[The XxxXxxx-Xxxxxxxxxx Corporation Letterhead]
[Date]
[Name of Director]
[Address of Director]
Re: OUTSIDE DIRECTOR CHANGE IN CONTROL AGREEMENT
Dear Mr._________:
The XxxXxxx-Xxxxxxxxxx Corporation (the "Company") considers the
establishment and maintenance of sound and vital management to be essential
to protecting and enhancing the best interests of the Company and its
stockholders. The Company also considers it essential to the best interests
of the Company and its stockholders that its outside directors be encouraged
to remain with the Company and continue to devote the necessary attention to
the Company's business in the event an effort is made to obtain control of
the Company through a tender offer or otherwise. In this connection, the
Company recognizes that the possibility of a change in control and the
uncertainty and questions which it may raise may result in the departure or
distraction of key directors to the detriment of the Company and its
stockholders. Although no such change in control is currently anticipated,
the board of directors of the Company has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of the outside directors to their duties without distraction in
the face of the potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
The Board recognizes that your contributions to the past and future
growth and success of the Company have been substantial. Should the Company
receive any proposal from a third person concerning a possible business
combination with, or acquisition of equity securities of, the Company, the board
believes it imperative that the Company and the board be able to rely upon you
to continue as a director of the Company, and that the Company be able to
receive and rely upon your advice, if so requested, as to the best interests of
the Company and its stockholders without concern that you might be distracted by
the personal uncertainties and risks created by such a proposal. Should the
Company receive any such proposals, in addition to your regular duties, you may
be called upon to assist in the assessment of such proposals, advise the full
board as to whether such proposals would be in the best interests of the Company
and its stockholders, and to take such actions as the full board might determine
to be appropriate.
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Accordingly, to assure the Company that it will have your continued
undivided attention and services and the availability of your advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce you to remain as a director of the
Company, and for other good and valuable consideration, this letter agreement
(the "Agreement") sets forth benefits which the Company agrees will be provided
to you in the event of a Change in Control (as defined below) of the Company
prior to the expiration of this Agreement and while you are still a director of
the Company.
1. CHANGE IN CONTROL. A "Change in Control" of the Company means and shall
be deemed to have occurred if and when: (i) within the meaning of Section 13(d)
of the Securities Exchange Act of 1934, any person or group becomes a beneficial
owner, directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities;
(ii) individuals who were members of the board of directors of the Company
immediately prior to a meeting of the stockholders of the Company involving a
contest for the election of directors shall not constitute a majority of the
board of directors following such election; (iii) the stockholders of the
Company approve the dissolution or liquidation of the Company; (iv) the
stockholders of the Company approve an agreement to merge or consolidate, or
otherwise reorganize, with or into one or more entities which are not
subsidiaries, as a result of which less than 50% of the outstanding voting
securities of the surviving or resulting entity are, or are to be, owned by
former stockholders of the Company (excluding from the term "former
stockholders" a stockholder who is, or as a result of the transaction in
question becomes, an "affiliate," as that term is used in the Securities
Exchange Act of 1934 and the rules promulgated thereunder, of any party to such
merger, consolidation or reorganization); or (v) the stockholders of the Company
approve the sale of substantially all of the Company's business and/or assets to
a person or entity which is not a subsidiary; PROVIDED, HOWEVER, that no Change
in Control of the Company shall be deemed to have occurred if the transaction
giving rise thereto was approved by a majority of the board of directors who
were in office immediately prior to such transaction.
2. REMOVAL FOLLOWING A CHANGE IN CONTROL.
(a) If, within two years following a Change in Control of the
Company, you are removed as a director for any reason, or if you resign as a
director of the Company for any reason other than death or disability, the
Company shall pay you a lump sum amount equal to 2.5 times your "annualized
payments" as defined below. Such amount shall be payable within 10 days after
the date on which you resign or are removed (such date being referred to
hereinafter as the "Termination Date").
(b) As used herein, subject to Section 4 below, the term
"annualized payments" means the amount paid to you by the Company for your
services as a director of the Company (including, without limitation, any
annual retainer, board meeting attendance fee, committee meeting attendance
fee and chairperson's fee but excluding the value of any stock option grants)
for the one-year period ending on the Termination Date; provided, that if
your services as a director commenced less than one year prior to the
Termination Date, the annualized payments shall be calculated assuming the
following: (i) you were paid any retainer fees as a director for the full
one-year period prior to the Termination Date; (ii) you attended all
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board meetings held during such one-year period other than those board
meetings that were held while you were actually a director and that you did
not attend; (iii) you were a member (and chairperson, if applicable) of each
committee of which you were actually a member (or chairperson) on the
Termination Date; and (iv) you attended all committee meetings held during
such one-year period other than those committee meetings that were held while
you were actually a committee member and that you did not attend.
3. ESTABLISHMENT OF TRUST; FUNDING OF TRUST UPON CHANGE IN CONTROL.
(a) The Company shall establish, as soon as practicable, a
trust for the purpose of holding assets to make any payments that may be
required under the terms of this Agreement. Such trust, which may be a
sub-trust of a larger trust, shall be revocable prior to a Change in Control
but shall become irrevocable upon a Change in Control. Such trust shall be a
grantor trust under which the income is taxable to the Company and no
contributions or income are taxable to you until funds are distributed to you.
(b) The trust described herein shall be initially funded
with a contribution of $1.00. Within 10 days following a Change in Control
of the Company, the Company shall transfer to the trust sufficient funds to
cover the maximum payment which could become payable to you under this
Agreement in the event you resign or are removed as a director of the
Company within two years following the Change in Control.
4. PARACHUTE PAYMENTS.
(a) Notwithstanding anything in this Agreement to the
contrary, any "parachute payments" to be made to you or for your benefit,
whether pursuant to this Agreement or otherwise, shall be modified to the
extent necessary so that the requirements of either subparagraph (i) or (ii)
below are satisfied (whichever results in the greater aggregate payments):
(i) the aggregate of "present value" of all "parachute
payments" payable to you or for your benefit, whether pursuant to
this Agreement or otherwise, shall be less than three times your
"base amount"; or
(ii) each "parachute payment" payable to you or for your
benefit, whether pursuant to this Agreement or otherwise, shall be in an
amount which does not exceed the "reasonable compensation" allocable to
such "parachute payment."
(b) Notwithstanding anything in any other section of this
Agreement to the contrary, no "illegal parachute payments" shall be made to you
or for your benefit.
(c) For purposes of this section:
(i) The term "base amount" shall have the meaning ascribed to
it under Section 280G(b)(3) of the Internal Revenue code of 1986, as
amended (the "Code");
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(ii) the term "illegal parachute payment" shall mean a payment
described in Section 280G(b)(2)(B) of the Code;
(iii) the term "parachute payment" shall have the meaning
ascribed in Section 280G(b)(2)(A) of the Code, without regard to Section
280G(b)(2)(A)(ii) of the Code but with regard to Section 280G(b)(4)(A);
(iv) "present value" shall be determined in accordance with
Section 280G(d)(4) of the Code;
(v) the term "reasonable compensation" shall have the meaning
ascribed to it under Section 280G(b)(4)(B) of the Code (for personal
services actually rendered before the date of the Change in Control of
the Company); and
(vi) the portion of the "base amount" and the amount of
"reasonable compensation" allocable to any "parachute payment" shall be
determined in accordance with Section 280G(b)(3) of the Code and Section
280G(b)(4)(B) of the Code, respectively.
(d) In the event the amount of any "parachute payments" which
would be payable to or for your benefit without regard to this section must be
modified to comply with this section, you shall direct which "parachute
payments" are to be waived or modified; provided, however, that no change in
timing of the payments shall be made without the consent of the Company.
(e) Payment of amounts pursuant to this Agreement shall not,
unless directed by you, be delayed pending determination of the status of a
payment as a "parachute payment" or "illegal parachute payment" by the
Internal Revenue Service, court or similar body of competent jurisdiction.
(f) This section shall be interpreted so as to avoid the
imposition of excise taxes on you under Section 4999 of the Code or the
disallowance of a deduction to the Company pursuant to Section 280G(a) of the
Code.
5. TERM OF AGREEMENT. This Agreement shall be effective until December 31,
1999 but shall be terminated earlier upon your departure from the Board prior to
a Change in Control. Either party may, in its sole discretion and for any
reason, provide written notice of termination (effective as of the then
applicable expiration date) to the other party no later than 60 days before the
expiration date of this Agreement. If written notice is not so provided, this
Agreement shall be automatically extended for an additional period of 12 months
past the expiration date. This Agreement shall continue to be automatically
extended for an additional 12 months at the end of such 12-month period and each
succeeding 12-month period unless notices are given in the manner described in
this section. The foregoing notwithstanding, in the event of a Change of
Control the term of this Agreement will automatically be extended for an
additional three years past the expiration date then in effect.
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6. SUCCESSORS. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company.
7. GOVERNING LAW. This Agreement is made and entered into in the State of
California, and the laws of California shall govern its validity and
interpretation and the performance by the parties hereto of their respective
duties and obligations hereunder.
8. AMENDMENT OF AGREEMENT. This Agreement may be amended or modified only
by an instrument in writing executed by all of the parties hereto.
9. ARBITRATION. Any dispute, controversy, or claim arising out of or
relating to this Agreement or breach thereof, shall be submitted to arbitration
in accordance with the Voluntary Labor Arbitration Rules of the American
Arbitration Association. Judgment upon the award rendered by the arbitration
may be entered in any court in the State of California, or in any other court of
competent jurisdiction. In reaching his or her decision, the arbitrator shall
have no authority to ignore, change, modify, add to or delete from any provision
of this Agreement, but instead is limited to interpreting this Agreement. In
the case of any arbitration or subsequent judicial proceeding arising after a
Change in Control, you shall be award your costs, including attorneys' fees.
10. NOTICES. Any notice or communications required or permitted to be given
to the parties hereto shall be delivered personally or be sent by United States
registered or certified mail, postage prepaid and return receipt requested, and
addressed or delivered as follows, or at such other address as the party
addressed may have substituted by notice pursuant to this section:
(a) If to the Company:
The XxxXxxx-Xxxxxxxxxx Corporation
000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000-1777
Attention: President
(b) If to ____________________:
_______________________________
_______________________________
_______________________________
Attention: ______________________
11. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein and there shall be deemed substituted such other provision
as will most nearly accomplish the intent of the parties to the extent permitted
by the applicable law. In case this Agreement, or any one or more of the
provisions hereof, shall be held to be invalid, illegal or
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unenforceable within any governmental jurisdiction or subdivision thereof,
the Agreement or any such provision thereof shall not as a consequence be
deemed to be invalid, illegal or unenforceable in any other governmental
jurisdiction or subdivision thereof.
12. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same Agreement.
The parties have executed this Agreement as of the date first written above.
The XxxXxxx-Xxxxxxxxxx Corporation
______________________________ By ________________________________
[Name]
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