Exhibit 10.26
CHANGE OF CONTROL AND RETENTION AGREEMENT
This Change of Control and Retention Agreement (the "AGREEMENT") is made
and entered into as of [Date], by and between Diamond Walnut Growers, Inc., a
California agricultural cooperative association (the "COMPANY"), and [Executive]
(the "EXECUTIVE").
RECITALS:
WHEREAS, the Executive is a key employee of the Company who possesses
valuable proprietary knowledge of the Company, its business and operations and
the markets in which the Company competes; and
WHEREAS, the Company benefits from the knowledge, experience, expertise
and advice of the Executive to manage its business for the benefit of the
Company's stockholders; and
WHEREAS, the Company recognizes that it is necessary to attract and retain
key employees, and a key element of programs to attract and retain key employees
is to provide assurance about their status in the event of any Change of
Control, to avoid uncertainty regarding the consequences of such an event that
could adversely affect the performance of the Executive; and
WHEREAS, the Company believes that the existence of this Agreement will
serve as an incentive to Executive to remain in the employ of the Company, and
would enhance the Company's ability to call on and rely upon Executive if a
Change of Control were to occur; and
WHEREAS, the Company and the Executive desire to enter into this Agreement
to encourage the Executive to continue to devote the Executive's full attention
and dedication to the success of the Company, and to provide specified
compensation and benefits to the Executive in the event of a Termination Upon
Change of Control pursuant to the terms of this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURPOSE
The purpose of this Agreement is to provide specified compensation and
benefits to the Executive in the event of a Termination Upon Change of
Control. Either the Executive or the Company may terminate the Executive's
employment at any time for any reason.
2. TERMINATION UPON CHANGE OF CONTROL
2.1 Prior Obligations. In the event of a Termination Upon Change of
Control, the Executive shall be entitled to the benefits described
in this Section 2.1.
2.1.1 Accrued Salary and Vacation. All salary and accrued vacation
earned through the date of a Termination Upon Change of
Control shall be paid to Executive on such date.
2.1.2 Accrued Bonus Payment. The Executive shall receive a lump sum
payment of Executive's target bonus for the Company's prior
fiscal year to the extent that any such bonus was earned and
is unpaid on the date of a Termination Upon Change of Control.
2.1.3 Expense Reimbursement. Within ten (10) days of submission of
proper expense reports by the Executive, the Company shall
reimburse the Executive for all expenses incurred by the
Executive, consistent with Company policy, in connection with
the business of the Company prior to the date of a Termination
Upon Change of Control.
2.2 Additional Cash Severance Benefits. In the event of a Termination
Upon Change of Control, the Executive shall be entitled to receive
an amount equal to [______] percent ([___]%) of the Executive's
Annual Compensation. The amount calculated, as set forth herein,
shall be paid in cash in a lump sum. Payment hereunder shall be made
within ten (10) days following the later of: (i) (if required by
Section 409A of the Code) six (6) months after the date of a
Termination Upon Change of Control, or (ii) the effective date of
the release executed by the Executive pursuant to Section 5.3 of
this Agreement.
2.3 Stock Option or Restricted Stock Acceleration.
2.3.1 Acceleration of Vesting and Exercisability. All outstanding
stock options and shares of restricted stock (if any) granted
to the Executive by the Company (and any successor to the
Company) shall have [____]% of their vesting and
exercisability accelerated upon the later of (i) the date of a
Termination Upon Change of Control, or (ii) the effective date
of the release executed by the Executive pursuant to Section
5.3 of this Agreement.
2.3.2 Acceleration Following Non-Assumption of Options. If there is
a Change of Control in which, prior to such Change of Control,
all unvested outstanding stock options granted to the
Executive by the Company are not fully assumed or replaced by
fully equivalent substitute stock options of the Successor,
then: (1) all such unvested stock options held by Executive
shall have their vesting and exercisability fully accelerated
such that all unvested stock options are vested immediately
prior to the effective date of the Change of Control and (2)
the Company shall provide reasonable prior written notice to
the Executive of: (a) the date that each such unvested stock
options will terminate and (b) the period during which the
Executive may exercise any unvested stock options.
2.4 Additional Service Credit. Executive's total years of service credit
under each of the defined benefit retirement plans (including excess
benefits plans) in which Executive participates upon the date of a
Termination Upon Change of Control shall be increased by an
additional one year of service credit, but in each case, not
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above the maximum number of years of service credit permitted under
each such plan.
2.5 Additional Insurance Benefits. If, pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), Executive
elects timely continuation coverage for the Executive and/or any or
all dependents of the Executive under the Company's medical or
dental plans as in effect immediately prior to the date of a
Termination Upon Change of Control, then for a period of up to
eighteen (18) months following such a Termination Upon Change of
Control the Executive shall receive a monthly payment from the
Company equal to the premium(s) for the coverage elected under COBRA
for the Executive and such dependents. The Company's obligation
under this Section 2.4 shall terminate upon the insured (e.g., the
Executive or a dependent) accepting insurance coverage of that type
under another group health plan. For purposes of this COBRA
coverage, the date of the "qualifying event" for the Executive and
any dependents shall be the date of a Termination Upon Change of
Control.
3. FEDERAL EXCISE TAX UNDER SECTION 280G
3.1 Potential Adjustments for Excise Tax. If (1) any amounts payable to
the Executive under this Agreement or otherwise are characterized as
excess parachute payments pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended (the "CODE"), and (2) the Executive
thereby would be subject to any United States federal excise tax due
to that characterization, then it is agreed between the parties to
reduce (if necessary) the amounts payable under this Agreement, or
otherwise, or to have any portion of applicable options or
restricted stock not vest or become exercisable in order to achieve
the greatest after-tax benefit to the Executive, with such reduction
to be accomplished in the manner determined by the Executive.
3.2 Determination by Independent Public Accountants. Unless the Company
and the Executive otherwise agree in writing, determination of
whether the Executive would be subject to any United States federal
excise tax pursuant to Section 4999 of the Code shall be made in
writing by an independent public accountant agreed to by the Company
and the Executive (the "ACCOUNTANT"), whose determination shall be
conclusive and binding upon the Executive and the Company for all
purposes. For purposes of making the calculations required by this
Section 3, the Accountant may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999
of the Code. The Company and the Executive shall furnish the
Accountant such information and documents as the Accountant may
reasonably request in order to make the required determinations. The
Company shall bear all reasonable fees and expenses of the
Accountant in connection with the services contemplated by this
Section 3.
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4. DEFINITIONS
4.1 Capitalized Terms Defined. Capitalized terms used in this Agreement
shall have the meanings set forth in this Section 4, unless the
context clearly requires a different meaning or they are defined
elsewhere in this Agreement.
4.2 "Annual Compensation" means the Executive's total cash compensation
set by the Company (assuming the maximum potential bonus is earned)
for the full fiscal year in which occurs the Termination Upon Change
of Control, or if higher the Executive's total cash compensation
(assuming the maximum potential bonus is earned) set by the Company
prior to the Change of Control for the full fiscal year in which
occurs the Change of Control.
4.3 "Cause" means:
(a) Commission of a felony or an act constituting common law
fraud, which has a material adverse effect on the business or
affairs of the Company or its affiliates or stockholders; or
(b) Intentional or willful misconduct or refusal to follow the
lawful instructions of the Board of Directors of the Company
(the "Board"); or
(c) Intentional breach of Company confidential information
obligations, which has an adverse effect on the Company or its
affiliates or stockholders.
For these purposes, no act or failure to act shall be considered
"intentional or willful" unless it is done, or omitted to be done, in bad faith
without a reasonable belief that the action or omission is in the best interests
of the Company.
4.4 "Change of Control" means:
(a) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended) who, by the acquisition or aggregation of
securities, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended),
directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart
from rights accruing under special circumstances) having the
right to vote on elections of directors (the "Base Capital
Stock"); except that any change in the relative beneficial
ownership of the Company's securities by any person resulting
solely from a reduction in the aggregate number of outstanding
shares of Base Capital Stock, and any decrease thereafter in
such person's ownership of securities, shall be disregarded
until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any
securities of the Company; or
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(b) the consummation of a merger or consolidation of the Company
with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the
Company immediately prior to such merger, consolidation or
other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the
voting power of the outstanding securities of each of (i) the
continuing or surviving entity and (ii) any direct or indirect
parent corporation of such continuing or surviving entity; or
(c) following the initial public offering of Company common stock
to the general investing public (the "IPO"), a change in the
composition of the Board, as a result of which the individuals
who, upon consummation of the IPO, constitute the Board (the
"Incumbent Board"), cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the IPO whose
election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of
the directors then comprising the Incumbent Board shall be
considered as though such an individual were a member of the
Incumbent Board; or
(d) the sale, transfer or other disposition of all or
substantially all of the Company's assets.
Any other provision of this Section 4.4 notwithstanding, a transaction
shall not constitute a Change of Control if its sole purpose is to change the
state of the Company's incorporation or to create a holding company that will be
owned in substantially the same proportions by the persons who held the
Company's securities immediately before such transaction, and a Change of
Control shall not be deemed to occur from the occurrence of an initial public
offering of Company common stock to the general investing public.
4.5 "Company" shall mean Diamond Walnut Growers, Inc., a California
agricultural cooperative association, and also mean Diamond Foods,
Inc., a Delaware corporation, and, following a Change of Control,
any Successor.
4.6 "Good Reason" means the occurrence of any of the following
conditions, without the Executive's written consent:
(a) a reduction of the Executive's title, position,
responsibilities or duties to a level materially less than the
title, position, responsibilities or duties the Executive
occupied on the date immediately preceding the date of a
Termination Upon Change of Control or such other date as
agreed to in writing by the Executive and the Company;
(b) a reduction in the Executive's base salary or in the
Executive's target bonus opportunity from what they were on
the date immediately preceding the date of a Termination Upon
Change of Control;
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(c) the Company's requiring the Executive to be based at any
office or location more than [fifty (50)] miles from the
office where the Executive was employed on the date
immediately preceding the date of a Termination Upon Change of
Control; or
(d) Failure by the Company to obtain the assumption of this
Agreement by any Successor.
4.7 "Permanent Disability" means that:
(a) the Executive has been incapacitated by bodily injury, illness
or disease so as to be prevented thereby from engaging in the
performance of the Executive's duties;
(b) such total incapacity shall have continued for a period of six
consecutive months; and
(c) such incapacity will, in the opinion of a qualified physician,
be permanent and continuous during the remainder of the
Executive's life.
4.8 "Successor" means any successor to or assignee of substantially all
of the Company's business and/or assets, including without
limitation, and following a Change of Control, the Company.
4.9 "Termination Upon Change of Control" means:
(a) any termination of the employment of the Executive by the
Company without Cause during the twelve (12) months following
the date of such Change of Control; or
(b) any resignation from employment by Executive for Good Reason
where: (i) such Good Reason occurs during the twelve (12)
months following the date of such Change of Control, and (ii)
such resignation occurs within thirty (30) days following the
occurrence of Good Reason.
Notwithstanding the foregoing, the term "Termination Upon Change of
Control" shall not include any termination of the employment of the
Executive: (1) by the Company for Cause; (2) by the Company as a result of
the Permanent Disability of the Executive; (3) as a result of the death of
the Executive; or (4) by the Executive resigning from employment without
Good Reason.
5. EXCLUSIVE REMEDY
5.1 No Other Benefits Payable. The Executive shall be entitled to no
other termination, severance or change of control compensation,
benefits, or other payments from the Company that are expressly
conditioned on a Termination Upon a Change of Control with respect
to which the payments and/or benefits
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described in Section 2 have been provided to the Executive, except
as expressly set forth in this Agreement.
5.2 No Limitation of Regular Benefit Plans. Except as provided in
Section 5.4 below, this Agreement is not intended to and shall not
affect, limit or terminate any plans, programs or arrangements of
the Company that are regularly made available to a significant
number of employees or officers of the Company, including, without
limitation, the Company's stock option plans.
5.3 Release of Claims. The Company may condition payment of benefits
described in Section 2 of this Agreement upon the delivery by the
Executive of a signed release of claims in a form reasonably
satisfactory to the Company; provided, however, that the Executive
shall not be required to release any rights the Executive may have
to be indemnified by the Company.
5.4 Noncumulation of Benefits. The Executive may not cumulate cash
severance payments, stock option vesting and exercisability and
restricted stock vesting under this Agreement, any other written
agreement with the Company and/or another plan or policy of the
Company. If the Executive has any other binding written agreement
with the Company which provides that upon a Change of Control or
Termination Upon a Change of Control the Executive shall receive
termination, severance or similar benefits, then no benefits shall
be received by Executive under this Agreement unless prior to
payment or receipt of benefits under this Agreement the Executive
waives Executive's rights to all such other benefits, in which case
this Agreement shall supersede any such written agreement with
respect to such other benefits.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION
During the term of this Agreement and following any Termination Upon
Change of Control, the Executive agrees to continue to abide by the terms
and conditions of any confidentiality and/or proprietary rights
agreement(s) between the Executive and the Company.
7. NON-SOLICITATION AND NON-COMPETITION
7.1 For a period of one (1) year after Termination Upon Change of
Control, the Executive will not solicit the services or business of any person
or entity providing services to, or business with, the Company, or solicit any
such person to discontinue provision of such services for, or business with, the
Company without the written consent of the Company.
7.2 For a period of one (1) year after Termination Upon Change of
Control, the Executive will not directly or indirectly own or participate in a
business that competes with the Company with respect to activities of such
business that are in direct competition with the business activities of the
Company.
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8. ARBITRATION
8.1 Disputes Subject to Arbitration. Any claim, dispute or controversy
arising out of this Agreement, the interpretation, validity or
enforceability of this Agreement or the alleged breach thereof shall
be submitted by the parties to binding arbitration by a sole
arbitrator under the rules of the American Arbitration Association;
provided, however, that (1) the arbitrator shall have no authority
to make any ruling or judgment that would confer any rights with
respect to the trade secrets, confidential and proprietary
information or other intellectual property of the Company upon the
Executive or any third party; and (2) this arbitration provision
shall not preclude the Company from seeking legal and equitable
relief from any court having jurisdiction with respect to any
disputes or claims relating to or arising out of the misuse or
misappropriation of the Company's intellectual property. Judgment
may be entered on the award of the arbitrator in any court having
jurisdiction.
8.2 Site of Arbitration. The site of the arbitration proceeding shall be
in Stockton, California.
9. MISCELLANEOUS PROVISIONS
9.1 Heirs and Representatives of the Executive; Successors and Assigns
of the Company. This Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the successors and assigns of the Company.
9.2 Amendment and Waiver. No provision of this Agreement shall be
modified, amended, waived or discharged unless the modification, amendment,
waiver or discharge is agreed to in a writing signed by the Executive and by an
authorized officer of the Company (other than the Executive). 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.
9.3 Right of Setoff. The Company's obligations under this Agreement are
absolute and unconditional and are not diminished under any circumstances other
than as set forth in this Agreement, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive. Nothing in this Agreement shall be construed to obligate
the Executive to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the provisions
of this Agreement
9.4 Withholding Taxes. All payments made under this Agreement shall be
subject to reduction to reflect all federal, state, local and other taxes
required to be withheld by applicable law.
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9.5 Entire Agreement. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter herein (whether oral
or written and whether express or implied).
9.6 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.
9.7 Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without regard to where the Executive has his residence or principal
office or where he performs his duties hereunder.
9.8 Successor Corporation. The parties contemplate that Company will
merge with and into its wholly-owned subsidiary, Diamond Foods, Inc., a Delaware
corporation ("DIAMOND FOODS") and that in connection with such merger Diamond
Foods will assume all of the rights and obligations of the Company under this
agreement by operation of law.
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
first above written.
EXECUTIVE: DIAMOND WALNUT GROWERS, INC.:
[Executive] _________________________________________
By:
Title:
______________________________
Signature
Date:_________________________
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