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EXHIBIT 10.10
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between Quanex Corporation, a Delaware corporation (the
"Company"), and _________________________________ (the "Executive") is effective
as of___________________ (the "Effective Date"). Certain capitalized terms used
herein are defined in Section 21.
W I T N E S S E T H:
WHEREAS, the Company considers it to be in the best interests of its
stockholders to encourage the continued employment of certain key employees of
the Company notwithstanding the possibility, threat or occurrence of a Change in
Control of the Company (as that phrase is defined in Section 2); and
WHEREAS, the Executive is a key employee of the Company; and
WHEREAS, the Company believes that the possibility of the occurrence of
a Change in Control of the Company may result in the termination by the
Executive of the Executive's employment by the Company or in the distraction of
the Executive from the performance of his duties to the Company, in either case
to the detriment of the Company and its stockholders; and
WHEREAS, the Company recognizes that the Executive could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect the
Executive if a Change in Control of the Company occurs, thereby encouraging the
Executive to remain in the employ of the Company and not to be distracted from
the performance of his duties to the Company by the possibility of a Change in
Control of the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Other Employment Arrangements.
(a) This Agreement does not affect the Executive's existing or future
employment arrangements with the Company unless a Change in Control of the
Company shall have occurred before the expiration of the term of this Agreement.
The Executive's employment with the Company shall continue to be governed by the
Executive's existing or future employment agreements with the Company, if any,
or, in the absence of any employment agreement, shall continue to be at the will
of the Board of Directors or, if the Executive is not an officer of the Company
at the time of the termination of the Executive's employment with the Company,
the will of the Chief Executive Officer of the Company, except that if (i) a
Change in Control of the Company shall have occurred before the expiration of
the term of this Agreement, and (ii) the Executive's employment with the Company
is terminated (whether by the Executive or the Company or automatically as
provided in Section 3) after the occurrence of that Change in Control of the
Company, then the Executive shall be entitled to receive certain benefits as
provided in this Agreement.
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(b) Notwithstanding anything contained in this Agreement to the
contrary, if following the commencement of any discussion with a third person
that ultimately results in a Change in Control of the Company, (i) the
Executive's employment with the Company is terminated, (ii) the Executive is
removed from any material duties or position with the Company, (iii) the
Executive's Base Salary is reduced, or (iv) the Executive's annual bonus is
reduced to an amount less than the Benchmark Bonus, then for all purposes of
this Agreement, such Change in Control of the Company shall be deemed to have
occurred on the date immediately prior to the date of such termination, removal,
or reduction.
(c) Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice of
or provided by the Company or any of its Affiliates and for which the Executive
may qualify, nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its Affiliates. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, program, policy or practice of or
provided by, or any contract or agreement with, the Company or any of its
Affiliates at or subsequent to the date of termination of the Executive's
employment with the Company shall be payable or otherwise provided in accordance
with such plan, program, policy or practice or contract or agreement except as
explicitly modified by this Agreement.
Section 2. Change in Control of the Company. For purposes of this
Agreement, a "Change in Control of the Company" shall mean the occurrence of any
of the following after the Effective Date:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a " Covered
Person") of beneficial ownership (within the meaning of rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either (i) the then outstanding
shares of the common stock of the Company (the "Outstanding Company Common
Stock"), or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a) of this Section 2, the following
acquisitions shall not constitute a Change in Control of the Company: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any entity controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the Effective Date, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Covered Person other
than the Board; or
(c) Consummation of (xx) a reorganization, merger or consolidation or
sale of the Company, or (yy) a disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, direct or
indirectly, more than 80 percent of, respectively, the then outstanding shares
of common stock and
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the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Covered Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20 percent or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (iii) at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination, were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board of Directors, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Section 3 . Term of This Agreement. The term of this Agreement shall
begin on the Effective Date and, unless automatically extended pursuant to the
second sentence of this Section 3, shall expire on the first to occur of:
(i) the Executive's death or the Executive's Disability, which
events shall also be deemed automatically to terminate Executive's
employment by the Company;
(ii) the termination by the Executive or the Company of the
Executive's employment by the Company; or
(iii) the end of the last day (the "Expiration Date") of:
(x) the three-year period beginning on the
Effective Date (or any period for which the term of
this Agreement shall have been automatically extended
pursuant to the second sentence of this Section 3) if
no Change in Control of the Company shall have
occurred during that three-year period (or any period
for which the term of this Agreement shall have been
automatically extended pursuant to the second
sentence of this Section 3); or
(y) if one or more Changes in Control of the
Company shall have occurred during the three-year
period beginning on the Effective Date (or any period
for which the term of this Agreement shall have been
automatically extended pursuant to the second
sentence of this Section 3), the three-year period
beginning on the date on which the last Change in
Control of the Company occurred.
If (i) the term of this Agreement shall not have expired as a result of the
occurrence of one of the events described in clause (i) or (ii) of the
immediately preceding sentence, and (ii) the Company shall not have given notice
to the Executive at least ninety (90) days before the Expiration Date that the
term of this Agreement will expire on the Expiration Date, then the term of this
Agreement shall be automatically
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extended for successive one-year periods (the first such period to begin on the
day immediately following the Expiration Date) unless the Company shall have
given notice to the Executive at least ninety (90) days before the end of any
one-year period for which the term of this Agreement shall have been
automatically extended that such term will expire at the end of that one-year
period. The expiration of the term of this Agreement shall not terminate this
Agreement itself or affect the right of the Executive or the Executive's legal
representatives to enforce the payment of any amount or other benefit to which
the Executive was entitled before the expiration of the term of this Agreement
or to which the Executive became entitled as a result of the event (including
the termination, whether by the Executive or the Company or automatically as
provided in this Section 3, of the Executive's employment by the Company) that
caused the term of this Agreement to expire.
Section 4. Event of Termination for Cause. An "Event of Termination for
Cause" shall have occurred if, after a Change in Control of the Company, the
Executive shall have committed:
(i) gross negligence or willful misconduct in connection with
his duties or in the course of his employment with the Company;
(ii) an act of fraud, embezzlement or theft in connection with
his duties or in the course of his employment with the Company;
(iii) intentional wrongful damage to property of the Company;
(iv) intentional wrongful disclosure of secret processes or
confidential information of the Company; or
(v) an act leading to a conviction of a felony or a
misdemeanor involving moral turpitude.
For purposes of this Agreement, no act, or failure to act, on the part of the
Executive shall be deemed "intentional" if it was due primarily to an error in
judgment or negligence, but shall be deemed "intentional" only if done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated as a result of an "Event of Termination for Cause" hereunder unless
and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the Board of Directors then in office at a meeting of the Board of Directors
called and held for such purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with his counsel, to be heard before
the Board of Directors), finding that, in the good faith opinion of the Board of
Directors, the Executive had committed an act set forth above in this Section 4
and specifying the particulars thereof in detail. Nothing herein shall limit the
right of the Executive or his legal representatives to contest the validity or
propriety of any such determination.
Section 5. An Event of Termination for Good Reason. An "Event of
Termination for Good Reason" shall have occurred if, after a Change in Control
of the Company, the Company shall:
(i) assign to the Executive any duties inconsistent with the
Executive's position (including offices, titles and reporting
requirements), authority, duties or responsibilities with the Company
in effect immediately before the occurrence of the first Change in
Control of the Company or otherwise make any change in any such
position, authority, duties or responsibilities;
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(ii) remove the Executive from, or fail to re-elect or appoint
the Executive to, any duties or position with the Company or any of its
Affiliates that were assigned or held by the Executive immediately
before the occurrence of the first Change in Control of the Company,
except that a nominal change in the Executive's title that is merely
descriptive and does not affect rank or status shall not constitute
such an event;
(iii) take any other action that results in a material
diminution in such position, authority, duties or responsibilities or
otherwise take any action that materially interferes therewith;
(iv) reduce the Executive's annual base salary as in effect
immediately before the occurrence of the first Change in Control of the
Company or as the Executive's annual base salary may be increased from
time to time after that occurrence (the "Base Salary");
(v) reduce the Executive's annual bonus (x) to an amount less
than $_______________ at any time on or prior to the third anniversary
of the Effective Date, or (y) to an amount less than the average of the
two annual bonuses earned by such Executive with respect to the two
preceding years at any time after the third anniversary of the
Effective Date (the amount determined pursuant to clause (x) or (y), as
applicable, is referred to herein as the "Benchmark Bonus");
(vi) relocate the Executive's principal office outside of the
portion of the metropolitan area of the City of Houston, Texas that is
located within the highway known as "Beltway 8";
(vii) fail to (x) continue in effect any bonus, incentive,
profit sharing, performance, savings, retirement or pension policy,
plan, program or arrangement (such policies, plans, programs and
arrangements collectively being referred to herein as "Basic Benefit
Plans"), including, but not limited to, any deferred compensation,
supplemental executive retirement or other retirement income, stock
option, stock purchase, stock appreciation, or similar policy, plan,
program or arrangement of the Company, in which the Executive was a
participant immediately before the occurrence of the first Change in
Control of the Company, or any substitute plan adopted by the Board of
Directors and in which the Executive was a participant immediately
before the occurrence of the last Change in Control of the Company,
unless an equitable and reasonably comparable arrangement (embodied in
a substitute or alternative benefit or plan) shall have been made with
respect to such Basic Benefit Plan promptly following the occurrence of
the last Change in Control of the Company, or (y) continue the
Executive's participation in any Basic Benefit Plan (or any substitute
or alternative plan) on substantially the same basis, both in terms of
the amount of benefits provided to the Executive (which are in any
event always subject to the terms of any applicable Basic Benefit Plan)
and the level of the Executive's participation relative to other
participants, as existed immediately before the occurrence of the first
Change in Control of the Company;
(viii) fail to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of
the Company's other Executive benefit plans, policies, programs and
arrangements, including, but not limited to, life insurance, medical,
dental, health, hospital, accident or disability plans, in which the
Executive was a
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participant immediately before the occurrence of the first Change in
Control of the Company;
(ix) take any action that would directly or indirectly
materially reduce any other non-contractual benefits that were provided
to the Executive by the Company immediately before the occurrence of
the first Change in Control of the Company or deprive the Executive of
any material fringe benefit enjoyed by the Executive immediately before
the occurrence of the first Change in Control of the Company;
(x) fail to provide the Executive with the number of paid
vacation days to which the Executive was entitled in accordance with
the Company's vacation policy in effect immediately before the
occurrence of the first Change in Control of the Company;
(xi) fail to continue to provide Executive with office space,
related facilities and support personnel (including, but not limited
to, administrative and secretarial assistance) (y) that are both
commensurate with Executive's responsibilities to and position with the
Company immediately before the occurrence of the first Change in
Control of the Company and not materially dissimilar to the office
space, related facilities and support personnel provided to other
Executives of the Company having comparable responsibility to the
Executive, or (z) that are physically located at the Company's
principal executive offices;
(xii) require the Executive to perform a majority of his
duties outside the Company's principal executive offices for a period
of more than 21 consecutive days or for more than 90 days in any
calendar year;
(xiii) fail to honor any provision of any employment agreement
Executive has or may in the future have with the Company or fail to
honor any provision of this Agreement;
(xiv) give effective notice of an election to terminate at the
end of the term or extended the term of any employment agreement
Executive has or may in the future have with the Company in accordance
with the terms of any such agreement; or
(xv) purport to terminate the Executive's employment by the
Company unless notice of that termination shall have been given to the
Executive pursuant to, and that notice shall meet the requirements of,
Section 6.
Section 6. Notice of Termination. If a Change in Control of the Company
shall have occurred before the expiration of the term of this Agreement, any
subsequent termination by the Executive or the Company of the Executive's
employment by the Company, or any determination of the Executive's Disability,
shall be communicated by notice to the other party that shall indicate the
specific paragraph of Section 7 pursuant to which the Executive is to receive
benefits as a result of the termination. If the notice states that the
Executive's employment by the Company has been automatically terminated as a
result of the Executive's Disability, the notice shall (i) specifically describe
the basis for the determination of the Executive's Disability, and (ii) state
the date of the determination of the Executive's Disability, which date shall be
not more than ten (10) days before the date such notice is given. If the notice
is from the Company and states that the Executive's employment by the Company is
terminated by the Company as a result of the occurrence of an Event of
Termination for Cause, the notice shall specifically describe the action or
inaction of the Executive that the Company believes constitutes an Event of
Termination for Cause and shall be accompanied by a copy of the resolution
satisfying Section 4. If the notice is from the Executive and states
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that the Executive's employment by the Company is terminated by the Executive as
a result of the occurrence of an Event of Termination for Good Reason, the
notice shall specifically describe the action or inaction of the Company that
the Executive believes constitutes an Event of Termination for Good Reason. Each
notice given pursuant to this Section 6 (other than a notice stating that the
Executive's employment by the Company has been automatically terminated as a
result of the Executive's Disability) shall state a date, which shall be not
fewer than thirty (30) days nor more than sixty (60) days after the date such
notice is given, on which the termination of the Executive's employment by the
Company is effective. The date so stated in accordance with this Section 6 shall
be the "Termination Date". If a Change in Control of the Company shall have
occurred before the expiration of the term of this Agreement, any subsequent
purported termination by the Company of the Executive's employment by the
Company, or any subsequent purported determination by the Company of the
Executive's Disability, shall be ineffective unless that termination or
determination shall have been communicated by the Company to the Executive by
notice that meets the requirements of the foregoing provisions of this Section 6
and the provisions of Section 9.
Section 7. Benefits Payable on Change in Control and Termination.(a)If
(x) a Change in Control of the Company shall have occurred before the expiration
of the term of this Agreement, and (y) the Executive's employment by the Company
is terminated (whether by the Executive or the Company or automatically as
provided in Section 3) after the occurrence of that Change in Control of the
Company, the Executive shall be entitled to the following benefits:
(i) If the Executive's employment by the Company is terminated
(x) by the Company as a result of the occurrence of an Event of
Termination for Cause, or (y) by the Executive before the occurrence of
an Event of Termination for Good Reason, then the Company shall pay to
the Executive the Base Salary accrued through the Termination Date but
not previously paid to the Executive, and the Executive shall be
entitled to any other amounts or benefits provided under any plan,
policy, practice, program, contract or arrangement of or with the
Company, including, but not limited to, the Basic Benefit Plans and the
Other Benefit Plans, which shall be governed by the terms thereof
(except as explicitly modified by this Agreement).
(ii) If the Executive's employment by the Company is
automatically terminated as a result of the Executive's death or the
Executive's Disability, then (x) the Company shall pay to the Executive
the Base Salary accrued through the date of the occurrence of that
event but not previously paid to the Executive, and (y) the Executive
shall be entitled to any other amounts or benefits provided under any
plan, policy, practice, program, contract or arrangement of or with the
Company, including, but not limited to, the Basic Benefit Plans and the
Other Benefit Plans, which shall be governed by the terms thereof
(except as explicitly modified by this Agreement).
(iii) If the Executive's employment by the Company is
terminated (x) by the Company otherwise than as a result of the
occurrence of an Event of Termination for Cause, or (y) by the
Executive after the occurrence of an Event of Termination for Good
Reason, then the Executive shall be entitled to the following:
(1) the Company shall pay to the Executive the Base
Salary and compensation for earned but unused vacation time
accrued through the Termination Date but not previously paid
to the Executive;
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(2) the Company shall pay to the Executive an amount
equal to the product of (A) the greater of (I) the Executive's
target performance bonus for the Fiscal Year in which the
Termination Date occurs and (II) the Executive's performance
bonus for the Fiscal Year preceding the Fiscal Year in which
the Termination Date occurs (including any deferred portion
thereof) (the greater of the amounts described in clauses (I)
and (II) of this Section 7(a)(iii)(2)(A) being referred to
herein as the "Highest Bonus"), and (B) a fraction, the
numerator of which is the number of days in the current Fiscal
Year through the Termination Date and the denominator of which
is 365;
(3) the Company shall pay to the Executive, as a lump
sum, an amount (the "Severance Payment") equal to three (3)
times the sum of:
(A) the amount (including any deferred
portion thereof) of the Base Salary that would have
been paid to the Executive during the Fiscal Year in
which the Termination Date occurs based on the
assumption that the Executive's employment by the
Company had continued throughout that Fiscal Year at
the Base Salary rate in effect in the Fiscal Year in
which the Termination Date occurs, or in the
immediately preceding Fiscal Year, whichever is
higher;
(B) the amount of the Highest Bonus;
(4) the Company (at its sole expense) shall take the
following actions:
(A) throughout the Relevant Period, the
Company shall maintain in effect, and not materially
reduce the benefits provided by, each of the Other
Benefit Plans in which the Executive was a
participant immediately before the Termination Date;
and
(B) the Company shall arrange for the
Executive's uninterrupted participation throughout
the Relevant Period in each of such Other Benefit
Plans,
provided that if the Executive's participation after the
Termination Date in any such Other Benefit Plan is not
permitted by the terms of that Other Benefit Plan, then
throughout the Relevant Period, the Company (at its sole
expense) shall provide the Executive with substantially the
same benefits that were provided to the Executive by that
Other Benefit Plan immediately before the Termination Date;
and
(5) the Executive shall be entitled to any other
amounts or benefits provided under any plan, policy, practice,
program, contract or arrangement of or with the Company,
including, but not limited to, the
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Basic Benefit Plans and the Other Benefit Plans, which shall
be governed by the terms thereof (except as explicitly
modified by this Agreement).
(b) Each payment required to be made to the Executive pursuant to the
foregoing provisions of this Section 7(a) above (i) shall be made by check drawn
on an account of the Company at a bank located in the United States of America,
and (ii) shall be paid (x) if the Executive's employment by the Company was
terminated as a result of the Executive's death or the Executive's Disability,
not more than thirty (30) days immediately following the date of the occurrence
of that event, and (y) if the Executive's employment by the Company was
terminated for any other reason, not more than ten (10) days immediately
following the Termination Date.
(c) The following shall occur immediately upon the occurrence of a
Change in Control of the Company:
(i) all options to acquire Voting Stock and all stock
appreciation rights pertaining to Voting Stock held by the
Executive immediately prior to a Change in Control of the
Company shall become fully exercisable, regardless of whether
or not the vesting conditions set forth in the relevant stock
option agreements have been satisfied in full; and
(ii) all restrictions on any restricted Voting Stock
granted to the Executive prior to a Change in Control of the
Company shall be removed and the stock shall be freely
transferable, regardless of whether the conditions set forth
in the relevant restricted stock agreements have been
satisfied in full.
Section 8. Successors. If a Change in Control of the Company shall have
occurred before the expiration of the term of this Agreement,
(i) the Company shall not, directly or indirectly, consolidate
with, merge into or sell or otherwise transfer its assets as an
entirety or substantially as an entirety to, any person, or permit any
person to consolidate with or merge into the Company, unless
immediately after such consolidation, merger, sale or transfer, the
Successor shall have assumed in writing the Company's obligations under
this Agreement; and
(ii) not fewer than ten (10) days before the consummation of
any consolidation of the Company with, merger by the Company into, or
sale or other transfer by the Company of its assets as an entirety or
substantially as an entirety to, any person, the Company shall give the
Executive notice of that proposed transaction.
Section 9. Notice. Notices required or permitted to be given by either
party pursuant to this Agreement shall be in writing and shall be deemed to have
been given when delivered personally to the other party or when deposited with
the United States Postal Service as certified or registered mail with postage
prepaid and addressed:
(i) if to the Executive, at the Executive's address last shown
on the Company's records, and
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(ii) if to the Company, at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, directed to the attention of the Chief Financial
Officer.
or, in either case, to such other address as the party to whom or which such
notice is to be given shall have specified by notice given to the other party.
Section 10. Withholding Taxes. The Company may withhold from all
payments to be paid to the Executive pursuant to this Agreement all taxes that,
by applicable federal or state law, the Company is required to so withhold.
Section 11. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by, or benefit
from, the Company or any of its Affiliates to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments, distributions or
benefits being individually referred to herein as a "Payment," and any two or
more of such payments, distributions or benefits being referred to herein as
"Payments"), would be subject to the excise tax imposed by Section 4999 of the
Code (such excise tax, together with any interest thereon, any penalties,
additions to tax, or additional amounts with respect to such excise tax, and any
interest in respect of such penalties, additions to tax or additional amounts,
being collectively referred herein to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment or payments (individually
referred to herein as a "Gross-Up Payment" and any two or more of such
additional payments being referred to herein as "Gross-Up Payments") in an
amount such that after payment by the Executive of all taxes (as defined in
Section 11(k)) imposed upon the Gross-Up Payment, the Executive retains an
amount of such Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 11(c) through (i), any
determination (individually, a "Determination") required to be made under this
Section 11(b), including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall initially be made, at the Company's expense, by
nationally recognized tax counsel mutually acceptable to the Company and the
Executive ("Tax Counsel"). Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and the
Executive within 15 business days of the termination of the Executive's
employment, if applicable, or such other time or times as is reasonably
requested by the Company or the Executive. If Tax Counsel makes the initial
Determination that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. The Executive shall have the right to dispute any
Determination (a "Dispute") within 15 business days after delivery of Tax
Counsel's opinion with respect to such Determination. The Gross-Up Payment, if
any, as determined pursuant to such Determination shall, at the Company's
expense, be paid by the Company to the Executive within five business days of
the Executive's receipt of such Determination. The existence of a Dispute shall
not in any way affect the Executive's right to receive the Gross-Up Payment in
accordance with such Determination. If there is no Dispute, such Determination
shall be binding, final and conclusive upon the Company and the Executive,
subject in all respects, however, to the provisions of Section 11(c) through (i)
below. As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up Payments (or portions thereof)
which will not have been made by the Company should have been made
("Underpayment"), and if upon any reasonable written request from the Executive
or the Company to Tax Counsel, or upon Tax Counsel's own initiative, Tax
Counsel, at the Company's expense, thereafter determines that the Executive is
required to make a payment of any Excise Tax or any additional Excise Tax,
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as the case may be, Tax Counsel shall, at the Company's expense, determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to the Executive.
(c) The Company shall defend, hold harmless, and indemnify the
Executive on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of the Executive resulting from any Final Determination (as
defined in Section 11(j)) that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral communication with
respect to any question, adjustment, assessment or pending or threatened audit,
examination, investigation or administrative, court or other proceeding which,
if pursued successfully, could result in or give rise to a claim by the
Executive against the Company under this Section 11 ("Claim"), including, but
not limited to, a claim for indemnification of the Executive by the Company
under Section 11(c), then such party shall promptly notify the other party
hereto in writing of such Claim ("Tax Claim Notice").
(e) If a Claim is asserted against the Executive ("Executive Claim"),
the Executive shall take or cause to be taken such action in connection with
contesting such Executive Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as are
reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide that
the Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(i) within 30 calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such
Executive Claim (or such earlier date that any payment of the taxes
claimed is due from the Executive, but in no event sooner than five
calendar days after the Company receives or delivers such Tax Claim
Notice), the Company shall have notified the Executive in writing
("Election Notice") that the Company does not dispute its obligations
(including, but not limited to, its indemnity obligations) under this
Agreement and that the Company elects to contest, and to control the
defense or prosecution of, such Executive Claim at the Company's sole
risk and sole cost and expense; and
(ii) the Company shall have advanced to the Executive on an
interest-free basis, the total amount of the tax claimed in order for
the Executive, at the Company's request, to pay or cause to be paid the
tax claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of Section 11(g), ▇▇▇ for a refund of
such tax if such claim for refund is disallowed by the appropriate
taxing authority (it being understood and agreed by the parties hereto
that the Company shall only be entitled to ▇▇▇ for a refund and the
Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify and hold the
Executive harmless, on a fully grossed-up after tax basis, from any tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and
(iii) the Company shall reimburse the Executive for any and
all costs and expenses resulting from any such request by the Company
and shall indemnify and hold the Executive harmless, on fully
grossed-up after-tax basis, from any tax imposed as a result of such
reimbursement.
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(f) Subject to the provisions of Section 11(e) hereof, the Company
shall have the right to defend or prosecute, at the sole cost, expense and risk
of the Company, such Executive Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted diligently by the Company to a Final
Determination; provided, however, that (i) the Company shall not, without the
Executive's prior written consent, enter into any compromise or settlement of
such Executive Claim that would adversely affect the Executive, (ii) any request
from the Company to the Executive regarding any extension of the statute of
limitations relating to assessment, payment, or collection of taxes for the
taxable year of the Executive with respect to which the contested issues
involved in, and amount of, the Executive Claim relate is limited solely to such
contested issues and amount, and (iii) the Company's control of any contest or
proceeding shall be limited to issues with respect to the Executive Claim and
the Executive shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or any other
taxing authority. So long as the Company is diligently defending or prosecuting
such Executive Claim, the Executive shall provide or cause to be provided to the
Company any information reasonably requested by the Company that relates to such
Executive Claim, and shall otherwise cooperate with the Company and its
representatives in good faith in order to contest effectively such Executive
Claim. The Company shall keep the Executive informed of all developments and
events relating to any such Executive Claim (including, without limitation,
providing to the Executive copies of all written materials pertaining to any
such Executive Claim), and the Executive or his authorized representatives shall
be entitled, at the Executive's expense, to participate in all conferences,
meetings and proceedings relating to any such Executive Claim.
(g) If, after actual receipt by the Executive of an amount of a tax
claimed (pursuant to an Executive Claim) that has been advanced by the Company
pursuant to Section 11(e)(ii) hereof, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, the Executive shall promptly pay or cause to be paid to the
Company any refund actually received by, or actually credited to, the Executive
with respect to such tax (together with any interest paid or credited thereon by
the taxing authority and any recovery of legal fees from such taxing authority
related thereto), except to the extent that any amounts are then due and payable
by the Company to the Executive, whether under the provisions of this Agreement
or otherwise. If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 11(e)(ii), a determination is made by the
Internal Revenue Service or other appropriate taxing authority that the
Executive shall not be entitled to any refund with respect to such tax claimed
and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of any Gross-Up Payments and other payments required to be paid
hereunder.
(h) With respect to any Executive Claim, if the Company fails to
deliver an Election Notice to the Executive within the period provided in
Section 11(e)(i) hereof or, after delivery of such Election Notice, the Company
fails to comply with the provisions of Section 11(e)(ii) and (iii) and (f)
hereof, then the Executive shall at any time thereafter have the right (but not
the obligation), at his election and in his sole and absolute discretion, to
defend or prosecute, at the sole cost, expense and risk of the Company, such
Executive Claim. The Executive shall have full control of such defense or
prosecution and such proceedings, including any settlement or compromise
thereof. If requested by the Executive, the Company shall cooperate, and shall
cause its Affiliates to cooperate, in good faith with the Executive and his
authorized representatives in order to contest effectively such Executive Claim.
The Company may attend, but not participate in or control, any
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defense, prosecution, settlement or compromise of any Executive Claim controlled
by the Executive pursuant to this Section 11(h) and shall bear its own costs and
expenses with respect thereto. In the case of any Executive Claim that is
defended or prosecuted by the Executive, the Executive shall, from time to time,
be entitled to current payment, on a fully grossed-up after tax basis, from the
Company with respect to costs and expenses incurred by the Executive in
connection with such defense or prosecution.
(i) In the case of any Executive Claim that is defended or prosecuted
to a Final Determination pursuant to the terms of this Section 11(i), the
Company shall pay, on a fully grossed-up after tax basis, to the Executive in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Executive Claim that have not
theretofore been paid by the Company to the Executive, together with the costs
and expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to the Executive,
within ten calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company shall pay, on
a fully grossed-up after tax basis, to the Executive in immediately available
funds the full amount of any taxes arising or resulting from or incurred in
connection with such Executive Claim at least ten calendar days before the date
payment of such taxes is due from the Executive, except where payment of such
taxes is sooner required under the provisions of this Section 11(i), in which
case payment of such taxes (and payment, on a fully grossed-up after tax basis,
of any costs and expenses required to be paid under this Section 11(i) shall be
made within the time and in the manner otherwise provided in this Section 11(i).
(j) For purposes of this Agreement, the term "Final Determination"
shall mean (A) a decision, judgment, decree or other order by a court or other
tribunal with appropriate jurisdiction, which has become final and
non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (C) any disallowance of
a claim for refund or credit in respect to an overpayment of tax unless a suit
is filed on a timely basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "tax" and "taxes" mean
any and all taxes of any kind whatsoever (including, but not limited to, any and
all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such taxes and any interest in respect of such penalties, additions
to tax, or additional amounts.
Section 12. Expenses of Enforcement. If a Change in Control of the
Company shall have occurred before the expiration of the term of this Agreement,
then, upon demand by the Executive made to the Company, the Company shall
reimburse the Executive for the reasonable expenses (including attorneys' fees
and expenses) incurred by the Executive in enforcing or seeking to enforce the
payment of any amount or other benefit to which the Executive shall have become
entitled pursuant to this Agreement, including those incurred in connection with
any arbitration initiated pursuant to Section 20. To the extent that any such
reimbursement would be subject to the Excise Tax, then the Executive shall be
entitled to receive Gross-Up Payments in an amount such that after payment by
the Executive of all taxes imposed on such Gross-Up Payments, the Executive
retains an amount equal to the Excise Tax imposed upon the reimbursement, and
the other provisions of Section 11 hereof shall also apply to such circumstance
unless the context thereof otherwise indicates.
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Section 13. Employment by Wholly Owned Entities. If, at or after the
Effective Date, the Executive is or becomes an Executive of one or more
corporations, partnerships, limited liability companies or other entities that
are, directly or indirectly, wholly owned by the Company ("Wholly Owned
Entities"), references in this Agreement to the Executive's employment by the
Company shall include the Executive's employment by any such Wholly Owned
Entity.
Section 14. No Obligation to Mitigate; No Rights of Offset.
(a) The Executive shall not be required to mitigate the amount of any
payment or other benefit required to be paid to the Executive pursuant to this
Agreement, whether by seeking other employment or otherwise, nor shall the
amount of any such payment or other benefit be reduced on account of any
compensation earned by the Executive as a result of employment by another
person.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others.
Section 15. Amendment and Waiver. No provision of this Agreement may be
amended or waived (whether by act or course of conduct or omission or otherwise)
unless that amendment or waiver is by written instrument signed by the parties
hereto. No waiver by either party of any breach of this Agreement shall be
deemed a waiver of any other or subsequent breach.
Section 16. Governing Law. The validity, interpretation, construction
and enforceability of this Agreement shall be governed by the laws of the State
of Texas.
Section 17. 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.
Section 18. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together will constitute the same instrument.
Section 19. Assignment. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representative. The Company may not
assign any of its obligations under this Agreement unless (i) such assignment is
to a Successor and (ii) the requirements of Section 8 are fulfilled.
Section 20. Arbitration. Except as otherwise explicitly provided in
Section 11, any dispute between the parties arising out of this Agreement,
whether as to this Agreement's construction, interpretation or enforceability or
as to any party's breach or alleged breach of any provision of this Agreement,
shall be submitted to arbitration in accordance with the following procedures:
(i) Either party may demand such arbitration by giving notice
of that demand to the other party. The notice shall state (x) the
matter in controversy, and (y) the name of the arbitrator selected by
the party giving the notice.
(ii) Not more than 15 days after such notice is given, the
other party shall give notice to the party who demanded arbitration of
the name of the arbitrator selected by the other party. If the other
party shall fail to timely give such notice, the arbitrator that the
other party was entitled to select shall be named by the Arbitration
Committee of the
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American Arbitration Association. Not more than 15 days after the
second arbitrator is so named, the two arbitrators shall select a third
arbitrator. If the two arbitrators shall fail to timely select a third
arbitrator, the third arbitrator shall be named by the Arbitration
Committee of the American Arbitration Association.
(iii) The dispute shall be arbitrated at a hearing that shall
be concluded within ten days immediately following the date the dispute
is submitted to arbitration unless a majority of the arbitrators shall
elect to extend the period of arbitration. Any award made by a majority
of the arbitrators (x) shall be made within ten days following the
conclusion of the arbitration hearing, (y) shall be conclusive and
binding on the parties, and (z) may be made the subject of a judgment
of any court having jurisdiction.
(iv) All expenses of the arbitration shall be borne by the
Company.
The agreement of the parties contained in the foregoing provisions of this
Section 20 shall be a complete defense to any action, suit or other proceeding
instituted in any court or before any administrative tribunal with respect to
any dispute between the parties arising out of this Agreement.
Section 21. Interpretation.
(a) As used in this Agreement, the following terms and phrases have the
indicated meanings:
(i) "Affiliate" and "Affiliates" mean, when used with respect
to any entity, individual, or other person, any other entity,
individual, or other person which, directly or indirectly, through one
or more intermediaries controls, or is controlled by, or is under
common control with such entity, individual or person.
(ii) "Base Salary" has the meaning assigned to that term in
Section 5.
(iii) "Basic Benefit Plans" has the meaning assigned to that
term in Section 5.
(iv) "Benchmark Bonus" has the meaning assigned to that term
in Section 5.
(v) "Board of Directors" means the Board of Directors of the
Company.
(vi) "Business Combination" has the meaning assigned to that
term in Section 2.
(vii) "Change in Control of the Company" has the meaning
assigned to that phrase in Section 2.
(viii) "Claim" has the meaning assigned to such term in
Section 11.
(ix) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(x) "Commission" means the United States Securities and
Exchange Commission or any successor agency.
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(xi) "Company" has the meaning assigned to that term in the
preamble to this Agreement. The term "Company" shall also include any
Successor, whether the liability of such Successor under this Agreement
is established by contract or occurs by operation of law.
(xii) "Covered Person" has the meaning assigned to that term
in Section 2.
(xiii) "Determination" has the meaning assigned to that term
in Section 11.
(xiv) "Dispute" has the meaning assigned to that term in
Section 11.
(xv) "Effective Date" has the meaning assigned to that term in
the preamble to this Agreement.
(xvi) "Election Notice" has the meaning assigned to such term
in Section 11.
(xvii) "Executive" has the meaning assigned to such term in
the preamble to this Agreement.
(xviii) "Executive Claim" has the meaning assigned to such
term in Section 11.
(xix) "Executive's Disability" means:
(A) if no Change in Control of the Company shall have
occurred before the date of determination, the physical or
mental disability of the Executive determined in accordance
with the disability policy of the Company at the time in
effect and generally applicable to its salaried Executives;
and
(B) if a Change in Control of the Company shall have
occurred at that date, the physical or mental disability of
the Executive determined in accordance with the disability
policy of the Company in effect immediately before the
occurrence of the first Change in Control of the Company and
generally applicable to its salaried Executives.
The Executive's Disability, and the automatic termination of the
Executive's employment by the Company by reason of the Executive's
Disability, shall be deemed to have occurred on the date of
determination, provided that if (1) a Change in Control of the Company
shall have occurred before the expiration of the term of this
Agreement, (2) the Company shall have subsequently given notice
pursuant to Section 6 of the Company's determination of the Executive's
Disability, and (3) the Executive shall have given notice to the
Company that the Executive disagrees with that determination, then (A)
whether the Executive's Disability shall have occurred shall be
submitted to arbitration pursuant to Section 20, and (B) if a majority
of the arbitrators decide that the Executive's Disability had not
occurred, at the date of determination by the Company, then (I) the
Executive's Disability, and the automatic termination of the
Executive's employment by the Company by reason of the Executive's
Disability, shall be deemed not to have occurred, and (II) on demand by
the Executive made to the Company, the Company shall reimburse the
Executive for the reasonable expenses (including attorneys' fees and
expenses) incurred by the Executive in obtaining that decision.
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(xx) "Event of Termination for Good Reason" has the meaning
assigned to that phrase in Section 5.
(xxi) "Event of Termination for Cause" has the meaning
assigned to that phrase in Section 4.
(xxii) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
(xxiii) "Excise Tax" has the meaning assigned to that term in
Section 11.
(xxiv) "Expiration Date" has the meaning assigned to that term
in Section 3.
(xxv) "Final Determination" has the meaning assigned to such
term in Section 11.
(xxvi) "Fiscal Year" means the fiscal year of the Company.
(xxvii) "Gross-Up Payment" has the meaning assigned to that
term in Section 11.
(xxviii) "Other Benefit Plan" means any employee welfare
benefit plan (within the meaning of section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) maintained by the
Company.
(xxix) "Outstanding Company Common Stock" has the meaning
assigned to that term in Section 2.
(xxx) "Outstanding Company Voting Securities" has the meaning
assigned to that term in Section 2.
(xxxi) "Payment" has the meaning assigned to that term in
Section 11.
(xxxii) "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, limited
partnership, limited liability company, trust, unincorporated
organization, government, or agency or political subdivision of any
government.
(xxxiii) "Relevant Period" means a period beginning on the
Termination Date and ending on the first to occur of (x) the third
anniversary of the Termination Date, or (y) the date on which the
Executive becomes employed on a full-time basis by another person.
(xxxiv) "Severance Payment" has the meaning assigned to that
term in Section 7.
(xxxv) "Successor" means a person with or into which the
Company shall have been merged or consolidated or to which the Company
shall have transferred its assets as an entirety or substantially as an
entirety.
(xxxvi) "Tax" has the meaning assigned to that term in Section
11.
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(xxxvii) "Tax Claim Notice" has the meaning assigned to that
term in Section 11.
(xxxviii) "Tax Counsel" has the meaning assigned to that term
in Section 11.
(xxxix) "Termination Date" has the meaning assigned to that
term in Section 6.
(xl) "This Agreement" means this Change in Control Agreement
as it may be amended from time to time in accordance with Section 15.
(xli) "Underpayment" has the meaning assigned to that term in
Section 11.
(xlii) "Wholly Owned Entities" has the meaning assigned to
that term in Section 13.
(b) In the event of the enactment of any successor provision to any
statute or rule cited in this Agreement, references in this Agreement to such
statute or rule shall be to such successor provision.
(c) The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement.
(d) References in this Agreement to any Section are to the
corresponding Section of this Agreement unless the context otherwise indicates.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the Effective Date.
COMPANY:
QUANEX CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EXECUTIVE:
--------------------------------------------
Name:
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