MICROCHIP TECHNOLOGY INCORPORATED CHANGE OF CONTROL SEVERANCE AGREEMENT
MICROCHIP
TECHNOLOGY INCORPORATED
This
Change of Control Severance Agreement (the “Agreement”) is made and entered into
by and between ________________ (the “Employee”) and Microchip Technology
Incorporated (the “Company”), effective as of ________________, 2006 (the
“Effective Date”).
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 benefits
upon a Change of Control and certain 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. Benefits.
(a) Benefits
Upon a Change of Control.
Immediately prior to consummation of a Change of Control 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) Termination
Other than for Cause During the Change of Control Period.
If
within the three-month period preceding or any time following a Change of
Control (the “Change of Control Period”), the Employee ceases to be employed
with the Company (or any parent or subsidiary of the Company) for any reason
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”), 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/two) 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/two)
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.
Company-paid 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 payment to Employee premium
payment as was in effect immediately prior to termination (the “Company-Paid
Coverage”). 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/twenty-four) months from the date of termination, or (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. For purposes of Title X of to 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.
Except
as otherwise provided herein, the severance payment to which Employee is
entitled shall be paid by the Company to Employee in cash and in full, not
later
than ten (10) calendar days after the effective date of the Release. 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) Termination
for Cause; Termination Prior to Change of Control Period.
In the
event the Employee’s employment is terminated for Cause, or for any reason prior
to 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.
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(e) Internal
Revenue Code Section 409A.
Notwithstanding any other provision of this Agreement, if the Employee is a
“key
employee” under Code Section 409A and a delay in making any payment or providing
any benefit under this Agreement is required by Code Section 409A and any
Treasury Regulations, and IRS guidance thereunder, or necessary in the good
faith judgment of the Company, to avoid the Employee incurring additional tax
under Section 409A, such payments shall not be made until the end of six (6)
months following the date of the Employee’s separation from service in
accordance with Code Section 409A.
4. Golden
Parachute Excise Tax.
(a) Parachute
Payments Equal to or Greater than 3.0 x Base Amount.
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) would be subject to the excise tax imposed by Section 4999
of the Code, and (iii) the aggregate value of such parachute payments, as
determined in accordance with Section 280G of the Code and the proposed Treasury
Regulations thereunder (or the final Treasury Regulations, if they have then
been adopted) is equal to or greater than the product obtained by multiplying
three by Employee’s “base amount” within the meaning of Code Section 280G(b)(3),
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.
(b) 280G
Determinations.
Unless
the Company and the Employee otherwise agree in writing, the determination
of
Employee’s excise tax liability and the amount required to be paid under this
Section 4 shall be made in writing by the Company’s independent auditors who are
primarily used by the Company immediately prior to the Change of Control (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.
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.
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.
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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 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).
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.
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(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.
(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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COMPANY
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Title:
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Date:
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EMPLOYEE
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Date:
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