SEVERANCE AND CHANGE IN CONTROL AGREEMENT
[Bracketed substitute language for the CEO]
THIS AGREEMENT, made this ____ day of __________, 1998, by and between
_________________ (the "Executive") and VALLEY MEDIA, INC., a California
corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Executive is _____________________ of the Corporation;
WHEREAS, the Corporation considers it essential to the best interests of
its shareholders to take steps to retain key personnel such as the Executive and
recognizes particularly that uncertainty might arise among personnel in the
context of any possible or actual Change in Control, as hereinafter defined,
which could result in the departure or distraction of key personnel to the
detriment of the Corporation and its shareholders; and
WHEREAS, the Corporation has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of key
personnel of the Corporation including the Executive to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from any possible or actual Change in Control.
NOW, THEREFORE, in consideration of the covenants, terms, and conditions
contained herein, the Corporation and the Executive agree:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings set forth in this Article I.
a. "Administrative Committee" shall mean the Board of Directors of
the Corporation or a committee appointed by such Board of Directors to
administer this Agreement.
b. "Affiliate" shall mean, with respect to a first Person, a second
Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the first Person.
c. "Associate" shall mean, with respect to a Person, (a) any
corporation or organization of which such Person is an officer or
partner or, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities, (b) any trust
or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such Person, or
any relative of such spouse, who has the same home as such Person.
d. "Benefit Continuation Period" shall mean the period beginning on
the date of the Severance of Employment or Non-Change in Control
Termination, as the case may be, and ending on the earlier to occur of
(a) the six (6) month anniversary of
the date of such Severance of Employment or Non-Change in Control
Termination, or (b) the date that the Executive and the Executive's
dependents are eligible and elect coverage under the plans of a
subsequent employer that provide substantially equivalent or greater
benefits to the Executive and the Executive's dependents.
e. "Business Combination" shall mean a merger or consolidation of
the Corporation and one or more other entities in which the
Corporation or a subsidiary of the Corporation is a merging or
consolidating party.
f. "Change in Control" shall mean (a) the sale of all or
substantially all of the assets of the Corporation; (b) any change in
ownership or control of the outstanding voting securities of the
Corporation following which any Person other than Barnet X. Xxxxx,
Xxxxxxx X. Xxxxx, any Affiliate or Associate of Barnet X. Xxxxx or
Xxxxxxx X. Xxxxx, or the Corporation's Employee Stock Ownership Plan,
beneficially owns, together with its Affiliates and Associates, thirty
five percent (35%) or more of the outstanding voting securities of the
Corporation; (c) any change in the membership of the Corporation's
Board of Directors after the closing date of the Corporation's Initial
Public Offering following which Continuing Directors do not constitute
a majority of the Board; or (d) a Business Combination immediately
following which the shareholders of the Company immediately prior to
such Business Combination do not hold more than sixty five percent
(65%) of the outstanding voting securities of the Successor Entity in
the same proportion as such shareholders held Common Stock of the
Company immediately prior to such Business Combination.
g. "Code" shall mean the Internal Revenue Code of 1986, as amended
to date.
h. "Constructive Discharge" shall mean (a) without the Executive's
express written consent, the assignment to the Executive of any
duties, or the removal from or reduction or limitation of the
Executive's duties or responsibilities, which is inconsistent with the
Executive's position, organization level, duties, responsibilities or
compensation status with the Corporation immediately prior to such
assignment, removal, reduction or limitation; (b) without the
Executive's express written consent, a substantial reduction of the
facilities and perquisites (including office space and location)
available to the Executive; (c) a reduction by the Corporation in the
base cash salary of the Executive; (d) a material reduction by the
Corporation in the kind and level of employee benefits to which the
Executive is entitled, with the result that the Executive's overall
benefit package is materially reduced; (e) without the Executive's
express written consent, the relocation of the Executive to a facility
or location more than thirty five (35) miles from the Executive's then
present location; or (f) the failure of the Corporation to obtain the
assumption of this Agreement by any Successor Entity.
i. "Continuing Director" shall mean, at any given time, a member of
the Corporation's Board of Directors who was (a) a member of the Board
on the closing date of the Corporation's Initial Public Offering, (b)
elected to the Board by the Board after the closing date of the
Corporation's Initial Public Offering,
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provided that a majority of the Continuing Directors voted in favor of
such election, or (c) nominated to the Board by the Board after the
closing date of the Corporation's Initial Public Offering, provided
that a majority of the Continuing Directors voted in favor of such
nomination, and subsequently elected to the Board by the shareholders
of the Corporation.
j. "Initial Public Offering" shall mean the closing of the first
sale of securities of the Corporation to the public, through a firm
commitment underwriting, for an aggregate price (exclusive of
underwriters' discounts and commissions and expenses of the offering)
of at least seven million five hundred thousand dollars ($7,500,000),
pursuant to an effective registration statement (other than on
Form S-8 or S-4 or successor forms to either of such forms) filed with
the Securities and Exchange Commission under the Securities Act of
1933, as amended.
k. "Just Cause Termination" shall mean a termination by the
Corporation of the Executive's employment in connection with the good
faith determination of the Corporation's Board of Directors that the
Executive has engaged in (a) any acts involving dishonesty or moral
turpitude, or (b) any acts, other than acts taken by the Executive in
the good faith belief that such acts are in the Company's best
interests, that materially and adversely affect the business, affairs
or reputation of the Company and its subsidiaries taken as a whole.
l. "Non-Change in Control Termination" shall mean that either (i)
the Executive's employment is terminated by the Corporation and the
termination is not a Just Cause Termination and is not by reason of
the Executive's death or disability, or (ii) the Executive terminates
his or her employment with the Corporation by resignation following a
Constructive Discharge, and, in either event, no Change of Control has
occurred within the two (2) year period immediately preceding such
termination or resignation.
m. "Non-Change in Control Termination Year" shall mean, with respect
to a Non-Change in Control Termination, the fiscal year of the
Corporation during which such Non-Change in Control Termination
occurs.
n. "Person" shall mean any individual, corporation, partnership,
limited liability company, sole proprietorship, joint venture or other
organization.
o. "Severance of Employment" shall mean (a) the termination of the
Executive's employment with the Corporation within two (2) years after
the date of a Change in Control by (i) discharge by the Corporation or
(ii) resignation of the Executive following a Constructive Discharge,
or (b) the termination of the Executive's employment with the
Corporation by resignation of the Executive within the thirty (30) day
period immediately following the first anniversary of a Change in
Control. Despite the foregoing, neither of the following will
constitute a Severance of Employment:
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i. The termination of the Executive's employment by reason of
death or disability.
ii. A Just Cause Termination of the Executive's employment.
p. "Severance Year" shall mean, with respect to a Severance of
Employment, the fiscal year of the Corporation during which such
Severance of Employment occurs.
q. "Successor Entity" shall mean a corporation or other entity other
than the Corporation that acquires all or substantially all of the
assets of the Corporation, or which is the surviving or parent entity
resulting from a Business Combination.
2. ADMINISTRATION.
The Administrative Committee shall administer this Agreement and
shall have the power and the duty to make all determinations necessary for the
implementation of this Agreement, including by way of example and not as a
limitation, the occurrence of a Change in Control and the date of such change.
Any such determination (a) shall be made on the basis of all information known
to the persons making the determination, after reasonable inquiry, (b) may be
made prospectively and subject to one or more contingent events, and (c) will be
binding on the Corporation but not the Executive. Any disagreement between the
Corporation and the Executive concerning any such determination or the
administration, implementation or interpretation of this Agreement shall be
subject to the claims and arbitration procedures set forth in Article XV.
3. OBLIGATIONS OF THE CORPORATION UPON SEVERANCE OF EMPLOYMENT.
a. Within fifteen (15) days after a Severance of Employment or at
such earlier time as may be required by law, the Corporation shall pay
to the Executive:
i. The full amount of any earned but unpaid base salary through
the date of the Severance of Employment, plus a cash payment for
(a) all unused vacation time which the Executive has accrued as
of the Severance of Employment, and (b) all reasonable travel,
entertainment and other expenses properly incurred by the
Executive in connection with his or her employment by the
Corporation to the extent the Executive has not already been
reimbursed for such expenses.
ii. If the Executive's bonus for any fiscal year of the
Corporation prior to the Severance Year has not been paid prior
to the Severance of Employment, the amount of such bonus.
b. Within thirty (30) days after a Severance of Employment, the
Corporation shall pay to the Executive an amount equal to two (2)
[THREE (3)] times the aggregate of the Executive's annual base salary
immediately prior to the Severance of Employment and the Executive's
target bonus for the Severance Year. The Executive shall be eligible
to make contributions to the Corporation's Section
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401(k) plan from amounts payable to the Executive under Article III.A
and this Article III.B.
c. Within forty-five (45) days after the end of the Severance Year,
the Corporation shall pay to the Executive an amount equal to the
Executive's target bonus for the Severance Year, prorated to reflect
the portion of the Severance Year that elapsed prior to the Severance
of Employment.
4. OBLIGATIONS OF THE CORPORATION UPON NON-CHANGE IN CONTROL
TERMINATION.
a. Within fifteen (15) days after a Non-Change in Control
Termination or at such earlier time as may be required by law, the
Corporation shall pay to the Executive:
i. The full amount of any earned but unpaid base salary through
the date of the Non-Change in Control Termination, plus a cash
payment for (a) all unused vacation time which the Executive has
accrued as of the Non-Change in Control Termination, and (b) all
reasonable travel, entertainment and other expenses properly
incurred by the Executive in connection with his or her
employment by the Corporation to the extent the Executive has not
already been reimbursed for such expenses.
ii. If the Executive's bonus for any fiscal year of the
Corporation prior to the Non-Change in Control Termination Year
has not been paid prior to the Non-Change in Control Termination,
the amount of such bonus.
b. For a period of six (6) months following a Non-Change in Control
Termination, the Corporation shall continue to pay the Executive his
or her base salary.
c. Within forty-five (45) days after the end of the Non-Change in
Control Termination Year, the Corporation shall pay to the Executive
an amount equal to the Executive's target bonus for the Non-Change in
Control Termination Year, prorated to reflect the portion of the
Non-Change in Control Termination Year that elapsed prior to the
Non-Change in Control Termination.
5. TERMINATION DUE TO DEATH OR DISABILITY. Within fifteen (15) days
after the Executive is terminated due to death or disability, or at such
earlier time as may be required by law, the Corporation shall pay (a) to
the Executive, if the Executive has been terminated due to disability, or
(b) if the Executive has died, to the Executive's surviving spouse, issue
by right of representation or estate, in that order:
a. The full amount of any earned but unpaid base salary through the
date of termination, plus a cash payment for (a) all unused vacation
time which the Executive has accrued as of the date of termination,
and (b) all reasonable travel, entertainment and other expenses
properly incurred by the Executive in connection
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with his or her employment by the Corporation to the extent the
Executive has not already been reimbursed for such expenses.
b. If the Executive's bonus for any fiscal year of the Corporation
prior to the fiscal year during which the termination occurs has not
been paid prior to the termination, the amount of such bonus.
6. OTHER TERMINATION. Within fifteen (15) days after (a) a Just Cause
Termination of the Executive or (b) the voluntary resignation of the
Executive, other than a resignation following a Constructive Discharge or a
resignation that constitutes a Severance of Employment, or at such earlier
time as may be required by law, the Corporation shall pay to the Executive
the full amount of any earned but unpaid base salary through the date of
such termination or resignation, plus a cash payment for (i) all unused
vacation time which the Executive has accrued as of date of such
termination or resignation, and (ii) all reasonable travel, entertainment
and other expenses properly incurred by the Executive in connection with
his or her employment by the Corporation to the extent the Executive has
not already been reimbursed for such expenses.
7. CONTINUATION OF BENEFITS AFTER TERMINATION.
a. After a Severance of Employment or a Non-Change in Control
Termination, the Executive and the Executive's eligible dependents
shall continue to be eligible to participate during the Benefit
Continuation Period in the medical, dental, vision, health,
disability, life and other similar plans and arrangements applicable
to the Executive immediately prior to the Severance of Employment or
Non-Change in Control Termination. The Executive shall participate on
the same terms and conditions in effect throughout the Benefit
Continuation Period for active employees of the Corporation.
b. If, at the conclusion of the Benefit Continuation Period, the
Executive is not eligible to receive coverage under the plans of a
subsequent employer that provide substantially equivalent or greater
benefits to the Executive and the Executive's dependents, the
Executive may exercise his or her right under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), to continue
to participate in the Corporation's medical, dental, vision, health,
disability, life and other similar plans and arrangements applicable
to the Executive, subject to the terms and conditions set forth in
COBRA and any rules and regulations promulgated thereunder.
8. GROSS-UP PAYMENT If it is determined, in connection with the
aggregate value of the payments made and benefits provided to the Executive
hereunder, that the Executive is subject to the excise tax imposed by
Section 4999 of the Code, or any successor provision thereto, and/or any
interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
are collectively referred to as the "Excise Tax"), the Company shall pay to
the Executive an additional cash payment (a "Gross-Up Payment") in an
amount equal to the sum of (a) the Excise Tax (including any Excise Tax
payable by the Executive with respect to
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Gross-Up Payments) plus (b) all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto),
but excluding the Excise Tax, payable by the Executive with respect to the
Gross-Up Payment.
9. OUTPLACEMENT ASSISTANCE Following a Severance of Employment or a
Non-Change in Control Termination, for a period of six (6) months or until
the Executive obtains a position with a new employer, whichever is shorter,
the Corporation shall pay for the Executive to utilize the standard
outplacement services of an outplacement firm designated by the Corporation
to assist the Executive in finding a position with a new employer.
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10. TAXES The Corporation shall deduct from any payments to the Executive
under this Agreement amounts that the Corporation is required to withhold
and pay either to government agencies on behalf of the Executive or under
court order to any Person.
11. DEATH PRIOR TO PAYMENT OF AMOUNTS DUE In the event of the Executive's
death after a Severance of Employment or Non-Change in Control Termination
but prior to payment to the Executive of amounts due under this Agreement,
such payment shall be made to the Executive's surviving spouse, issue by
right of representation or estate, in that order.
12. CONFIDENTIALITY AGREEMENT At the time the Corporation and the
Executive enter into this Agreement, they shall simultaneously enter into a
Employee Confidential Information and Inventions Agreement substantially in
the form attached hereto as EXHIBIT A.
13. TERM OF AGREEMENT. This Agreement is effective from the date hereof
and shall remain in effect until three (3) years from the date hereof (the
"Initial Term"). After the Initial Term, this Agreement shall
automatically be renewed for consecutive (1) one year periods (each a
"Renewal Term") unless either party gives the other party written notice
("Nonrenewal Notice") ninety (90) days prior to the expiration of the
Initial Term or any Renewal Term that the Agreement will not be renewed, in
which event this Agreement will terminate. Notwithstanding the expiration
provisions set out in this Article XII:
a. No termination of this Agreement following a Change in Control
shall affect the Executive's rights hereunder arising from or based
upon such Change in Control.
b. Any Nonrenewal Notice given by the Corporation shall be void
and of no effect, and this Agreement shall be reinstated in full, if a
Change of Control occurs within one hundred eighty (180) days after
the date this Agreement expires pursuant to any Nonrenewal Notice
given by the Corporation.
14. BINDING EFFECT.
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and the successors and assigns of the Corporation.
15. NON-ASSIGNMENT BY THE EXECUTIVE.
The Executive shall not assign, hypothecate, or transfer any of the
rights herein to any Person other than pursuant to the laws of descent and
distribution. Any attempt to assign, hypothecate or transfer the rights
hereunder shall immediately terminate all of the Executive's rights under this
Agreement.
16. CLAIMS PROCEDURE AND ARBITRATION.
a. In the event of a disagreement between the Corporation and the
Executive on any matter arising under this Agreement, the Executive,
in claiming a benefit or requesting an interpretation or ruling under
this Agreement, shall submit the claim
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or request in writing to the Administrative Committee, which shall
respond in writing as soon as practicable.
b. If a claim or request is denied, the Administrative Committee
shall prepare and deliver to the Executive a written notice of denial
which shall state (a) the reason for denial, with specific reference
to the provisions of this Agreement on which denial is based; (b) a
description of any additional material or information required to
prevail with the claim or request and an explanation of why it is
necessary; and (c) an explanation of the Agreement's claim review
procedure.
c. If the Administrative Committee fails to respond in writing to
any claim or request within thirty (30) days of the date such claim or
request is submitted, such failure to respond shall constitute a
denial of the claim or request.
d. If a claim or request is denied, the Executive may submit the
claim or request to mandatory and binding arbitration (an
"Arbitration"). The Executive may initiate an Arbitration by sending
the Corporation an Arbitration demand in writing. The Arbitration
shall be presided over by a single arbitrator (the "Arbitrator")
selected in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association. Any
Arbitration shall be conducted in San Francisco, California in
accordance with the Arbitration Rules and the substantive law of the
State of California; provided, however, that the Arbitrator will have
no power or authority, under the Arbitration Rules or otherwise, to
relieve the parties from their obligation hereunder to arbitrate, or
otherwise to amend or disregard any provision of this Agreement.
Judgment upon any award rendered in an Arbitration may be entered in
any court of competent jurisdiction.
17. ATTORNEYS' FEES.
In the event that any Arbitration, suit, action or proceeding
(including any appeal therefrom, but excluding any and all proceedings before
the Administrative Committee) is brought by the Executive to review any decision
of the Administrative Committee pertaining to this Agreement or to enforce any
right hereunder, and the Executive is the prevailing party in such Arbitration,
suit, action or proceeding, the Executive shall be entitled to recover from the
Corporation his or her attorneys' fees and other reasonable costs incurred in
connection therewith. During the pendency of any such Arbitration, suit, action
or proceeding, the Corporation shall promptly pay all of the Executive's
attorneys' fees and reasonable costs incurred by the Executive with respect to
such Arbitration, suit, action or proceeding, subject to the Executive's
obligation hereunder to repay all such sums if the Corporation is the prevailing
party in such Arbitration, suit, action or proceeding.
18. PARTIAL INVALIDITY.
Invalidity of any part or provision of this Agreement shall not
affect the enforceability of any other part or provision of this Agreement.
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19. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing herein shall confer, nor shall it be construed to confer, on
the Executive any right to, guarantee of, or contract for a continued employment
by the Corporation, or in any way limit the right of the Corporation to
terminate the employment of the Executive.
20. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, as applied to contracts executed and
performed entirely in California.
21. NOTICES.
Any notices given hereunder must be in writing and may be delivered
in person or by certified or registered mail, return receipt requested, postage
prepaid. Notices to Corporation should be delivered to Valley Media, Inc., 0000
Xxxxx Xxxxx Xxxxx, Xxxxxxxx, XX 00000, Attn: President, or to such other
address as Corporation from time to time furnishes to the Executive in a notice.
Notices to Executive should be delivered to the address shown beneath
Executive's signature below, or to such other address as the Executive from time
to time furnishes to the Corporation in a notice.
22. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement between the parties
hereto. This Agreement fully supersedes any and all prior agreements or
understandings pertaining to similar benefits.
23. AMENDMENTS.
This Agreement may not be modified except by a writing signed by
both parties.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the day and year first above written.
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EXECUTIVE VALLEY MEDIA, INC.
(signature) By:
-----------------------------------
Xxxxxx X. Xxxx
President and Chief Executive
Street Address Officer
(One of Two Required and
City, State and Zip Code Authorized Signatures)
And By:
-------------------------------
J. Xxxxxxxx Xxxx
Secretary
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