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EX-10.19
FORM OF SERVERANCE COMPENSATION AGREEMENT
EXHIBIT 10.19
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of ___________________ by and between
PROTEON, INC. and/or OpenROUTE Networks, Inc. (the "Company"), a Massachusetts
corporation with its principal offices at Nine ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and ____________________ (the "Executive"), residing at
WHEREAS, the Company's Board of Directors has recognized that the
possibility of a change in control of the Company may cause uncertainty among
the Company's senior management and may result in the departure or distraction
of its senior management to the detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's senior management, including the Executive, to their
duties without distraction arising from the possibility of a change in control
of the Company;
WHEREAS, the Executive desires assurance as to his compensation and
benefits in the event of any change in control of the company;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Executive agree
as follows:
1. Term. This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest to occur of:
(a) two (2) years from the date hereof;
(b) the termination of the Executive's employment with the
Company based on (i) the death of the Executive, (ii) the Disability of the
Executive, (iii) termination by the Company for Cause, or (iv) termination by
the Executive other than for Good Reason; and
(c) one year after the date of a Change in Control.
As used in this Agreement the term "Term" shall mean the period beginning on the
date hereof and ending upon the earliest to occur of events specified above.
2. Change in Control. No compensation shall be payable under this Agreement
unless and until there shall have been a Change in Control. As used in this
Agreement, the term "Change in Control" means that any of the following events
has occurred:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "1934 Act)) (or any successor provision),
becomes the beneficial owner (determined in accordance with Rule 13d-3 under the
1934 Act, or any successor provision), directly or indirectly, of more than
fifty percent (50%) of the outstanding Common Stock of the Company, or otherwise
becomes entitled to vote more than fifty percent (50%) of the voting power
entitled to be
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cast at elections for directors ("Voting Power") of the Company;
(ii) there shall have been consummated any consolidation or merger of
the Company (A) in which the Company is not the continuing or surviving
corporation unless such merger is with a corporation at least eighty percent
(80%) of the Voting Power of which is held by the Company, or (B) pursuant to
which the holders of the Company's shares of Common Stock immediately prior to
such merger or consolidation are not the holders immediately after such merger
or consolidation of at least a majority of the Voting Power of the entity
resulting from such consolidation or merger;
(iii) there shall have been consummated any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period were members of the Board of Directors of the Company
ceased for any reason to constitute a majority thereof, unless the election, or
the nomination for election by the Company's stockholders, of each new director
was approved by a vote of at least two-thirds of the directors still in office
at the time of such election or nomination who were directors at the beginning
of such Period.
As used in this definition of Change in Control, "Common Stock" means the Common
Stock, or if changed, the capital stock of the Company as it shall be
constituted from time to time entitling the holders thereof to share generally
in the distribution of all assets available for distribution to the Company's
stockholders after the distribution to any holders of capital stock with
preferential rights.
3. Termination Following Change in Control. The Executive shall be entitled to
the compensation provided in Section 4 hereof upon the termination of the
Executive's employment with the Company during the Term of this Agreement and
after a Change in Control unless such termination is as a result of (i) the
Executive's death, (ii) the Executive's Disability, (iii) termination by the
Company for Cause, or (iv) termination by the Executive other than for Good
Reason. As used in this Agreement, the following terms shall have the following
meanings:
(a) the term "Disability" shall mean that as a result of the
Executive's incapacity due to physical or mental illness or physical injury
(excluding illness or injury which was caused by repeated substance abuse by the
Executive), the Executive shall have been absent from his duties with the
Company on a full-time basis (i) for a period of sixty (60) consecutive days or
(ii) for an aggregate of ninety (90) days during any period of twelve (12)
consecutive months;
(b) the term "Cause" shall mean any of (i) the willful and continued
failure by the Executive to perform his duties with the Company, other than any
such willful or continued failure resulting from his incapacity due to physical
or mental illness or physical injury (provided that if such willful and
continued failure resulted from illness or injury which was caused by repeated
substance abuse by the Executive, then the foregoing exception for physical or
mental illness or physical injury shall not be applicable), (ii) the willful or
knowingly reckless engaging by the Executive in misconduct which is materially
injurious to the Company, financially or otherwise, including, without
limitation, willful breach by the Executive of any employment or other agreement
between the Executive and the Company, or (iii) the conviction of the Executive
of a felony by a court of competent jurisdiction. For purposes of the foregoing,
(x) the failure of the Company to achieve desired or projected results shall not
constitute Cause, but Cause shall only mean and include acts and/or omissions by
the Executive which are specified in clauses (i), (ii) and (iii) of the
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immediately preceding sentence, and (y) no act or failure to act on the part of
the Executive shall be considered "willful" unless done or admitted to be done
by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company. Notwithstanding the first
sentence of this subparagraph (b), the Executive's employment shall not be
deemed to have been terminated for Cause unless (A) reasonable notice shall have
been given to him setting forth in detail the reasons for the Company's
intention to terminate for Cause and, if such termination is pursuant to clause
(i) or (ii) above, only if the Executive has been provided a period of five (5)
business days from receipt of such notice to cease the actions or inactions, and
if he has not done so (B) an opportunity shall have been provided for the
Executive, together with his counsel, to be heard before the Board of Directors
of the Company, and (C) if such termination is pursuant to clause (i) or (ii)
above, delivery shall have been made to the Executive of a Notice of Termination
from the Board of Directors stating that in the good faith opinion of a majority
of the Board of Directors (excluding the Executive) he was guilty of conduct set
forth in clause (i) or (ii) above and specifying the particulars thereof in
detail;
(c) the term "Good Reason" shall mean any of the following (without the
Executive's express written consent):
(i) after a Change in Control, the assignment to the Executive by the
Company of duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company immediately prior to such Change in
Control, or a change in the Executive's titles or offices as in effect
immediately prior to such Change in Control, or any removal of the Executive
from or any failure to reelect the Executive to any of such positions, except in
connection with the termination of his employment for Disability, for Cause, as
a result of the Executive's death or by the Executive other than for Good
Reason:
(ii) after a Change in Control, a reduction by the Company in the
Executive's base salary as in effect on the date hereof or as the same may be
increased from time to time during the Term of this Agreement, or the Company's
failure after a Change in Control to increase (within 12 months of the
Executive's last increase in base salary) the Executive's base salary by an
amount which, on a percentage basis, is not more than two percentage points
below the average percentage increase in base salary effected in the preceding
12 months for all officers of the Company having severance compensation
agreements similar to this Agreement;
(iii)after a Change in Control, any failure by the Company to continue
in effect any benefit plan or arrangement (including, without limitation, the
Company's group life insurance plan, and medical, dental, accident and
disability plans) in which the Executive is participating at the time of a
Change in Control (or any other substitute plans providing the Executive with
substantially similar benefits) (hereinafter referred to as "Benefit Plans"), or
the taking of any action by the Company which would adversely affect the
Executive's participation in or materially reduce the Executive's benefits under
any such Benefit Plan or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of a Change in Control;
(iv) after a Change in Control, any failure by the Company to continue
in effect any incentive plan or arrangement (including, without limitation, the
Company's Management Incentive Plan, and the right to receive performance awards
and similar incentive compensation benefits) in which the Executive is
participating at the time of a Change in Control (or any other substitute plans
or arrangements providing him with substantially similar benefits) (hereinafter
referred to as "Incentive Plans") or the taking of any action by the Company
which would adversely affect the Executive's participation in any such Incentive
Plan or reduce the Executive's benefits under any such Incentive Plan, expressed
as a percentage of his base salary, by more than 10 percentage points in any
fiscal
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year as compared to the immediately preceding fiscal year;
(v) after a Change in Control, any failure by the Company to continue
in effect any plan or arrangement to receive securities of the Company
(including, without limitation, the Company's 1991 Restated Stock Option Plan
and any other plan or arrangement to receive and exercise stock options, stock
appreciation rights, restricted stock or grants thereof) in which the Executive
is participating at the time of a Change in Control of the Company (or
substitute plans or arrangements providing him with substantially similar
benefits) (hereinafter referred to as "Securities Plans") or the taking of any
action by the Company which would adversely affect the Executive's participation
in or materially reduce the Executive's benefits under any such Securities
Plans;
(vi) after a Change in Control, requirement by the Company of the
Executive's relocation to any place other than the location at which the
Executive performed the Executive's duties prior to a Change in Control, except
for required travel by the Executive on the Company's business to an extent
substantially consistent with the Executive's business travel obligations at the
time of a Change in Control;
(vii) after a Change in Control, any failure by the Company to provide
the Executive with the number of paid vacation days to which the Executive is
entitled at the time of a Change in Control;
(viii) any material breach by the Company of any provision of this
Agreement;
(xi) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company in accordance with Section 7
hereof: or
(x) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination, and for purposes of this
Agreement, no such purported termination shall be effective.
(d) The term "Notice of Termination" shall mean a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no such purported
termination by the Company shall be effective without such Notice of
Termination.
e) the term "Date of Termination" shall mean (i) if the Executive's
employment is terminated by the Company for Disability, 30 days after Notice of
Termination is given to the Executive (provided that the Executive shall not
have returned to the performance of the Executive's duties on a full-time basis
during such 30-day period) or (b) if the Executive's employment is terminated by
the Company for any other reason, the date on which a Notice Of Termination is
given; provided that if within 30 days after any Notice of Termination is given
to the Executive by the Company the Executive notifies the Company that a
dispute exists concerning the Termination, the Date of Termination shall be the
date the dispute is finally determined, whether by mutual agreement by the
parties or upon final judgment, order or decree of a court of Competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4, Severance Compensation
(a) Subject to the provisions of section 4 (b) below, and subject to the
Executive's continuing
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compliance with the provisions of Section 6 hereof and the Agreement Regarding
Confidential Information and Intellectual Property attached hereto as Exhibit A,
the compensation and benefits payable to the Executive pursuant to this
Agreement shall be the following (collectively the "Severance Benefits"):
(i} The Company shall pay to the Executive in cash an amount equal to
the Executive's aggregate compensation from the Company for the twelve (12)
months ending upon the Change in Control. Such amount shall be payable by, the
Company in twelve (12) equal monthly installments payable on the first day of
each month commencing with the month following the Executive's Date of
Termination. For purposes of this Section 4(a)(1), the Executive's
"compensation" preceding a Change in Control shall include the Executive's base
salary and any amounts paid or accrued pursuant to any Incentive Plans, but
shall not include any amounts or benefits paid or accrued pursuant to any
Benefit Plans or any Securities Plan nor shall it include the value of any other
fringe benefits,
(ii} Within thirty (30) days following the Date of Termination, the
Company shall pay to the Executive, in a lump sum in cash, any accrued but
unpaid salary, vacation and awards under any Incentive Plans earned but not paid
as of the Date of Termination;
(iii) Effective not later than the Date of Termination, the Company
shall (notwithstanding any contrary provision in any Securities Plan or any
employment agreement) accelerate and make immediately exercisable in full all
unvested options and other rights which the Executive holds under any Securities
Plans as of the Date of Termination, and all such options and rights shall be
exercisable for an exercise period of 60 days following the Date of Termination;
and
(iv) The Company at its own expense shall maintain in full force and
effect for the Executive's continued benefit until the earlier of (i) one (1)
year after the Date of Termination or (ii) the Executive's commencement of
full-time employment with a new employer, medical and dental (but not life
insurance or disability) plans, programs or arrangements in which the Executive
was entitled to participate immediately prior to the Date of Termination,
provided that his continued participation is possible under the general terms
and provisions of such plans and programs. In the event that his participation
in any such plan or program is barred, the Company shall arrange to provide the
Executive with benefits substantially similar to those to which he was entitled
to receive under such plans and programs.
(b) Notwithstanding the foregoing, any Severance Benefits otherwise payable to
the Executive hereunder shall be limited as follows:
(I) No Severance Benefits shall be payable to the Executive under this
Agreement to the extent that the total of such Severance Benefits and any
payments otherwise payable to the Executive by the Company on or after a Change
in Control, which would be deemed under Section 280( of the Internal Revenue
Code of 1986 as amended (the "Code"), to constitute "parachute payments" without
regard to Section 280G(b)(2)(A)(ii), would equal or exceed in their present
value (as determined under Section 280G(d)(4) of the Code and any regulations
thereunder) 300% of the Executive's base amount (as defined in Section 280G (b)
(3) of the Code and regulations thereunder). In the event that the present value
of such payments equals or exceeds such amount, the provisions set forth below
will apply, and Severance Benefits payable to the Executive under this Agreement
will be made only in accordance with this Section 4(b) notwithstanding any other
provision to the contrary in this Agreement.
(ii) Not later than thirty (30) days after the Date of Termination, the
Company will
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provide the Executive with a schedule specifying the present value of such
Severance Benefits payable to the Executive under this Agreement (specifying the
Section hereof under which each such payment is to be made) and any other
payments otherwise payable to the Executive by the Company on or after the
Change in Control which, in the Company's opinion, could constitute parachute
payments under Section 280G. No payments under this Agreement shall be made
until after thirty (30) days from the receipt of such schedule by the Executive.
At any time prior to the expiration of said 30-day period, the Executive shall
have the right to select from all or part of any category of payment to be made
under this Agreement those payments to be made to the Executive in an amount the
present value of which (when combined with the present value of any other
payments otherwise payable to the Executive by the Company that may be deemed to
be parachute payments) the Company determines is less than 300% of the
Executive's base amount. If the Executive fails to exercise his right to make a
selection, the selection shall be made by the Company.
(iii) At any time prior to exercising the right to make a selection
under paragraph (ii) of this Section 4(b), the Executive shall have the right to
request that the Company obtain a ruling from the Internal Revenue Service
("Service") as to whether any or all payments listed on the schedule provided
hereunder are, in the view of the Service, parachute payments under section
280G. Such ruling shall be sought made at the Company's expense unless, in the
written opinion of independent counsel for the Company, there is no reasonable
likelihood of obtaining a favorable ruling, in which event such expense shall be
borne by the Executive. If a ruling is sought pursuant to such request, no
Severance Benefit under this Agreement shall be paid to the Executive until
after thirty (30) days from the date the Company provides the Executive with a
copy of such ruling, and the period during which the Executive may exercise his
right to make a selection under paragraph (ii) hereof shall be extended to a
date thirty (30) days from such date. For purposes of this Section 4(b), the
Executive and the Company hereby agree to be bound by the Service's ruling as to
whether payments constitute parachute payments under Section 280G. If the
Service declines, for any reason, to provide the ruling requested, the Company's
determination with respect to what payments constitute parachute payments shall
control, and the period during which the Executive may exercise his right to
make a selection under paragraph (ii) hereof shall be extended to a date thirty
(30) days from the date of the Service's notice indicating that no ruling will
be forthcoming.
(iv) The references to Section 280G herein are specific references to
Section 280G as amended to date. If Section 280G is amended prior to the
expiration or termination of this Agreement, or replaced by a successor statute,
the limitations imposed by this Section 4(b) upon payments to be made to the
Executive under this Agreement shall be deemed modified without further action
of the parties so as to provide only for such limitations that are consistent
with such amendment(s) or successor statute(s), as the case may be. In the event
that Section 280G, or any successor statute, is repealed, this Section 4(b)
shall cease to be effective on the date of such repeal. The parties to this
Agreement recognize that final Treasury Regulations under Section 280G may
affect the amounts that may be paid hereunder and agree that, upon issuance of
such final Regulations, this Agreement may be modified as in good faith deemed
necessary in light of the provisions of such Regulations to achieve the purposes
hereof, and that consent to such modification(s) shall not be unreasonably
withheld
5. No Obligation To Mitigate Damages; No Effect on Other Contractual Rights.
(a) The Executive shall not be required to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as the result of
employment by another employer after the Date of Termination, or
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otherwise.
(b) The provisions of this Agreement, and any payment provided for hereunder,
shall not reduce any amounts otherwise payable, or in any way diminish the
Executive's existing rights, or rights which would accrue solely as a result of
the passage of time, under any Benefit Plan, Incentive Plan or Securities Plan,
employment agreement or other contract, plan or arrangement.
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6. Non-Competition; Confidentiality.
(a) The Executive covenants and agrees that if the Executive shall become
entitled to compensation hereunder as provided in Section 3 hereof, then for a
period of twelve (12) months following the Date of Termination, the Executive
shall not, without the Company's prior written consent, engage, directly or
indirectly, in any work or other activity which is in competition with the
business of the Company in the local area network or internetworking field in
any geographical area in which the Company conducts or is then actively planning
to conduct business at the Date of Termination. By way of example only of the
types of activities prohibited hereby, the Executive shall not: solicit or
accept (or assist any person or entity in soliciting or accepting) any business
in the local area network or internetworking field from any person or entity who
or which was an active account of the Company at the Date of Termination
(b) Contemporaneously with the execution and delivery of this Agreement, the
Executive and the Company shall enter into an Agreement Regarding Confidential
Information and Intellectual Property in the Company's standard form, a copy of
which is attached hereto as Exhibit A.
7 Successors.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor or assign to its business and/or assets as aforesaid which executes
and delivers the agreement provided for in this Section 7 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law. If at any time during the Term of this Agreement the Executive is employed
by any corporation a majority of the Voting Power of which is then owned by the
Company, directly or indirectly, "Company" as used in Sections 3,4 and 12 hereof
shall in addition include such employer. In such event, the Company agrees that
it shall pay or shall cause such employer to pay any amounts owed to the
Executive pursuant to Section 4 hereof
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
8. Notice. For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered in person (including by any commercial courier
service) or three (3) days after mailing by United States certified or
registered mail, return receipt requested, postage prepaid, to a party at his or
its address set forth at the beginning of this Agreement or such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon
receipt.
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9. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and the Company. 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 set forth expressly in this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts (without regard to conflicts of
laws rules).
10. Validity. The invalidity or unenforceability of any provisions 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
11. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument. 12. Legal Fees and Expenses. The Company
shall pay all legal fees and expenses which the Executive may incur as a result
of the Company's contesting the validity, enforceability or the Executive's
interpretation of, or determinations under, this Agreement.
13. Further Assurances. The Company shall do, make, execute and deliver all such
additional and further acts, things, assurances and instruments as the Executive
may reasonably request in order to assure to the Executive his rights hereunder
and to carry into effect the provisions and intent of this Agreement. Without
limiting the generality of the foregoing, the Company shall, upon request of the
Executive, convert any options under any Securities Plan which are "incentive
stock options" into "non-qualified options" and amend outstanding option
agreements in a manner not inconsistent with such Securities Plans
IN WITNESS WHEREOF, the parties have executed this Severance Compensation
Agreement as of the date first above written.
OPENROUTE NETWORKS, INC.
By: ---------------------------------------------
Title: President and Chief Executive Officer
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Executive
