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EXHIBIT 10.27
AGREEMENT RE: CHANGE IN CONTROL
This AGREEMENT RE: CHANGE IN CONTROL (this "Agreement") is dated as of June
21, 2001 and is entered into by and between Xxxxx X. Xxxxxxxx ("Executive") and
I-Flow Corporation, a Delaware corporation (the "Company").
BACKGROUND
The Company believes that because of its position in the industry,
financial resources and historical operating results there is a possibility that
the Company may become the subject of a Change in Control (as defined below),
either now or at some time in the future.
The Company believes that it is in the best interest of the Company and its
stockholders to xxxxxx Executive's objectivity in making decisions with respect
to any pending or threatened Change in Control of the Company and to assure that
the Company will have the continued dedication and availability of Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control.
The Company believes that these goals can best be accomplished by alleviating
certain of the risks and uncertainties with regard to Executive's financial and
professional security that would be created by a pending or threatened Change in
Control and that inevitably would distract Executive and could impair his
ability to objectively perform his duties for and on behalf of the Company.
Accordingly, the Company believes that it is appropriate and in the best
interest of the Company and its stockholders to provide to Executive
compensation arrangements upon a Change in Control that lessen Executive's
financial risks and uncertainties and that are reasonably competitive with those
of other corporations.
With these and other considerations in mind, the Compensation Committee of
the Company has authorized the Company to enter into this Agreement with the
Executive to provide the protections set forth herein for Executive's financial
security following a Change in Control.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration the receipt of which is hereby acknowledged, it is hereby
agreed as follows:
AGREEMENT
1. Term of Agreement. This Agreement shall be effective from the date
first written above and, subject to the provisions of Section 4, shall extend to
(and thereupon automatically terminate) one (1) day after Executive's
termination of employment with the Company for any reason. No termination of
this Agreement shall limit, alter or otherwise affect Executive's rights
hereunder with respect to a Change in Control which has occurred prior to such
termination, including without limitation Executive's right to receive the
various benefits hereunder.
2. Purpose of Agreement. The purpose of this Agreement is to provide
that, in the event of a "Change in Control," Executive may become entitled to
receive certain benefits including those additional benefits, as described
herein, in the event of his termination under specified circumstances.
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3. Change in Control. As used in this Agreement, the phrase "Change in
Control" shall mean:
(i) Except as provided by subparagraph (iii) hereof, the acquisition
(other than from the Company) by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (excluding, for this purpose, the Company or its
subsidiaries, or any executive benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the Company), of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of thirty percent (30%) or more of either the then outstanding
shares of common stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors;
(ii) During any period of two (2) consecutive years during the term
of this Agreement, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period;
(iii) Approval by the stockholders of the Company of a reorganization,
merger or consolidation with any other person, entity or corporation, other than
(1) 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 another entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such other
entity outstanding immediately after such merger or consolidation, or
(2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires forty percent (40%) or more of the combined voting power of the
Company's then outstanding voting securities; or
(iv) Approval by the stockholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or other
disposition by the Company of all or substantially all of the Company's assets
(other than, in each case, a liquidation, sale or disposition conducted in
connection with or arising out of any insolvency or bankruptcy proceedings).
4. Effect of a Change in Control.
(a) In the event of a Change in Control, all of Executive's unvested
stock options which are outstanding shall immediately and automatically vest and
shall remain exercisable for their remaining term.
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(b) In the event of a Change in Control, Sections 6 through 11 of
this Agreement shall become applicable to Executive. These Sections shall
continue to remain applicable until the second anniversary of the date upon
which the Change in Control occurs. On such second anniversary date, and
provided that the employment of Executive has not been terminated on account of
a Qualifying Termination (as defined in Section 5 below), this Agreement shall
terminate and be of no further force or effect.
5. Qualifying Termination. If following, or within ninety (90) days prior
to, a Change in Control Executive's employment with the Company and its
affiliated companies is terminated, such termination shall be conclusively
considered a "Qualifying Termination" unless:
(a) Executive voluntarily terminates his employment with the Company
and its affiliated companies. Executive, however, shall not be considered to
have voluntarily terminated his employment with the Company and its affiliated
companies if, following, or within ninety (90) days prior to, the Change in
Control, Executive's overall compensation is reduced or adversely modified in
any material respect or Executive's authority or duties are materially changed,
and subsequent to such reduction, modification or change Executive elects to
terminate his employment with the Company and its affiliated companies. For such
purposes, Executive's authority or duties shall conclusively be considered to
have been "materially changed" if, without Executive's express and voluntary
written consent, there is any substantial diminution or adverse modification in
Executive's title, status, overall position, responsibilities, reporting
relationship, general working environment (including without limitation
secretarial and staff support, offices, and frequency and mode of travel), or
if, without Executive's express and voluntary written consent, Executive's job
location is transferred to a site more than thirty (30) miles away from his
place of employment ninety (90) days prior to the Change in Control. In this
regard as well, Executive's authority and duties shall conclusively be
considered to have been "materially changed" if, without Executive's express and
voluntary written consent, Executive no longer holds the same title or no longer
has the same authority and responsibilities or no longer has the same reporting
responsibilities, in each case with respect and as to a publicly held parent
company which is not controlled by another entity or person.
(b) The termination is on account of Executive's death or Disability.
For such purposes, "Disability" shall mean a physical or mental incapacity as a
result of which Executive becomes unable to continue the performance of his
responsibilities for the Company and its affiliated companies and which, at
least six (6) months after its commencement, is determined to be total and
permanent by a physician agreed to by the Company and Executive, or in the event
of Executive's inability to designate a physician, Executive's legal
representative. In the absence of agreement between the Company and Executive,
each party shall nominate a qualified physician and the two physicians so
nominated shall select a third physician who shall make the determination as to
Disability.
(c) Executive is involuntarily terminated for "Cause." For this
purpose, "Cause" shall be limited to only two types of events:
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(i) Conviction of a felony; or
(ii) Executive's malfeasance in connection with his employment
or habitual neglect of his duty not cured after written notification thereof by
the Board of Directors, which notice shall specify the alleged instances of
neglect of his duty, and shall provide Executive with 60 days in which to remedy
such malfeasance or neglect.
6. Severance Payment. If Executive's employment is terminated as a result
of a Qualifying Termination, the Company shall pay Executive within thirty (30)
days after the Qualifying Termination a cash lump sum equal to two (2) times
Executive's Compensation (the "Severance Payment"), together with any bonus, or
relevant pro rata portion thereof, earned by Executive for the fiscal year in
which the termination occurs.
(a) For purposes of this Agreement, Executive's "Compensation" shall
equal the sum of (i) Executive's annual salary rate on the date of Executive's
Qualifying Termination, plus (ii) the average annual bonus earned by Executive
in the previous three full fiscal years (or such shorter period as Executive may
have been employed).
(b) In lieu of a cash lump sum, Executive may, in his sole
discretion, elect to receive the Severance Payment provided by this Section in
equal annual installments over three (3) years. Such installments shall be paid
to Executive on each anniversary of the date of Executive's Qualifying
Termination, beginning with the first such anniversary and continuing on each
such anniversary thereafter until fully paid. Such election to receive the
Severance Payment in installments may be made and/or revoked by Executive at any
time prior to the occurrence of a Change in Control by written notice to the
Board of Directors of the Company. Upon the occurrence of a Change in Control,
any such election to receive the Severance Payment in installments that has been
made and not revoked prior to the Change in Control shall be irrevocable and
binding on both the Company and Executive. In the event that at the time of a
Change in Control there is not in effect an election by Executive to receive the
Severance Payment in installments, such Severance Payment shall be paid to
Executive in a single cash lump sum as provided in subparagraph (a) above.
(c) The Severance Payment hereunder is in lieu of any severance
payment that Executive might otherwise be entitled to from the Company in the
event of a Change in Control under the Company's applicable severance pay
policies, if any, or under any other oral or written agreement; provided,
however, that Executive shall continue to be entitled to receive the severance
pay benefits under the Company's applicable policies, if any, or under another
written agreement if and to the extent Executive's termination is not a
Qualifying Termination after, or within ninety (90) days prior to, a Change in
Control.
7. Additional Benefits. In the event of a Qualifying Termination,
Executive s hall be entitled to continue to participate at the Company's expense
in the group medical insurance programs (including health, drug, dental and
vision insurance) which had been made available to Executive (including his
family) before the Qualifying Termination (or a substantively equivalent
program). The programs shall be continued in the same way and at the same level
as immediately prior to the Qualifying Termination. The programs
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shall continue for Executive's benefit for two (2) years after the date of the
Qualifying Termination; provided, however , that Executive's participation in
such group medical insurance programs shall be terminated prior to the two (2)
year anniversary of the Qualifying Termination if and when Executive receives
group medical insurance benefits as a result of concurrent coverage through
another employer's program.
8. Indemnification for Excise Tax. In the event that Executive becomes
entitled to receive a Severance Payment in accordance with the provisions of
Section 6 above, and such Severance Payment and any other benefits or payments
(including transfers of property) that Executive receives, or is to receive,
pursuant to this Agreement or any other agreement, plan or arrangement with the
Company in connection with a Change in Control of the Company ("Other Benefits")
shall be subject to the tax imposed pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code")(or any successor thereto) or any
comparable provision of state law (an "Excise Tax"), the following rules shall
apply:
(a) The Company shall pay to Executive, within thirty (30) days after
the Executive's Qualifying Termination, an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive, after deduction of any
Excise Tax with respect to the Severance Payment or the Other Benefits and any
federal, state and local income tax, FICA tax, and Excise Tax upon such Gross-Up
Payment, is equal to the amount that would have been retained by Executive if
such Excise Tax were not applicable. It is intended that Executive shall not
suffer any loss or expense resulting from the assessment of any Excise Tax or
the Company's reimbursement of Executive for payment of any such Excise Tax.
(b) For purposes of determining whether any of the Severance Payments
or Other Benefits will be subject to an Excise Tax and the amount of such Excise
Tax, (i) any other payments or benefits received or to be received by Executive
in connection with a Change in Control of the Company or Executive's termination
of employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions result
in a Change in Control or any person affiliated with the Company or such person)
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code (or any successor thereto), and all "excess parachute
payments" within the meaning of Section 280G(b)(l) of the Code (or any successor
thereto) shall be treated as subject to the Excise Tax, unless in the opinion of
tax counsel selected by the Company's independent auditors and acceptable to
Executive such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code (or any successor thereto), (ii)
the amount of the Severance Payments and Other Benefits which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Severance Payments or Other Benefits or (B) the amount of excess
parachute payments within the meaning of Sections 280G(b)(l) and (4) of the Code
(or any successor or successors thereto), after applying clause (i), above, and
(iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in
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accordance with the principles of Sections 280G(d)(3) and (4) of the Code (or
any successor or successors thereto).
(c) For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rates of taxation in the state and locality of Executive's residence on the date
of the Executive's Qualifying Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(d) In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of the Executive's
Qualifying Termination, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code (or any successor thereto) (the "Applicable Rate"). In the event that
the Excise Tax is determined to exceed the amount taken into account hereunder
at the time of such Qualifying Termination (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus interest, determined at the Applicable Rate,
payable with respect to such excess) at the time that the amount of such excess
is finally determined.
9. Rights and Obligations Prior to a Change in Control. Prior to the date
which is ninety (90) days before a Change in Control, the rights and obligations
of Executive with respect to his employment by the Company shall be determined
in accordance with the policies and procedures adopted from time to time by the
Company and the provisions of any written employment contract in effect between
the Company and Executive from time to time. This Agreement deals only with
certain rights and obligations of Executive subsequent to, or within ninety (90)
days prior to, a Change in Control, and the existence of this Agreement shall
not be treated as raising any inference with respect to what rights and
obligations exist prior to the date which is ninety (90) days before a Change in
Control. Unless otherwise expressly set forth in a separate written employment
agreement between Executive and the Company, the employment of Executive is
expressly at-will, and Executive or the Company may terminate Executive's
employment with the Company at any time and for any reason, with or without
cause, provided that if such termination occurs within ninety (90) days prior to
or two (2) years after a Change in Control and constitutes a Qualifying
Termination (as defined in Section 5 above) the provisions of this Agreement
shall govern the payment of the Severance Payment and certain other benefits as
provided herein.
10. Non-Exclusivity of Rights. Subject to Section 6(c) hereof, nothing in
this Agreement shall prevent or limit Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as
Executive may have under any stock option or other agreements with the Company
or any of its affiliated companies. Except as otherwise provided in Section 6(c)
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hereof, amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan or program of the Company or any of its
affiliated companies at or subsequent to the date of any Qualified Termination
shall be payable in accordance with such plan or program.
11. Full Settlement. 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, counter-claim, recoupment,
defense or other claim, right or action which the Company may have against
Executive or others. In no event shall Executive be obligated to seek other
employment or to take any other action by way of mitigation of the amounts
payable to Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which Executive may reasonably incur as a result of Executive's successful
collection efforts to receive amounts payable hereunder, or as a result of any
contest (regardless of the outcome thereof) by the Company or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by Executive about the amount of any payment pursuant to this Section).
12. Successors.
(a) This Agreement is personal to Executive, and without the prior
written consent of the Company shall not be assignable by Executive other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Executive's legal representatives.
(b) 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.
13. Governing Law. This Agreement is made and entered into in the State of
California, and the internal laws of California shall govern its validity and
interpretation in the performance by the parties hereto of their respective
duties and obligations hereunder.
14. Modifications. This Agreement may be amended or modified only by an
instrument in writing executed by all of the parties hereto.
15. Dispute Resolution.
(a) Any controversy or dispute between the parties involving the
construction, interpretation, application or performance of the terms,
covenants, or conditions of this Agreement or in any way arising under this
Agreement (a "Covered Dispute") shall, on demand by either of the parties by
written notice served on the other party in the manner prescribed in Section 16
hereof, be referenced pursuant to the procedures described in California Code of
Civil Procedure ("CCP") Sections 638, et seq., as they may be amended from time
to time (the "Reference Procedures"), to a retired Judge from the Superior Court
for the County of Orange for a decision.
(b) The Reference Procedures shall be commenced by either party by
the filing in the Superior Court of the State of California for the County of
Orange of a
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petition pursuant to CCP Section 638(1) (a "Petition"). Said Petition shall
designate as a referee a Judge from the list of retired Orange County Superior
Court Judges who have made themselves available for trial or settlement of civil
litigation under said Reference Procedures. If the parties hereto are unable to
agree on the designation of a particular retired Orange County Superior Court
Judge or the designated Judge is unavailable or unable to serve in such
capacity, request shall be made in said Petition that the Presiding or Assistant
Presiding Judge of the Orange County Superior Court appoint as referee a retired
Orange County Superior Court Judge from the aforementioned list.
(c) Except as hereafter agreed by the parties, the referee shall
apply the internal law of California in deciding the issues submitted hereunder.
Unless formal pleadings are waived by agreement among the parties and the
referee, the moving party shall file and serve its complaint within 15 days from
the date a referee is designated as provided herein, and the other party shall
have 15 days thereafter in which to plead to said complaint. Each of the parties
reserves its respective rights to allege and assert in such pleadings all
claims, causes of action, contentions and defenses which it may have arising out
of or relating to the general subject matter of the Covered Dispute that is
being determined pursuant to the Reference Procedures. Reasonable notice of any
motions before the referee shall be given, and all matters shall be set at the
convenience of the referee. Discovery shall be conducted as the parties agree or
as allowed by the referee. Unless waived by each of the parties, a reporter
shall be present at all proceedings before the referee.
(d) It is the parties' intention by this Section 15 that all issues
of fact and law and all matters of a legal and equitable nature related to any
Covered Dispute will be submitted for determination by a referee designated as
provided herein. Accordingly, the parties hereby stipulate that a referee
designated as provided herein shall have all powers of a Judge of the Superior
Court including, without limitation, the power to grant equitable and
interlocutory and permanent injunctive relief.
(e) Each of the parties specifically (i) consents to the exercise of
jurisdiction over his person by a referee designated as provided herein with
respect to any and all Covered Disputes; and (ii) consents to the personal
jurisdiction of the California courts with respect to any appeal or review of
the decision of any such referee.
(f) Each of the parties acknowledges that the decision by a referee
designated as provided herein shall be a basis for a judgment as provided in CCP
Section 644 and shall be subject to exception and review as provided in CCP
Section 645.
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16. 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 addresses the
party addressed may have substituted by notice pursuant to this Section:
I-Flow Corporation Xxxxx X. Xxxxxxxx
00000 Xxxxxxx Xxxxx 00000 Xxxx Xxxx Xxxxx
Xxxx Xxxxxx, XX 00000 Xxxxxx Xxxxx, XX 00000
Attn: Chief Executive Officer
17. Captions. The captions of this Agreement are inserted for convenience
and do not constitute a part hereof.
18. 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 for such invalid,
illegal or unenforceable provision 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 unenforceable within any governmental
jurisdiction or subdivision thereof, this Agreement or any such provision
thereof shall not as a consequence thereof be deemed to be invalid, illegal or
unenforceable in any other governmental jurisdiction or subdivision thereof.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one in the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above in Lake
Forest, California.
COMPANY: EXECUTIVE:
I-Flow Corporation
By:
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Name: Xxxxxx X. Xxxxxxx Xxxxx X. Xxxxxxxx
Title: President & CEO
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