AGREEMENT REGARDING CHANGE OF CONTROL
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This Agreement is entered into as of this 1st day of July 1996 by and
between Photon Dynamics, Inc., a California corporation (the "Company"), and
Xxxxxxx X. Xxxxxxxx, Xx. ("Executive").
RECITALS
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Executive is employed by the Company and is a valued officer of the
Company. As an inducement to Executive to remain in the employ of the Company,
the Company wishes to provide for certain rights in favor of Executive to
severance payments and other benefits in the event of a Change of Control (as
defined below) of the Company upon the terms herein provided.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
AGREEMENT
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Section 1. Definitions
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For purposes of this Agreement, the following definitions shall apply:
"Alternative Employment" shall mean any employment, consulting or other
relationship pursuant to which Executive provides in excess of 20 hours of
service per week for compensation following any Protection Termination of his
employment with the Company.
"Change of Control" shall mean the occurrence of one or more of the
following with respect to the Company: (i) the sale or exchange of more than 50%
of the outstanding shares of Common Stock (treating any Preferred Stock on a
fully converted basis) in a single transaction or series of related
transactions; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation; or (iii) any reverse merger in
which the Company is the surviving entity but in which securities representing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to holder different from those
who held such securities immediately prior to such merger.
"Closing Date" shall mean the date of the first closing of the transactions
constituting a Change of Control.
"Common Stock" shall mean no par value, Common Stock of the Company.
"Constructive Termination" shall mean any of the following actions taken by
the Company with respect to the position or compensation or other material terms
and conditions of Executive's employment with the Company: (A) unless approved
in writing in advance by
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Executive, the assignment to Executive of any duties materially inconsistent
with his position, duties, responsibilities, authority and status, or the
removal of any material duties, responsibilities or authority from such
position, except to the extent necessary in connection with a disability that
would qualify under the Company's existing disability plan, if any, but for
any requirement in such plan that the disability continue for any period of
time, for the period of such disability; (B) a reduction in Executive s annual
base salary in effect at the time any determination thereof is to be made; or
(C) unless approved in writing in advance by Executive, the Company's
requiring the Executive to work, apart from reasonable business trips, more
than 100 miles from the location at which Executive was working on the Closing
Date.
"Executive's Stock Options" shall mean those options to purchase Common
Stock held by Executive that have been issued to Executive prior to the date
hereof pursuant to the Photon Dynamics, Inc. 1995 Stock Option Plan and that are
set forth in Exhibit A attached hereto.
"Protected Termination" shall mean any termination of Executive's
employment with the Company (including, without limitation, a Constructive
Termination as provided in Section 2.5 below) other than: (i) a voluntary
termination of such employment by Executive other than as a result of a
Constructive Termination; or (ii) a termination by the Company of such
employment for cause, which shall mean, for purposes of this Section 1, a
termination of Executive's employment by the Company as a result of the
occurrence of one or more of the following with respect to Executive: (w)
chronic alcoholism or drug addiction, to the extent discharge therefor is
permitted by applicable law; (x) misappropriation of any money or other assets
or properties of the Company or any subsidiary of the Company; (y) the
conviction of Executive of any felony, or of any lesser crime or offense
materially and adversely affecting the property, reputation or goodwill of the
Company or any of its subsidiaries; or (z) willful or gross neglect by Executive
of his duties, or willful misconduct by Executive in connection with the
performance of his duties, which neglect or misconduct shall have an adverse
effect on the Company or one of its subsidiaries and which shall remain
unremedied for thirty (30) days after written notice (indicating with reasonable
specificity the events of neglect and/or misconduct) given to Executive by the
Company through its Board of Directors.
"Severance Payments and Benefits" shall mean Executive's base salary and
non-discretionary bonuses (as measured at the then effective rates), plus
medical, health and other insurance benefits that are in effect as of the
Closing Date.
Section 2. Severance Payments
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2.1 In the event of and following a Change of Control and in the further
event that Executive is an employee of the Company as of the Closing Date of
such Change of Control, the Company agrees that Executive shall be entitled to
the Severance Payments and Benefits and other consideration in accordance with
this Section 2 in the event Executive's employment with the Company terminates
as a result of a Protected Termination (or is deemed to terminate as a result of
a Constructive Termination as provided in Section 2.5 below) within the fifteen
(15) month period following the Closing Date.
2.2 Subject to Section 2.1 above and in the event that Executive's
employment with the Company is to be terminated as of the Closing Date as a
result of a Protected Termination (or
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is deemed to terminate as a result of a Constructive Termination as provided
in Section 2.5 below), Executive shall be paid or otherwise provided by the
Company Severance Payments and Benefits for a period of six (6) months
following the Closing Date; provided that Executive's right pursuant to this
Section 2.2 to receive Severance Payments and Benefits shall be extended for
up to three (3) additional three (3) month periods as provided in this Section
2.2. In the event that Executive shall not have obtained Alternative
Employment by the expiration of the initial six (6) month period, Executive's
right to Severance Benefits and Payments shall be extended for one (1) three
(3) month extension period. In the further event that Executive shall not have
obtained Alternative Employment by the expiration of such initial three (3)
month extension period, Executive's right to receive Severance Benefits and
Payments shall be continued for one (1) additional three month extension
period following expiration of such initial extension period, and if Executive
shall not have obtained Alternative Employment by the expiration of the second
three (3) month extension period, Executive's right to receive Severance
Benefits and Payments shall be continued for one (1) additional three month
extension period following expiration of such second extension period. Any
right of Executive to Severance Payments and Benefits pursuant to this Section
2.2 shall cease and terminate fifteen (15) months from the Closing Date. To
the extent Executive shall obtain Alternative Employment at a compensation
rate or for benefits that are less in any material respect than the Severance
Payments and Benefits that Executive would otherwise be entitled to receive
pursuant to this Section 2.2, Executive's right to receive Severance Payments
and Benefits from the Company shall continue to be extended as provided above
in this Section 2.2, provided that the Company shall be allowed a credit as
provided in Section 3.1 below on the basis of such Alternative Employment with
respect to its obligation to pay and provide such extended Severance Payments
and Benefits.
2.3 Subject to Section 2.1 above and in the event that Executive remains
an employee of the Company at any time following the Closing Date and his
employment is terminated as a result of a Protected Termination (or is deemed to
terminate as a result of a Constructive Termination pursuant to Section 2.5
below) within fifteen (15) months following the Closing, Executive shall be paid
or otherwise provided by the Company Severance Payments and Benefits from the
date of such termination of employment until six (6) months from the date of
such termination.
2.4 Subject to Section 2.1 above, the Company agrees that the right of
Executive to exercise the Executive's Stock Options shall be accelerated as of
the Closing Date of a Change of Control as follows: (i) if Executive's
employment with the Company is to be terminated as of the Closing Date in the
manner described in Section 2.2 above, Executive's Stock Options shall become
fully exercisable as of the Closing Date as to all shares of the Company's
Common Stock subject thereto; and (ii) if Executive is to remain an employee of
the Company at any time following the Closing Date as described in Section 2.3
above, Executive's Stock Options shall become exercisable as to that number of
shares of Common Stock (in addition to that number of shares of Common Stock for
which the Executive's Stock Option is then otherwise exercisable) for which the
Executive's Stock Options would be exercisable upon the expiration of two (2)
years following the Closing Date (assuming that Executive was then employed by
the Company). As a condition to an acceleration of the Executive's Stock Options
as provided in this Section 2.4, Executive agrees that the Executive's Stock
Options shall terminate as of the Closing Date to the extent unexercised as of
such Closing Date if the terms and conditions of such Change of Control require
that all employee stock options terminate as of such Closing Date. In
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no event shall this Section 2.4 be interpreted to cause the Executive's Stock
Options to be exercisable for a greater number of shares of Common Stock than
were subject to the Executive's Stock Options immediately prior to the Closing
Date.
2.5 In the event of a Constructive Termination, Executive shall have the
option to give notice to the Company within ten (10) business days of the
effective date of such Constructive Termination that Executive elects to
terminate his employment with the Company, in which case Executive's employment
with the Company shall be deemed to have been terminated as a result of a
Protected Termination, and Executive shall be entitled to the appropriate
Severance Payments and Benefits as provided in Section 2.2 or 2.3 above. In the
event Executive does not elect to resign his employment with the Company in
accordance with the preceding sentence following a Constructive Termination and
notwithstanding any proposed term of employment related to such Constructive
Termination, Executive shall remain entitled to the same level of base salary
compensation and non-discretionary bonuses (which are then in effect) and
medical, health and other insurance benefits that were in effect as of the
Closing Date until the first to occur of: (i) the expiration of fifteen (15)
months following the Closing Date, or (ii) the termination of Executive's
employment with the Company (in which case Executive shall retain those rights
described in Section 2 hereof as to such termination).
Section 3. Alternative Employment: Payment of Severance Payments and Benefits
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3.1 In the event Executive shall obtain Alternative Employment during any
period in which Executive is entitled to Severance Payments and Benefits
pursuant to Section 2.2 or 2.3 above (other than the initial six (6) month
period described in Section 2.2 or 2.3), Executive shall promptly give notice to
the Company of such Alternative Employment, which notice shall describe the
following with respect to such Alternative Employment: (i) the salary,
commission, bonus and other monetary compensation payable to Executive; (ii) the
medical, health and other insurance benefits to be provided to Executive and
(iii) any other consideration payable to or otherwise be provided to Executive.
The Company shall be credited for any compensation payable or benefits provided
with respect to such Alternative Employment against the Company's obligation to
pay and or provide Severance Payments and Benefits for any period (other than
the initial six (6) month period provided in Section 2.2 or 2.3) pursuant to
Section 2 hereof so that: (A) the monetary portion of the Severance Payments
and Benefits shall be reduced for any cash compensation payable to Executive
for such period with respect to such Alternative Employment; and (B) the
Company shall cease to be obligated to provide any medical, health or other
insurance benefit to the extent an equivalent benefit is provided to Executive
in connection with such Alternative Employment. Following a Protected
Termination of Executive's employment with the Company, Executive shall use
reasonable efforts to obtain Alternative Employment provided that nothing
contained herein shall be deemed to obligate Executive to accept Alternative
Employment that: (1) involves duties, responsibility, authority and status
that are less in any material respect that applied to Executive's position
with the Company as of the Closing Date; (2) involves a reduction in
Executive's annual base salary that Executive was receiving as of the Closing
Date; or (iii) requires Executive to work more than 100 miles from the
location at which Executive was working on the Closing Date.
3.2 During any period in which Executive is entitled to Severance
Payments and Benefits, the Company shall (i) pay the salary and bonus component
thereof in accordance with
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the Company's then effective payroll payment policies; and (ii) provide
Executive with the same or equivalent medical, health and other insurance
policies or, at the Company's option, reimburse Executive for premiums payable
with respect to equivalent policies to be obtained directly by Executive.
Section 4. No Employment Agreement, Employment at Will
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Except as previously herein provided, Executive and the Company each
acknowledge and agree that: (i) this Agreement does not provide for the terms
and conditions of Executive's employment with the Company and does not require
or obligate Executive to provide services to the Company or the Company to
continue to employ Executive; and (ii) Executive's employment with the Company
remains an employment relationship terminable at will by either Executive or the
Company.
Section 5. Release of the Company and Its Affiliates
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5.1 Upon a termination of Executive's employment with the Company
following a Change of Control for which Executive is entitled to payments or
other benefits pursuant to Section 2 above and subject to full performance by
the Company of its obligations hereunder, Executive hereby forever and
completely releases and discharges the following (and each of them); (i) the
Company; (ii) any entity which is controlled by, or under common control with,
the Company (including, without limitation, any entity or entities or persons
acquiring control of the Company through the Change of Control); and (iii) any
past, present or future agents, attorneys, directors, officers, shareholders,
employees, affiliates, predecessors and successors of any of the foregoing
individuals or entities under clauses (i) and (ii) above, of and from any and
all claims and demands of every kind and nature, in law, equity or otherwise,
known or unknown, suspected or unsuspected, disclosed or undisclosed, including
but not limited to all claims and demands of every kind and nature, known or
unknown, suspected or unsuspected, disclosed or undisclosed, for damages actual,
consequential or exemplary, past, present and future, arising out of or in any
way related to Executive's employment with the Company.
5.2 Notwithstanding anything to the contrary set forth in Section 5.1
above, the releases set forth in said Section 5.1 shall not apply to any claims
or demands that: (i) do not arise in connection with Executive's employment with
the Company or a termination thereof; or (ii) are for salary or other benefits
for periods prior to such termination that have not been paid or otherwise
provided by the Company prior to the date of such termination.
Section 6. Notices
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All notices or other communications required or permitted hereunder shall
be made in writing and shall be deemed to have been duly given if delivered by
hand or mailed, postage prepaid, by certified or registered mail, return receipt
requested, and addressed to the Company at:
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Photon Dynamics, Inc.
0000 XxXxxxxx Xxxx.
Xxxxxxxx, XX 00000
Attention: Chairman
or to the Executive at:
_____________________________________
_____________________________________
_____________________________________
Notice of change of address shall be effective only when done in accordance with
this Section.
Section 7. Successors
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This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
Section 8. California Law
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The interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
PHOTON DYNAMICS, INC., EXECUTIVE:
a California corporation
By: /s/ E. Xxxxx Xxxxxx /s/ Xxxxxxx X. Xxxxxxxx, Xx.
___________________________________ ____________________________________
E. Xxxxx Xxxxxx Xxxxxxx X. Xxxxxxxx, Xx.
Title: Chairman
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EXHIBIT A
Executive's Stock Options
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