MICROCHIP TECHNOLOGY INCORPORATED CHANGE OF CONTROL SEVERANCE AGREEMENT (Double Trigger)
EXHIBIT
10.2
MICROCHIP
TECHNOLOGY INCORPORATED
(Double
Trigger)
This
Change of Control Severance Agreement (the “Agreement”) was originally made and
entered into by and between ________________ (the “Employee”) and Microchip
Technology Incorporated (the “Company”), effective as of ________________, and
is hereby amended and restated in its entirety effective as of the last date
signed below in order to comply with Internal Revenue Code Section
409A.
RECITALS
1. 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 herein) of the Company.
2. 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 or her employment and to
motivate the Employee to maximize the value of the Company upon a Change of
Control for the benefit of its stockholders.
3. The Board
believes that it is imperative to provide the Employee with certain severance
benefits upon the Employee’s termination of employment following a Change of
Control. These benefits will provide the Employee with enhanced
financial security and incentive and encouragement to remain with the Company
notwithstanding the possibility of a Change of Control.
4. 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 or offer letter between the Company and the Employee (an
“Employment Agreement”). If the Employee’s employment terminates
prior to the Change of Control Period, 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 exists in
writing, or as may otherwise be available in accordance with the Company’s
established employee plans.
3. Severance
Benefits.
(a) Benefits Following
Termination During Change of Control Period. Upon termination
of employment for any reason other than for “Cause” (as defined herein) during
the Change of Control Period the Employee shall receive the following
benefit:
(i) Equity Compensation
Acceleration. One hundred percent (100%) of the Employee’s
outstanding stock options, stock appreciation rights, restricted stock units and
other Company equity compensation awards (the “Equity Compensation Awards”)
shall immediately vest and become exercisable. Any Company stock
options and stock appreciation rights shall remain exercisable following the
Employee’s employment termination for the period prescribed in the respective
option and stock appreciation right agreements.
(b) Involuntary Termination
Other than for Cause, Voluntary Termination for Good Reason During the Change of
Control Period. If within the period beginning three (3)
months preceding a Change of Control and ending twenty-four (24) months
following a Change of Control (the “Change of Control Period”), (i) the Employee
terminates his or her employment with the Company (or any parent or subsidiary
of the Company) for “Good Reason” (as defined herein) or (ii) the Company (or
any parent or subsidiary of the Company) terminates the Employee’s employment
for other than “Cause” (as defined herein), and the Employee signs, and does not
revoke, a standard release of claims with the Company in a form acceptable to
the Company (the “Release”) subject to conditions of Section 3(d), then the
Employee shall receive the following severance from the Company:
(i) Severance
Payment. The Employee shall be entitled to receive a lump-sum
severance payment (less applicable withholding taxes) equal to one hundred
percent of the Employee’s annual base salary (as in effect immediately prior to
(A) the Change of Control, or (B) the Employee’s termination of employment,
whichever is greater) plus one hundred percent of
the Employee’s target bonuses for which Employee was or would have been eligible
(for the fiscal year in which the Change of Control or the Employee’s
termination occurs, whichever is greater).
(ii) Continued Employee
Benefits. Reimbursement of Employee’s health, dental, vision,
and life insurance coverage at the same level of coverage as was provided to
such Employee immediately prior to termination and at the same ratio of Company
premium subsidy to Employee premium payment as was in effect immediately prior
to termination (the “Company-Paid Coverage”). The Company portion of
such payments shall be made within thirty (30) days of the premium due
date. If such coverage included the Employee’s eligible dependents
immediately prior to termination, such dependents shall also be covered at
Company expense. Company-Paid Coverage shall continue until the
earlier of (A) twelve (12) months from the date of termination, or
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(B) the
date upon which the Employee and his dependents become covered under another
employer’s group health, dental, vision, long-term disability or life insurance
plans that provide Employee and his dependents with comparable benefits and
levels of coverage; provided, however that if such reimbursement results in the
imposition of additional taxes to the Employee under Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), Employee shall be paid
an additional full gross-up for such additional taxes, so that he is in the same
position, on an after-tax basis, as if such taxes did not apply. Such
payment shall be made no later than the Employee’s taxable year next following
the year in which the Employee remits such taxes. For purposes of
Title X of the Consolidated Budget Reconciliation Act of 1985 (“COBRA”), the
date of the “qualifying event” for Employee and his or her dependents shall be
the date upon which the Company-Paid Coverage terminates. Coverage in
this section is dependent on the valid and timely election of continued COBRA
coverage under applicable law.
(c) Timing of Severance
Payments. Subject to Section 3(g) below, the severance payment
to which Employee is entitled shall be paid by the Company to Employee in cash
and in full on the 61st day
following the employment termination date or such later date as is required
under Section 3(g). If the Employee should die before all amounts
have been paid, such unpaid amounts shall be paid in a lump-sum payment (less
any withholding taxes) to the Employee’s designated beneficiary, if living, or
otherwise to the personal representative of the Employee’s estate.
(d) Release
Effectiveness. The receipt of any severance payment or
benefits pursuant to section 3(b) will be subject to the Employee signing and
not revoking the Release and provided that such Release is effective within
sixty (60) days following the termination of Employee’s
employment. No severance pursuant to such section shall be paid or
provided until the Release becomes effective.
(e) Voluntary
Resignation. If the Employee’s employment with the Company
terminates during the Change of Control Period voluntarily by the Employee other
than for Good Reason, then the Employee shall not be entitled to receive
severance or other benefits except for those described in 3(a)(i) and 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.
(f) Termination for Cause;
Termination Other Than During a Change of Control Period. In
the event the Employee’s employment is terminated for Cause, or for any reason
prior to or following the Change of Control Period, then the Employee shall not
be entitled to receive severance and any other benefits except 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.
(g) Internal Revenue Code
Section 409A.
(i) Notwithstanding
any provision to the contrary herein, no Deferred Compensation Separation
Payments (as defined below) that becomes payable under this Agreement by reason
of Employee’s termination of employment with the Company (or any successor
entity thereto) will be made unless such termination of employment constitutes a
“separation from service”
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within
the meaning of Section 409A of the Internal Revenue Code (the “Code”), and any
final regulations and Internal Revenue Service guidance promulgated thereunder
(“Section 409A”). Further, if Employee is a “specified employee” of the Company
(or any successor entity thereto) within the meaning of Section 409A on the date
of Employee’s termination (other than a termination due to death), then the
severance payable to Employee, if any, under this Agreement, when considered
together with any other severance payments or separation benefits that are
considered deferred compensation under Section 409A (together the “Deferred
Compensation Separation Payments”) that are payable within the first six (6)
months following Employee’s termination of employment, shall be delayed until
the first payroll date that occurs on or after the date that is six (6) months
and one (1) day after the date of the termination, when they shall be paid in
full arrears. All subsequent Deferred Compensation Separation
Payments, if any, shall be paid in accordance with the payment schedule
applicable to each payment or benefit. Notwithstanding anything
herein to the contrary, if Employee dies following his termination but prior to
the six (6) month anniversary of his termination, then any Payments delayed in
accordance with this paragraph will be payable in a lump sum as soon as
administratively practicable after the date of Employee’s death and all other
Payments will be payable in accordance with the payment schedule applicable to
each payment or benefit. Each payment and benefit payable under this
Agreement is intended to constitute a separate payment for purposes of Section
1.409A-2(b)(2) of the Treasury Regulations.
(ii) Any
amounts paid under this Agreement that satisfy the requirements of the
“short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury
Regulations will not constitute Deferred Compensation Separation Payments for
purposes of clause (ii) above.
(iii) Any
amount paid under this Agreement that qualifies as a payment made as a result of
an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii)
of the Treasury Regulations that do not exceed the Section 409A Limit shall not
constitute Deferred Compensation Separation Payments for purposes of clause (ii)
above. “Section 409A Limit” will mean the lesser of two (2) times:
(A) Employee’s annualized compensation based upon the annual rate of pay paid to
Employee during the Company’s taxable year preceding the Company’s taxable year
of Employee’s termination of employment as determined under Treasury Regulation
1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with
respect thereto; or (B) the maximum amount that may be taken into account
under a qualified plan pursuant to Section 401(a)(17) of the Code for the
year in which Employee’s employment is terminated.
(iv) Any
taxable reimbursements and/or taxable in-kind benefits provided in this
Agreement shall be made or provided in accordance with the requirements of
Section 409A, including: (i) the amount of any such expense
reimbursement or in-kind benefit provided during a taxable year of the Employee
shall not affect any expenses eligible for reimbursement in any other taxable
year; (ii) the reimbursement of an eligible expense shall be made no later than
the last day of the employee’s taxable year that immediately follows the taxable
year in which the expense was incurred; and (iii) the right to any such
reimbursement shall not be subject to liquidation or exchange for another
benefit or payment.
(v) The
foregoing provisions are intended to comply with the requirements of Section
409A so that none of the severance payments and benefits to be provided
hereunder will be subject to the additional tax imposed under Section 409A, and
any ambiguities herein will be interpreted to so comply. The Company
and Employee agree to work together in good faith to consider amendments to this
Agreement and to take such reasonable actions which are necessary, appropriate
or desirable to avoid imposition of any additional tax or income recognition
prior to actual payment to Employee under Section 409A.
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4. Golden Parachute Excise
Tax.
(a) Parachute Payment Full
Gross-Up. In the event that the benefits provided for in this agreement
or otherwise payable to Employee, including vesting acceleration upon a change
of control pursuant to Company equity plans or any Employment Agreement which
may exist (i) constitute “parachute payments” within the meaning of Section
280G of the Code, (ii) are subject to the excise tax imposed by Section
4999 of the Code, then (A) the benefits shall be delivered in full, and (B) the
Employee shall receive a payment from the Company sufficient to pay such excise
tax plus an additional payment from the Company sufficient to pay the excise tax
and federal and state income and employment taxes arising from the payments made
by the Company to Employee pursuant to this sentence. Such payment
shall be made no later than the Employee’s taxable year next following the year
in which the Employee remits the excise tax.
(b) 280G
Determinations. Unless the Company and the Employee otherwise
agree in writing, any determination required under this Section 4 shall be made
in writing by a national “Big Four” accounting firm selected by the Company or
such other person or entity to which the parties mutually agree (the
“Accountants”). 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. Any good faith
determinations of the Accountants made hereunder shall be final, binding and
conclusive upon the Company and the Employee.
5. Definition of
Terms. The following terms referred to in this Agreement shall
have the following meanings:
(a) Cause. “Cause”
shall mean (i) a willful act of personal dishonesty taken by the Employee
in connection with his responsibilities as an employee and intended to result in
substantial personal enrichment of the Employee, (ii) Employee being
convicted of, or pleading nolo contendere to, a felony that is materially and
demonstrably injurious to the Company, and (iii) following delivery to the
Employee of a written demand for performance from the Company which describes
the basis for the Company’s reasonable belief that the Employee has not
substantially performed his duties, continued violations by the Employee of the
Employee’s obligations to the Company which are demonstrably willful and
deliberate on the Employee’s part.
For the
purposes of this Section 5(a), no act or failure to act shall be considered
“willful” unless done or omitted to be done in bad faith and without reasonable
belief that the act or omission was in or not opposed to the best interests of
the Company. Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board of Directors of the Company
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done or omitted to be done in good faith and in the best
interests of the Company. Notwithstanding anything herein to the
contrary, the Employee shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board of Directors of the Company at a meeting
of the Board called and held for the purpose (after reasonable notice to the
Employee and an opportunity for the Employee with Employee’s counsel to be heard
before the Board) finding that in the good faith opinion of the Board the
Employee was properly terminated for Cause.
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(b) Change of
Control. “Change of Control” means the occurrence of any of
the following:
(i) Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing fifty percent (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 of Directors of the Company 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 of Directors with the affirmative votes
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for election as a director without
objection to such nomination) of at least three-quarters 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 of the Company);
or
(iii) The
consummation of 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
(iv) The
consummation of the sale, lease or other disposition by the Company of all or
substantially all the Company’s assets.
(c) Good
Reason. “Good Reason” means without the Employee’s express
written consent, (i) a material reduction of the Employee’s duties, title,
authority or responsibilities, relative to the Employee’s duties, title,
authority or responsibilities as in effect immediately prior to such reduction,
or the assignment to Employee of such reduced duties, title, authority or
responsibilities, including a reduction in duties, title, authority or
responsibilities solely by virtue of the Company being acquired and made part of
a larger entity; (ii) a substantial reduction of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to such reduction; (iii) a reduction by the Company in the base salary or
target bonus opportunity of the Employee as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
benefits to which the Employee was entitled immediately prior to such reduction
with the result that such Employee’s overall benefits package is significantly
reduced; (v) the relocation of the Employee to a facility or a location more
than thirty (30) miles from the one at which Employee is then presently
employed. In order for a resignation to qualify as for “Good Reason,”
the Employee must provide the Company written notice of Good Reason no later
than sixty (60) days after the date the Good Reason event or condition first
occurred, specifically identifying the acts or omissions constituting grounds
for Good Reason, and the Company must have failed to cure such Good Reason
condition within thirty (30) days following the date of such
notice.
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6. Successors.
(a) The 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) The 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. All
notices and other communications required or permitted hereunder shall be
in writing, shall be effective when given, and shall in any event be deemed to
be given upon receipt or, if earlier, (i) five (5) days after deposit
with the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (ii) upon delivery, if delivered by
hand, (iii) one (1) business day after the business day of deposit with
Federal Express or similar overnight courier, freight prepaid or
(iv) one (1) business day after the business day of facsimile
transmission, if delivered by facsimile transmission with copy by first class
mail, postage prepaid, and shall be addressed (A) if to Employee, at
his or her last known residential address and (B) if to the Company, at the
address of its principal corporate offices (attention: Secretary), or
in any such case at such other address as a party may designate by ten (10)
days’ advance written notice to the other party pursuant to the provisions
above.
(b) Notice of
Termination. Any termination by the Company for Cause or by
the Employee for Good Reason or as a result of a voluntary resignation shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 7(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 thirty (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 Good Reason shall not
waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his or her rights
hereunder.
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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,
except as set forth in Section 3(b)(ii)(B).
(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). Employee and the Company agree to work in good faith to
consider amendments to this Agreement which are necessary or appropriate to
avoid imposition of any additional tax or income recognition under Section 409A
prior to the actual payment of amounts to the Employee. The parties agree to
cooperate with each other and to take reasonably necessary steps in this
regard. 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) Headings. All
captions and section headings used in this Agreement are for convenient
reference only and do not form a part of this Agreement.
(d) Entire
Agreement. This Agreement, along with other written agreements
relating to the subject matter hereof between Employee and a duly authorized
Company officer constitute the entire agreement of the parties hereto and
supersede 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.
(e) Choice of Law;
Arbitration. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arizona. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Phoenix,
Arizona, by three arbitrators in accordance with the then current rules of the
American Arbitration Association. The prevailing party in any arbitration shall
be entitled to injunctive relief to enforce the arbitration award. The
parties agree to waive their right to have any dispute regarding this Agreement
resolved in a court of law by judge or jury. The Judgment may be
entered on the arbitrator’s award in any court having
jurisdiction. This Section shall not prevent either party from
seeking injunctive relief (or any other provisional remedy) relating to
employee’s obligations under this Agreement. The Company shall bear the costs
and expenses arising out of or in connection with any arbitration pursuant to
this Section 8(e), including Employee’s costs and reasonable attorney’s
fees.
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(f) 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.
(g) Withholding. All
payments made pursuant to this Agreement will be subject to withholding of
applicable income and employment taxes.
(h) 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.
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EMPLOYEE
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