2)
of the Internal Revenue Code.
(v) If the provisions of Sections 280G and 4999 of the
Internal Revenue Code or any successor provisions are
repealed without succession this SECTION 4.4(f) shall be of
no further force or effect.
(g) The payment provided for in SECTION 4.4(b) shall be made
not later than the fifth (5th) day following the Date of
Termination; provided, however, that if the amount of such
payments, and the limitation on such payments set forth in SECTION
4.4(f), cannot be finally determined on or before such day, the
Company shall pay to you on such day an estimate, as determined in
good faith by the Company, of the minimum amount of such payments
and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Internal Revenue Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day
after the Date of Termination. If the amount of the estimated
payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you,
payable on the fifth day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Internal Revenue Code).
4.5 NO REQUIREMENT TO MITIGATE. You shall not be required to mitigate
the amount of any payment provided for in this SECTION 4 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this SECTION 4 be reduced by any compensation earned by you as the result
of employment by another employer, by retirement benefits, by offset against any
amount claimed to be owing by you to the Company or otherwise.
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5. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree in
writing to perform this Agreement. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall require the Company to pay to you
compensation from the Company in the same amount and on the same terms as you
would be entitled hereunder following a Change in Control of the Company coupled
with a Termination, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the date on
which you shall receive such compensation from the Company. As used in this
Agreement, "COMPANY" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisee and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devises, legatee or other designee or, if there
is no such designee to your estate.
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6. NOTICE. For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States Registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
a change of address shall be effective only upon receipt.
7. MISCELLANEOUS. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
8. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
Parties with respect to the subject matter hereof and supersedes any prior or
contemporaneous agreements or understandings relating to the subject matter
hereof.
11. HEADINGS. The headings of the Sections of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction hereof.
12. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions with
provisions which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provisions.
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13. ATTORNEYS' FEES. In the event any party to this Agreement initiates any
action, suit, motion, application, arbitration or other proceeding which
concerns the interpretation or enforcement of this Agreement, the prevailing
party in such action, suit, motion, application, arbitration or other
proceeding, or judgment creditor, shall be entitled to recover its costs and
attorneys' fees from the nonprevailing party or judgment debtor, including costs
and fees on appeal, if any.
14. ARBITRATION. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Orange County,
California in accordance with the rules of the American Arbitration Association
then in effect, Discovery shall be allowed and shall be governed under the
discovery rules of the California Code of Civil Procedure. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
netGuru, Inc.
By:
--------------------------------
Its:
--------------------------
AGREED TO THIS ________
day of June, 2005
_______________________________
__________________
Approved by the Board of Directors of netGuru, Inc. effective June 1, 2005.
