CHANGE OF CONTROL AGREEMENT
This Agreement is entered into as of September 5, 1991 between Xxxx
Xxxxx Mfg. Co., Inc. (the "Company") and Xxxxxxx X. XxXxxxxx
("Employee") and supersedes the Change of Control Agreement dated May 5,
1990.
1. Purpose
The Company considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best
interests of the Company and its stockholders. In this connection, the
Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that
such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its
stockholders. Accordingly, the Board of Directors of the Company (the
"Board") has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of
members of the Company's management to their assigned duties without
distraction in circumstances arising from the possibility of a Change of
Control of the Company.
This Agreement sets forth the severance benefits which the Company
agrees will be provided in the event the Employee's employment with the
Company is terminated subsequent to a "Change of Control" of the Company
under the circumstances described below.
2. Change of Control
For purposes of this Agreement, a Change of Control shall be deemed to
occur (i) upon the date the Company is informed by receiving a report on
Schedule 13D of the Exchange Act or similar report that 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"]), together with
such person's Affiliates and Associates as defined in Rule 12b-2 of the
Exchange Act, is or has become the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act; provided, that a person shall not be
deemed to beneficially own securities acquired pursuant to the Employee
Stock Purchase Plan of the Company or other plans generally applicable
to employees, officers or Directors of the Company), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities,
except that there will not be a Change of Control as the result of an
acquisition of securities by the Company, which by reducing the number
of shares outstanding, increases the proportionate number of shares
beneficially owned by any person to 25% or more of the securities of the
Company then outstanding; provided, however, that if a person becomes
the beneficial owner of 25% or more of the securities of the Company
then outstanding by reason of share purchases by the Company and shall,
after such share purchases by the Company, become the beneficial owner
of any additional securities of the Company, then a Change of Control
will occur unless such person disposes of such additional securities of
the Company within 10 days, (ii) upon the first purchase of the
Company's Common Stock pursuant to a tender or exchange offer (other
than a tender or exchange offer made by the Company) seeking to acquire
securities representing 25% or more of the combined voting power of the
Company's then outstanding securities, (iii) upon the first date on
which Continuing Directors, as defined in Article VI of the Company's
Articles of Incorporation, cease for any reason to constitute at least a
majority of the Board of Directors, (iv) the Company is merged or
consolidated with another corporation and as a result of such merger or
consolidation less than 75% of the outstanding voting securities of the
surviving or resulting corporation shall then be owned in the aggregate
by the former stockholders of the Company, or (v) the Company transfers
substantially all of its assets to another corporation which is not a
wholly owned subsidiary of the Company.
3. Agreement to Provide Services
As valid consideration for entering into this Agreement, Employee
agrees to continue providing services to the Company in his current
executive capacity during any attempted or actual Change of Control.
4. Term of the Agreement
This Agreement shall commence on the date hereof and shall continue in
effect until December 31, 1991; provided, however, that commencing on
January 1, 1992 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless
at least 90 days prior to such January 1 date, the Company gives notice
that this Agreement shall not be extended; and provided, further, that
this Agreement shall continue in effect for a period of twenty-four (24)
months beyond the term provided herein if a Change of Control of the
Company, as defined in Section 2 hereof, shall have occurred during such
term. The Company may not give notice that this Agreement will not be
extended if an Anticipated Change in Control as defined in Section 6 has
occurred.
This Agreement shall automatically terminate and shall be deemed to
have been terminated prior to a Change of Control if the Employee or a
group of persons including the Employee, directly or indirectly,
initiates or causes the Change of Control.
5. Termination Prior to a Change of Control
Nothing in this Agreement shall limit the Company's ability to
terminate the Employee, with or without Cause, prior to a Change of
Control. This Agreement will be immediately terminated upon any
termination of the employment relationship between the Company and the
Employee including death, disability or retirement prior to a Change of
Control.
6. Escrow
Upon the occurrence of an Anticipated Change in Control of the Company,
and upon Employee's written request, the Company shall within two
business days deposit in an escrow account with a financial institution
reasonably acceptable to Employee, an amount equal to the maximum
severance benefits payable as a lump sum under Section 10, to hold as
security for the Company's obligations under this Agreement. Employee
and the Company agree to execute the financial institution's standard
form of escrow agreement providing that benefits in the event of any
dispute will be paid in accordance with a determination made under
Section 16(b) of this Agreement. As used in this Agreement, an
"Anticipated Change in Control" shall be deemed to occur if an event
takes place which indicates a reasonable probability that a Change of
Control as defined in Section 2 is likely to occur.
If the Anticipated Change in Control occurs but within a reasonable
time a Change of Control does not take place, the escrowed funds shall
be repaid and released to the Company upon written notice to the Escrow
Agent by the Company and Employee. If a Change of Control occurs and
there is a termination pursuant to Section 7, the Escrow Agent shall
immediately pay to the Employee the compensation as established in
Section 10 at the Date of Termination pursuant to Section 9. If a
Change of Control occurs and there is no termination after 24 months
pursuant to Section 7, the escrowed funds shall be repaid and released
to the Company.
7. Termination Following a Change of Control
Upon a Change of Control, the Employee shall be entitled to the
benefits provided in Section 10 upon termination of employment with the
Company within 24 months after the Change of Control unless such
termination is:
(a) because of the Employee's death, disability or retirement;
(b) by the Company for Cause, or
(c) by the Employee for other than Good Reason.
(i) Disability. Termination by the Company of employment based on
"Disability" shall mean termination because of the Employee's absence
from duties with the Company on a full-time basis for one hundred eighty
(180) consecutive days as a result of incapacity due to physical or
mental illness. If the Company so requests, the Employee shall be
examined by a doctor of his choosing and shall submit to an examination
by a doctor of the Company's choosing, and each doctor shall certify
whether the Employee's failure to perform his duties is due to physical
or mental illness. If the doctors of the Employee and the Company do
not agree, then the two doctors shall jointly select a third doctor
whose determination shall be accepted by both parties. All costs
associated with the doctors' certifications shall be borne by the
Company.
(ii) Retirement. Termination by the Employee of employment based on
"Retirement" shall mean termination on the early or normal retirement
date as set forth in the Company's Pension Plan (or any successor or
substitute plan or plans of the Company put into effect prior to a
Change of Control).
(iii) Cause. Termination by the Company of employment for "Cause" shall
mean termination upon (a) the willful and continued failure of Employee
to substantially perform his duties with the Company (other than any
such failure resulting from Employee's disability, after a written
demand for substantial performance is delivered to Employee by the Board
which specifically identifies the manner in which the Board believes the
Employee has not substantially performed his duties, and provided that
the Company shall provide Employee reasonable opportunity (not less than
two weeks) to cure such conduct, or (b) the willful engaging by Employee
in gross misconduct materially and demonstrably injurious to the
Company. For purposes of this paragraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to
be done, by Employee not in good faith and without reasonable belief
that Employee's action or omission was in the best interest of the
Company.
(iv) Good Reason. Termination by the Employee of employment for "Good
Reason" shall mean termination based on:
(a) a material reduction in the level or nature of Employee's status,
title, position, authority or responsibility as an officer of the
Company, as in effect immediately prior to the Change of Control; or
(b) a significant reduction by the Company of the Employee's
compensation including benefits plans and fringe benefits, as in effect
immediately prior to the Change of Control; nevertheless, if there is a
base salary reduction for all of the Company's executive officers,
Employee's base salary may be reduced but in an amount not to exceed the
average percentage reduction that is applied to the Company's other
executive officers; or
(c) the Company's requirement that the Employee be based somewhere other
than where the Employee's office is located immediately prior to the
Change of Control or within a 50 mile radius of such location; or
(d) the Company's requirement that the Employee travel on Company
business to an extent substantially in excess of the business travel
obligations required by the Company immediately prior to the Change of
Control; or
(e) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by
Section 13 hereof.
8. Notice of Termination
Any purported termination by the Company or by the Employee following a
Change of Control shall be communicated by written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a
basis for termination of employment under the provision so indicated.
9. Date of Termination
"Date of Termination" following a Change of Control shall mean (a) if
employment is to be terminated for Disability, thirty (30) days after
Notice of Termination is given, (b) if employment is to be terminated by
the Company for Cause, the date on which a Notice of Termination is
given, and (c) if employment is to be terminated by the Employee or by
the Company for any other reason, the date specified in the Notice of
Termination, which shall be a date no earlier than ninety (90) days
after the date on which a Notice of Termination is given, unless an
earlier date has been agreed to by the party receiving the Notice of
Termination either in advance of, or after, receiving such Notice of
Termination. Notwithstanding anything in the foregoing to the contrary,
if the party receiving the Notice of Termination has not previously
agreed to the termination, then within thirty (30) days after any Notice
of Termination is given, the party receiving such Notice of Termination
may notify the other party that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by the
arbitrators in a proceeding as provided in Section 16(b) hereof.
10. Compensation Upon Termination or During Disability
(a) During any period following a Change of Control that the Employee
fails to perform his duties as a result of disability, the Employee
shall continue to receive full base salary at the rate then in effect
and any benefits or awards under any Plans shall continue to accrue
during such period, to the extent not inconsistent with such Plans,
until employment is terminated pursuant to and in accordance with
Sections 7(i) and 9. Thereafter, benefits shall be determined in
accordance with the Plans then in effect.
(b) If employment shall be terminated for Cause following a Change of
Control of the Company, the Company shall pay the Employee full base
salary through the Date of Termination at the rate in effect just prior
to the time a Notice of Termination is given plus any benefits or awards
which pursuant to the terms of any Plans have been earned or become
payable, but which have not yet been paid. Thereupon the Company shall
have no further obligations to the Employee under this Agreement.
(c) If, within twenty-four (24) months after a Change of Control of the
Company shall have occurred, the Employee's employment by the Company
shall be terminated by the Company other than for Cause, Disability or
Retirement or by the Employee for Good Reason based on an event
occurring concurrent with or subsequent to a Change of Control, then, by
no later than the fifth day following the Date of Termination the
Employee shall be entitled to receive the following:
(i) the Company shall pay the Employee's full base salary through the
Date of Termination at the rate in effect just prior to the time a
Notice of Termination is given plus any benefits or awards (including
both cash and stock components) which pursuant to the terms of any Plans
have been earned or become payable, but which have not yet been paid
(including amounts which previously had been deferred at the Employee's
request);
(ii) as severance pay and in lieu of any further salary for periods
subsequent to the Date of Termination, the Company shall pay to the
Employee in a single payment an amount in cash equal to three times the
Employee's annual cash compensation. Annual cash compensation for
purposes of this Agreement shall be the average cash compensation paid
to or accrued for the Employee the last three complete years prior to
the Change of Control and would include but is not limited to base
salary, variable compensation and production bonus.
(iii) All restricted stock issued to the Employee under the Long-Term
Performance Stock Plan as of the Date of Termination shall immediately
vest and the Company shall promptly remove the restrictive legends from
the applicable stock certificates.
(iv) Notwithstanding the terms of any Stock Option Plan adopted by the
Company or any option granted pursuant thereto, Employee will have the
right to exercise any such previously issued stock options for one year
following the Date of Termination.
(v) A full annual contribution shall be made to the Supplemental
Retirement Income Plan or comparable plan in the year of termination and
upon the Employee's request the full balance in the Employee's account
shall be paid in a lump sum at the Date of Termination.
11. Payment Obligations Absolute
The Company's obligations to pay the Employee the compensation and to
make the arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company or any of its subsidiaries may have
against him. All amounts payable by the Company hereunder shall be paid
without notice or demand. Except as expressly provided herein, the
Company waives all rights which it may now have or may hereafter have
conferred upon it, by statute or otherwise, to terminate, cancel or
rescind this Agreement in whole or in part.
12. Parachute Payment Limitation
Notwithstanding any other provisions of this Agreement, if any
severance benefits under Section 10 of this Agreement are characterized
as "Excess Parachute Payments" under Section 280G of the Internal
Revenue Code of 1986 (the "Code"), then the following rules shall apply:
(a) The Company shall compute the net value to the Employee of all such
severance benefits after reduction for the excise taxes imposed by Code
Section 4999 and for any normal income taxes that would be imposed on
Employee if such severance benefits constituted Employee's sole taxable
income.
(b) The Company shall next compute the maximum amount of severance
benefits that can be provided without any benefits being characterized
as Excess Parachute Payments and reduce the result by the amount of any
normal income taxes that would be imposed on Employee if such reduced
severance benefits constituted Employee's sole taxable income.
If the result derived in subparagraph (a) is greater than the result
derived in subparagraph (b), then the Company shall pay Employee the
full amount of severance benefits without reduction. If the result
derived from subparagraph (a) is not greater than the result derived in
subparagraph (b), then the Company shall pay the Employee the maximum
amount of severance benefits that can be provided without any benefits
being characterized as Excess Parachute Payments.
13. Successors
Upon the Employees written request, the Company will seek to have any
Successor (as hereinafter defined), by agreement in form and substance
satisfactory to the Employee, assent to the fulfillment by the Company
of its obligations under this Agreement. Failure of the Company to
obtain such assent prior to or at the time a Person becomes a Successor
shall constitute Good Reason for termination by the Employee of
employment and, if a Change of Control of the Company has occurred,
shall entitle the Employee immediately to the benefits provided in
paragraph (c) of Section 10 upon delivery by the Employee of a Notice of
Termination which the Company, by executing this Agreement hereby
assents to. For purposes of this Agreement, "Successor" shall mean any
Person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business
directly, by merger or consolidation, or indirectly, by purchase of the
Company's Voting Securities or otherwise.
14. Assignment and Transfer
Employee's rights and obligations under this Agreement shall not be
transferable by assignment or otherwise, and any purported assignment,
transfer, or delegation shall be void. Employee's rights hereunder
shall not be subject to anticipation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, sell, assign,
pledge, encumber or charge the same shall be void.
15. Confidential Information
The Employee shall not at any time during the period of his employment
or thereafter, except as required in the course of his employment with
the Company or as authorized in writing by the Board of Directors of the
Company, directly or indirectly use, disclose, disseminate, or reproduce
any Confidential Information. All notes, notebooks, memoranda and
similar repositories of information ("Items") containing or relating in
any way to Confidential Information shall be the property of the
Company. All such Items made or compiled by Employee or made available
to Employee during Employee's employment with the Company, including all
copies thereof, shall be delivered to the Company by Employee upon
termination of his employment with the Company or at any other time upon
request of the Company. "Confidential Information" means information
not generally known relating to the business of the Company or any third
parties that is contributed to, developed by, disclosed to, or known to
Employee in his course of employment by the Company, including but not
limited to customer lists, specifications, data, research, test
procedures and results, know-how, services used, and information
regarding past, present, and prospective plans and methods of
purchasing, accounting, engineering, business, marketing, merchandising,
selling and servicing used by the Company.
16. Miscellaneous
(a) Governing Law. This Agreement shall be governed by and construed
according to the laws of the State of Washington.
(b) Dispute Resolution. The parties agree to work together in good
faith to resolve any dispute arising under this Agreement, and to
explore resolution of the dispute through methods of alternative dispute
resolution. If the parties are unable to resolve a dispute, it shall be
settled by arbitration in Seattle, Washington, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
then in effect. However, if an event takes place which indicates a
reasonable probability that a Change of Control as defined in Section 2
is likely to occur, or a Change in Control as defined in Section 2
occurs, Employee may proceed with litigation without any necessity of
pursuing arbitration or alternative dispute resolution. Additionally,
if both parties agree that neither arbitration nor any other method of
alternative dispute resolution is suitable to resolve the dispute, they
may proceed with litigation. Judgment upon any award may be entered in
any court having jurisdiction over the subject matter of the dispute.
Notwithstanding the pendency of any such dispute or controversy, the
Company will continue to pay Employee his full compensation in effect
when the notice of the dispute was given (including, but not limited to,
Base Salary and continued participation in all compensation, benefit and
insurance plans in which Employee was participating when the notice of
the dispute was given) until the dispute is finally resolved.
(c) Attorneys Fees. In the event any suit or proceeding is instituted
by one party against the other arising out of this Agreement, the
prevailing party shall be entitled to recover its attorneys fees and
expenses of litigation or arbitration.
(d) Rights Cumulative. The rights and remedies provided by this
Agreement are cumulative, and the exercise of any right or remedy by
either party hereto (or by its successor), whether pursuant to this
Agreement or to law, shall not preclude or waive its right to exercise
any or all other rights and remedies. The rights and remedies herein
are cumulative to any other rights the parties hereto may have by law,
statute, ordinance, or otherwise.
(e) Nonwaiver. No failure or neglect of either party hereto in any
instance to exercise any right, power, or privilege hereunder or under
law shall constitute a waiver of any other right, power, or privilege or
of the same right, power, or privilege in any other instance. All
waivers by either party hereto must be contained in a written instrument
signed by the party to be charged and, in the case of the Company, by a
duly authorized officer other than Employee.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto and supersedes any prior written or oral
agreements between them respecting the subject matter hereof. There are
no representations, agreements, arrangements, or understandings, oral or
written, between and among the parties hereto relating to the subject
matter hereof which are not fully expressed herein.
(g) Amendment. This Agreement may be amended only by a writing signed
by Employee and by a duly authorized representative of the Company other
than Employee.
(h) Severability. If any term, provision, covenant, or condition of
this Agreement, or the application thereof to any person, place or
circumstance, shall be held by a court of competent jurisdiction to be
invalid, unenforceable, or void, the remainder of this Agreement and
such term, provision, covenant, or condition as applied to other
persons, places and circumstances shall remain in full force and effect.
(i) Headings. The headings and captions of this Agreement are provided
for convenience only and are intended to have no effect in construing or
interpreting this Agreement.
(j) Notices. Any notice, request, consent, or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and personally delivered to Employee or by
registered or certified mail to Employee's residence (as noted in the
Company's records), or if personally delivered to the Company's
Corporate Secretary at the Company's principal office, as the case may
be.
In witness whereof, the parties hereto have subscribed their names this
9th day of September, 1991.
Fluke Corporation Employee
/s/ Xxxxxx X. Xxxx /s/ Xxxxxxx X. XxXxxxxx
Its President
