1
EXHIBIT 10.24
DIAMOND MULTIMEDIA SYSTEMS, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and entered
into by and between ________________ (the "Employee") and Diamond Multimedia
Systems, Inc., a Delaware corporation (the "Company"), effective as of May 22,
1996 (the "Effective Date").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with certain
severance benefits upon Employee's termination of employment following a Change
of Control which provides the Employee with enhanced financial security and
provides incentive and encouragement to the Employee to remain with the Company
notwithstanding the possibility of a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 5
below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows:
1. Term of Agreement. This Agreement shall terminate upon the date that all of
the obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law, except as may otherwise be specifically provided under the terms
of any written formal employment agreement between the Company and Employee (an
"Employment Agreement"). If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement or under his or her
Employment Agreement (if any) together with, or as may otherwise be available in
accordance with the Company's established employee plans and practices or
pursuant to other agreements with the Company.
3. Severance Benefits.
(a) Termination Following Change of Control.
(i) If the Employee's employment terminates at any time within twelve
(12) months following a Change of Control, then, subject to Section 4, the
Employee shall be entitled to receive the following severance benefits and no
other compensation, severance or benefits:
49
2
(A) Involuntary Termination; Not for Cause Termination. If the
Employee's employment is terminated as a result of Involuntary Termination
(whether such termination is initiated by the Company or by the Employee), or as
a result of termination other than for Cause, then the Employee shall receive
the following severance benefits from the Company:
(1) Severance Payment. A cash payment (or payments) in an
amount equal to one hundred fifty percent (150%) of the Employee's Base Pay.
(2) Continued Employee Benefits. One hundred percent (100%)
Company-paid health, dental and life insurance coverage at the same level of
coverage as was provided to such employee immediately prior to the Change of
Control (the "Company-Paid Coverage"), for a period of twelve (12) months after
the date of termination of such Employee. Company-Paid Coverage shall not
include the percentage of the payment for such insurance as contributed by the
Employee immediately prior to the Employee's termination (the "Contribution
Percentage"). Company-Paid Coverage is expressly contingent upon timely payment
of the Contribution Percentage by the Employee. If Employee's health insurance
coverage included the Employee's dependents immediately prior to the Employee's
termination, then Employees' Company-Paid Coverage shall include health
insurance coverage for such dependents, subject to timely payments of the
Contribution Percentage, as above. For purposes of the continuation health
coverage required under Section 4980B of the Code ("COBRA"), the date of the
"qualifying event" giving rise to an Employee's COBRA election period (and that
of his "qualifying beneficiaries") shall be the last date on which the Employee
receives Company-Paid Coverage under this Plan. If the Employee obtains
comparable or better coverage prior to the lapse of the specified Company-Paid
Coverage period, the Employee must inform the Company in writing within 30 days
thereof and Company-Paid Coverage will thereupon be canceled immediately.
(3) Outplacement Assistance. Employee shall be entitled to
reasonable, pre-approved Company-paid outplacement assistance, including job
counseling and referral services, for a period of six (6) months following the
date of termination of employment.
(ii) If the Employee's employment terminates at any time within the
period that is between twelve (12) months and twenty-four (24) months following
a Change of Control, then, subject to Section 4, the Employee shall be entitled
to receive the following severance benefits and no other compensation, severance
or benefits:
(A) Involuntary Termination; Not for Cause Termination If the
Employee's employment is terminated as a result of Involuntary Termination
(whether such termination is initiated by the Company or by the Employee), or as
a result of termination other than for Cause, then the Employee shall receive
the following severance benefits from the Company:
(1) Severance Payment. A cash payment (or payments) in an
amount equal to seventy-five percent (75%) of the Employee's Base Pay.
(2) Continued Employee Benefits. One hundred percent (100%)
Company-paid health, dental and life insurance coverage at the same level of
coverage as was provided to such employee immediately prior to the Change of
Control (the "Company-Paid Coverage"), for a period of six (6) months after the
date of termination of such Employee. Company-Paid Coverage shall not include
the percentage of the payment for such insurance as contributed by the Employee
immediately prior to the Employee's termination (the "Contribution Percentage").
Company-Paid Coverage is expressly contingent upon timely payment of the
Contribution Percentage by the Employee. If Employee's health insurance coverage
included the Employee's dependents immediately prior to the Employee's
termination, then Employees' Company-Paid Coverage shall include health
insurance coverage for such dependents, subject to timely payments of the
Contribution Percentage, as above. For purposes of the continuation health
coverage required under Section 4980B of the Code ("COBRA"), the date of the
"qualifying event" giving rise to an Employee's COBRA election period (and that
of his "qualifying beneficiaries") shall be the last date on which the Employee
receives Company-Paid Coverage under this Plan. If the Employee obtains
comparable or better coverage prior to the lapse of the specified Company-Paid
Coverage period, the Employee must inform the Company in writing within 30 days
thereof and Company-Paid Coverage will thereupon be canceled immediately.
(3) Outplacement Assistance. Employee shall be entitled to
reasonable, pre-approved
50
3
Company-paid outplacement assistance, including job counseling and referral
services, for a period of six (6) months following the date of termination of
employment.
(b) Timing of Severance Payments. The severance payment or payments to
which Employee is entitled shall be paid by the Company to Employee either: (a)
in cash and in full, not later than ten (10) calendar days after the date of
termination of Employee's employment, or, (b) as salary continuation on the same
basis and timing as in effect immediately prior to the Change of Control; (a) or
(b) will be chosen at the Company's discretion. The Company will make this
choice known to Employee at the time of termination. If Employee should die
before all amounts payable to his or her have been paid, such unpaid amounts
shall be paid to Employee's designated beneficiary, if living, or otherwise to
the personal representative of Employee's estate.
(c) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and practices or pursuant to other written
agreements with the Company.
(d) Disability; Death. If the Company terminates the Employee's employment
as a result of the Employee's Disability, or such Employee's employment is
terminated due to the death of the Employee, then the Employee shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing written severance and
benefits plans and practices or pursuant to other written agreements with the
Company.
(e) Termination Apart from Change of Control. In the event the Employee's
employment is terminated for any reason, either prior to the occurrence of a
Change of Control or after the twenty-four (24) month period following a Change
of Control, then the Employee shall be entitled to receive severance and any
other benefits only as may then be established under the Company's existing
written severance and benefits plans and practices or pursuant to other written
agreements with the Company.
(f) Options; Restricted Stock. In the event that the Employee is entitled
to severance benefits pursuant to subsection 3(a)(i) or subsection 3(a)(ii),
then upon such termination, in addition to any portion of the Employee's stock
options that were exercisable immediately prior to such termination, or
restricted stock that was not subject to the right of repurchase held by the
Company, such options shall continue to vest as to an additional amount, and
such restricted stock shall continue to vest from the Company's right of
repurchase as to an additional amount, as though the Employee had remained
continuously employed for a period of twelve (12) months following such
termination in the case of subsection 3(a)(i) above, or six (6) months following
such termination in the case of subsection 3(a)(ii) above, for the period
prescribed in such option plans or restricted stock purchase agreements.
(g) Exclusive Remedy. In the event of a termination of Employee's
employment within twenty-four (24) months following a Change of Control, the
provisions of this Section 3 are intended to be and are exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled, whether at law, tort or contract, in equity, or under this Agreement.
Employee shall be entitled to no benefits, compensation or other payments or
rights upon termination of employment following a Change in Control other than
those benefits expressly set forth in this Section 3, whichever shall be
applicable.
4. Limitation on Payments. In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Employee: (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 4, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee's severance benefits under Section 3(a)(i) shall be
either:
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no portion of
such severance benefits being subject to excise tax under Section 4999 of the
Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by the Employee on an after-tax basis, of the greatest amount of
severance benefits, notwithstanding that all or some portion of such severance
benefits
51
4
may be taxable under Section 4999 of the Code. Unless the Company and the
Employee otherwise agree in writing, any determination required under this
Section 4 shall be made in writing by the Company's independent public
accountants immediately prior to Change of Control (the "Accountants"), whose
determination shall be conclusive and binding upon the Employee and the Company
for all purposes. For purposes of making the calculations required by this
Section 4, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section . The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 4.
5. Definition of Terms. The following terms referred to in this Agreement shall
have the following meanings:
(a) Base Pay. "Base Pay" shall mean all base straight-time gross earnings,
exclusive of payments for overtime, shift premiums, incentive compensation,
incentive payments, bonuses, commissions or other compensation, for the last
twelve (12) full calendar months preceding the date of the Change of Control or
the date of Involuntary Termination or termination other than for Cause,
whichever is higher.
(b) Cause. "Cause" shall mean (i) any act of dishonesty taken by Employee
and intended to result in substantial gain or personal enrichment of the
Employee, (ii) Employee personally engaging in knowing and intentional illegal
conduct which is injurious to the reputation of the Company or its affiliates;
(iii) Employee's continued failure to substantially perform the duties and
obligations of his employment which are not remedied within thirty (30) days
after notice thereof from the Board of Directors or Chief Executive Officer of
the Company to Employee; (iv) Employee being convicted of a felony, or
committing an act of dishonesty or fraud against, or the misappropriation of
property belonging to, the Company or its affiliates; (v) Employee's engagement
in repeated substance abuse which impairs his ability to perform the duties and
obligations of Employee's employment or impairs the reputation of the Company;
(vi) Employee personally engaging in any act of moral turpitude that impairs the
reputation of the Company; (vii) if the performance by Employee of those acts
identified in Section 2924 of the California Labor Code; (viii) Employee
knowingly and intentionally breaching in any material respect the terms of this
Agreement (or any confidentiality agreement or invention or proprietary
information agreement with the Company); (ix) Employee's commencement of
employment with another employer while he is an employee of the Company; or (x)
any material breach by Employee of any material provision of this Agreement
which continues uncured for thirty (30) days following notice thereof.
(c) Change of Control. "Change of Control" means the occurrence of any of
the following events:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company);
or
(iii) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all the
Company's assets.
52
5
(d) Disability "Disability" shall mean that the Employee has been unable to
perform his Company duties as the result of his incapacity due to physical or
mental illness, and such inability, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Employee or the Employee's legal
representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate the
Employee's employment. In the event that the Employee resumes the performance of
substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(e) Involuntary Termination. "Involuntary Termination" shall mean (i) a
reduction by the Company in the Base Pay of Employee as in effect immediately
prior to such reduction, except when a reduction in Base Pay is implemented for
a majority of the Company's executives or employees; (ii) without the Employee's
express written consent, the Company requires the Employee to change the
location of his or her job or office, so that he or she will be based at a
location more than forty (40) miles from the location of his job or office
immediately prior to the Change of Control; (iii) the cost to the Company of
Company-provided benefits to Employee, taken as a whole, under plans,
arrangements policies and procedures, materially decreases below the cost of the
Company-provided benefits to Employee immediately prior to the Change of
Control, or the cost to the Employee of such benefits materially increases above
the cost to the Employee immediately prior to the Change of Control; however, if
such decrease or increase results either from the Company's good faith exercise
of business judgment, a decrease that is implemented affecting the majority of
Company's employees, or in response to changes in federal or state law, such
decrease or increase shall not constitute Involuntary Termination; (iv) the
significant reduction of the Employee's duties and responsibilities, relative to
the Employee's duties and responsibilities as in effect immediately prior to
such reduction; (v) a successor company fails or refuses to assume the Company's
obligations under this Agreement.
6. Successors.
(a) Company's Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 6(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
7. Notice.
(a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its President.
53
6
(b) Notice of Termination. Any termination by the Company for Cause or by
the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Employee to include in the notice any
fact or circumstance which contributes to a showing of Involuntary Termination
shall not waive any right of the Employee hereunder or preclude the Employee
from asserting such fact or circumstance in enforcing his rights hereunder.
8. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to mitigate the
amount of any payment contemplated by this Agreement, nor shall any such payment
be reduced by any earnings that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto and supersedes in their entirety all prior representations,
understandings, undertakings or agreements (whether oral or written and whether
expressed or implied) of the parties with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(f) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year set forth
below.
COMPANY DIAMOND MULTIMEDIA SYSTEMS, INC.
By: _________________________________
Title: _________________________________
Date: _________________________________
EMPLOYEE
By: _________________________________
Title: _________________________________
Date: _________________________________
54
