FORM OF AGREEMENT EXHIBIT 10.4
REGARDING EMPLOYMENT/COMPENSATION UPON
CHANGE IN CONTROL
THIS AGREEMENT is entered into as of ____________, 1997, by and between
HEI, INC., a Minnesota corporation (herein called the "Company"), and
____________________ (herein called the "Executive").
WHEREAS, Executive has been employed by the Company for several years and
is currently its _____________________; and
WHEREAS, Executive is a very important and valuable employee and the
Company desires to keep Executive in its service; and
WHEREAS, the Company desires to provide suitable compensation to the
Executive should his employment be terminated or substantially changed as a
result of a "Change in Control" as defined herein; and
WHEREAS, Executive acknowledges that this is not an employment agreement,
but is solely intended to provide for employment security and compensation in
the event of any Change in Control of the Company in accordance with the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following words
and phrases shall have the following meanings:
(a) "Change in Control" shall mean:
(i) the consummation of any consolidation or merger of the
Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's common stock
would be converted into cash, securities, or other property, other
than a merger of the Company in which the holders of the Company's
common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger; or
(ii) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; or
(iii) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company; or
(iv) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the
Company's outstanding stock; or
(v) during any period of two consecutive years, individuals
who at the beginning of such period constitute the entire Board of
Directors shall cease for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least
two- thirds of the directors then still in office who are directors at
the beginning of the period; or
(vi) the adoption by the Board of Directors of a resolution
declaring that a Change in Control has occurred.
(b) "Cause" shall mean clear and convincing evidence of:
(i) material dishonesty by the Executive involving the
employer;
(ii) failure or refusal to perform a material requirement of
the Executive's duties, or failure or refusal to comply with a
reasonable, important general policy of the Company, after receipt by
the Executive of written notice specifying in detail the failure or
refusal, and a reasonable time in which to perform; or
(iii) Executive's (a) death or (b) disability (by reason of
physical or mental disease, defect, accident or illness) such that
Executive is or, in the opinion of two independent physicians, one
selected by the Company and one by the Executive or his
representative, for purposes of making this determination, will be
unable for an aggregate of 180 or more days during any continuous 12-
month period to render the services required of him in his then
current position with the Company.
(c) "Competitive Activities" shall mean:
(i) directly or indirectly engaging in, continuing in, or
carrying on any business which substantially competes with the
business conducted by the Company;
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(ii) soliciting or accepting orders for business from any
persons (whether individuals or entities) who were customers of the
Company during the one-year period prior to Executive's termination of
employment or inducing or attempting to induce such persons to
terminate or modify their relationship with the Company for such
business; or
(iii) offering, soliciting or agreeing to employ an employee of
the Company, or inducing or attempting to induce such an employee to
quit his or her employ with the Company, without the prior written
consent of the Company;
Provided, however, that the term "Competitive Activities" shall not
include the ownership of securities of corporations which are listed
on a national securities exchange or quoted on a national over-the-
counter market in an amount not exceeding 2% of the outstanding shares
of any such corporation.
(d) "Confidential Information" shall mean confidential business
information, which information gives, or has the potential of giving,
actual or potential economic value to the Company by not being
generally known, or readily ascertainable, by the Company's
competitors, and which information the Company has taken, and will
continue to take, reasonable steps to maintain confidential vis-a-vis
its competitors; provided, however, nothing in this Agreement shall
limit the time periods during which Executive and others shall not
misappropriate or threaten to misappropriate the Company's trade
secrets as protected under Minnesota law.
(e) "Date of Termination" shall mean:
(i) if this Agreement is terminated by the Company for
disability, 90 days after Notice of Termination is given to the
Executive (provided that the Executive shall not have returned to the
performance of the Executive's duties on a full-time basis during such
90 day period); or
(ii) if the Executive's employment is terminated by the Company
for any other reason, 90 days after Notice of Termination is given;
provided, however, that if within 90 days after any Notice of
Termination is given to the Executive by the Company the Executive
notifies the Company that a dispute exists concerning the termination,
the Date of Termination shall be the date the dispute is finally
determined, whether by mutual agreement by the parties or upon final
judgment, order, or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been
perfected).
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(f) "Good Reason" shall mean any of the following (without Executive's
express written consent):
(i) Assignment to Executive by the Company of duties
inconsistent with Executive's position, duties, responsibilities, and
status with the Company immediately prior to a Change in Control of
the Company, or a change in Executive's titles or offices as in effect
immediately prior to a Change in Control of the Company, or any
removal of Executive from or any failure to reelect or reappoint
Executive to any of such positions, except in connection with the
termination of his employment for disability, retirement, or Cause or
as a result of Executive's death or by Executive other than for Good
Reason;
(ii) A reduction by the Company of Executive's base salary as
in effect on the date hereof or as the same may be increased from time
to time during the term of this Agreement or the Company's failure to
increase Executive's base salary (within 12 months of Executive's last
increase in base salary) after a Change in Control of the Company in
an amount which at least equals, on a percentage basis, the average
percentage increase in base salary for all executive officers of the
Company effected during the preceding 12 months;
(iii) Any failure by the Company to continue in effect, or to
provide a comparable substitute for, any benefit plan or arrangement
(including, without limitation, any profit sharing plan, executive
supplemental medical plan, group life insurance plan, and medical,
dental, accident, and disability plans) in which Executive is
participating at the time of a Change in Control of the Company (or
any other plans providing Executive with substantially similar
benefits) (hereinafter referred to as "Benefit Plans"), the taking of
any action by the Company that would adversely affect Executive's
participation in or materially reduce Executive's benefits under any
such Benefit Plan or deprive Executive of any material fringe benefit
enjoyed by Executive at the time of a Change in Control of the
Company;
(iv) Any failure by the Company to continue in effect, or to
provide a comparable substitute for, any incentive plan or arrangement
(including, without limitation, any incentive compensation plan, long-
term incentive plan, bonus or contingent bonus arrangements or
credits, the right to receive performance awards, or similar incentive
compensation benefits) in which Executive is participating, or is
eligible to participate, at the time of a Change in Control of the
Company (or any other plans or arrangements providing him with
substantially similar benefits) (hereinafter referred to as "Incentive
Plans") or the taking of any action by the Company which would
adversely affect Executive's participation in any
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such Incentive Plan, expressed as a percentage of his base salary, by
more than ten percentage points in any fiscal year as compared to the
immediately preceding fiscal year;
(v) Any failure by the Company to continue in effect, or to
provide a comparable substitute for, any plan or arrangement to
receive securities of the Company (including, without limitation, any
stock option plan or any other plan or arrangement to receive and
exercise stock options, stock appreciation rights, restricted stock,
or grants thereof) in which Executive is participating, or is eligible
to participate, at the time of a Change in Control of the Company (or
plans or arrangements providing him with substantially similar
benefits) (hereinafter referred to as "Securities Plans") or the
taking of any action by the Company which would adversely affect
Executive's participation in or materially reduce Executive's benefits
under any such Securities Plan;
(vi) If at the time of a Change in Control of the Company
Executive is employed at the Company's principal executive offices, a
relocation of such principal executive offices to a location more than
fifty miles outside of the Minneapolis-St. Xxxx Metropolitan Area or,
if Executive is not employed at the Company's principal executive
offices, Executive's relocation to any place other than the location
at which the Executive performed Executive's duties prior to a Change
in Control of the Company, except for required travel by Executive on
the Company's business to an extent substantially consistent with
Executive's business travel obligations at the time of a Change in
Control of the Company;
(vii) Any failure by the Company to provide Executive with at
least the number of paid vacation days to which the Executive is
entitled at the time of a Change in Control of the Company;
(viii) Any material breach by the Company of any provision of
this Agreement;
(ix) Any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(x) Any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 1(g) hereof.
(g) "Notice of Termination" shall mean a written notice which shall
indicate those specific termination provisions in this Agreement
relied upon and which sets forth in reasonable detail the facts and
circumstances claiming to provide a basis for termination of the
Executive's employment under the
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provisions so indicated. Any termination by the Company pursuant to
this Agreement shall be communicated by Notice of Termination. For
purposes of this Agreement, no such purported termination by the
Company shall be effective without such Notice of Termination.
2. TERM. This Agreement shall become effective immediately upon
execution and shall be in effect until August 31, 1998, and shall be renewed
automatically for each subsequent one-year period unless either the Executive or
the Company gives written notice to the other party on or before the June 1st
immediately preceding the expiration date, or, if a Change in Control has
occurred, this Agreement shall be in effect for a period of two (2) years
following the date of the Change in Control.
3. SEPARATE EMPLOYMENT ARRANGEMENTS. Executive is, and shall be,
employed by the Company solely upon the existing arrangements which are separate
from this Agreement, as those employment arrangements hereafter may be amended
by the parties. The parties expressly acknowledge and agree that this Agreement
is not intended to be an employment agreement.
4. PARTICIPATION IN OTHER EXECUTIVE BENEFIT PLANS. Nothing in this
Agreement shall in any manner modify, impair, or affect the existing or future
rights or interests of Executive (a) to receive any employee benefits from the
Company to which he would otherwise be entitled or (b) as a participant in any
incentive, profit-sharing or bonus plan, stock option plan or pension plan of
the Company. The rights and interests of Executive to any employee benefits or
as a participant or beneficiary in or under any or all such plans shall continue
in full force and effect. Executive shall have the right at any future time to
become a participant or beneficiary under or pursuant to any and all such plans.
Any compensation payable under this Agreement shall not be deemed salary or
other compensation to Executive for purposes of any retirement plans maintained
by the Company or for purposes of any other fringe benefit obligations of the
Company.
5. NONASSIGNABILITY OF BENEFITS. Executive shall not transfer, assign,
encumber, or otherwise dispose of his right to receive payments hereunder and,
in the event of any attempted transfer or assignment, the Company shall have no
further liability to Executive under this Agreement.
6. PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If Executive is
employed by the Company upon the occurrence of a Change in Control, the
following provisions shall govern:
(a) The Executive shall continue to be employed for twenty-
four (24) months with substantially the same duties, compensation, and
benefits in the same geographic location as existed just prior to the
Change in Control.
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(b) The Executive may terminate his employment during the
twenty-four (24) months following the Change in Control for Good
Reason as defined herein, and, upon such termination, shall receive
from the Company in a lump sum, in cash, on the fifth (5th) day
following the Date of Termination, an amount equal to two (2) times
the Executive's "annualized includable compensation for the base
period" (as defined in Section 280G(d) of the Internal Revenue Code of
1986, as amended (the "Code")), but, in any event, the Executive shall
not engage in Competitive Activities for two years following the Date
of Termination and shall not divulge at any time Confidential
Information about the Company.
(c) If the Company terminates the Executive's employment other
than for Cause as defined herein, the Executive shall receive as
severance pay in a lump sum, in cash, on the fifth (5th) day following
the Date of Termination, an amount equal to two (2) times the
Executive's "annualized includable compensation for the base period"
(as defined in Section 280G(d) of the Code), but, in any event, the
Executive shall not engage in Competitive Activities for two years
following the Date of Termination and shall not divulge at any time
Confidential Information about the Company.
(d) The Executive may terminate his employment upon at least
three months' notice at the end of the first twelve (12) months of
employment after the Change in Control for other than Good Reason,
thereby waiving any further benefits hereunder except a severance
benefit of three months salary and a prorated portion of annual bonus,
provided that the Executive then agrees not to hire or attempt to hire
any employee of the Company during the twelve (12) month period
following the termination of employment, but, in any event, the
Executive shall not divulge at any time any Confidential Information
about the Company.
(e) If the Executive terminates his employment during the 24-
month period following the change in Control otherwise than under any
of paragraphs (b) or (d) of this Section 6, the Executive shall not be
entitled to any payments for any period after the end of the
employment, shall not receive any severance benefit, and shall not
engage in any Competitive Activities during the balance of the twenty-
four (24) month period, but, in any event, the Executive shall not
divulge at any time any Confidential Information about the Company.
(f) If the Executive holds any options to purchase stock of
the Company after a Change in Control, such options shall become
immediately exercisable in full and the Executive shall be entitled to
exercise such options until the expiration date provided for in the
related stock option agreement.
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(g) If the lump sum severance payment provided for under this
Section 6, calculated as set forth above, either alone or together
with other payments which the Executive has the right to receive from
the Company, would constitute an "excess parachute payment" (as
defined in Section 280G of the Code), such lump sum severance payment
shall be reduced to the largest amount as will result in no portion of
the lump sum severance payment under this Section 6 being subject to
the excise tax imposed by Section 4999 of the Code. The determination
of any reduction in the lump sum severance payment under this Section
6(g) pursuant to the foregoing sentence shall be made by the Executive
in good faith, and such determination shall be conclusive and binding
on the Company.
(h) In the event of termination of Executive's employment
under paragraph (b), (c), or (d) of this Section 6, Executive shall be
entitled to continue to participate in the Company's group medical,
dental, life and disability plans on the same basis as Executive
participated immediately prior to the Notice of Termination for a
period of two (2) years following the Date of Termination. Executive
shall be responsible for payment of premiums to the same extent as
prior to the Notice of Termination. In the event that Executive
becomes eligible for or obtains substantially equivalent coverage from
another source, the Company's obligation under this paragraph 6(h)
shall terminate.
7. ENTIRE AGREEMENT; HEADINGS. This Agreement is the entire Agreement
between the parties on its subject matter and shall be deemed to supersede any
other agreements allegedly made between the parties regarding the subject
matter. The parties represent that no other such agreements or understandings
exist. Headings shall not be utilized in any interpretation of this Agreement.
8. RESOLUTION OF DISPUTES. Any dispute or claim arising out of this
Agreement, or breach thereof, shall be decided by arbitration, under the
commercial arbitration rules of the American Arbitration Association ("AAA"),
and shall be conducted in the Minneapolis, Minnesota, metropolitan area. This
agreement to arbitrate shall be specifically enforceable. Any decision rendered
by the arbitrator shall be final and binding, and judgment may be entered upon
it by any court having jurisdiction. Nothing herein contained shall bar either
party from seeking equitable remedies in a court of appropriate jurisdiction.
9. NOTICES. Any notice or other communication provided for herein or
given hereunder shall be in writing and shall be delivered in person or, in the
case of the Company, to the Board of Directors, or mailed by first class
registered or certified mail, postage prepaid, addressed to the Company at its
registered office in the State of Minnesota and addressed to the Executive or
any other person at the last known address of such person appearing on the books
of the Company.
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10. AMENDMENT. This Agreement may not be changed, modified or amended
except in writing signed by both parties.
11. WAIVER OF BREACH. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
12. INVALIDITY OF ANY PROVISION. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provision or provisions were omitted.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the Company, its successors and assigns, and Executive,
his heirs, legal representatives and assigns.
14. GOVERNING LAW. This Agreement is being delivered and is intended to
be performed in the State of Minnesota and shall be construed and enforced in
accordance with the laws of such state.
15. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HEI, INC.
Dated: , 1997 By
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Its
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Dated: , 1997 By
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Its
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