AMENDED & RESTATED AGREEMENT RE: CHANGE IN CONTROL
Exhibit 10.2
AMENDED & RESTATED AGREEMENT RE: CHANGE IN CONTROL
This AGREEMENT RE: CHANGE IN CONTROL (this “Agreement”) is dated as of February 28, 2006 and
is entered into by and between Xxxxxxx X. Xxxxxx, Xx. (“Executive”) and Xxxxxxxx, Inc., 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 additional
benefits, as described herein, in the event of his termination under specified circumstances.
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 forty percent (40%) 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; or
(ii) Individuals who, as of the date hereof, constitute the Board of Directors of the Company
(as of the date hereof the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board of Directors of the Company, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the Company’s
stockholders, is or was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest relating to the election
of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or
(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.
4. Effect of a Change in Control. In the event of a Change in Control, Sections 6
through 12 of this Agreement shall become applicable to Executive. These Sections shall continue to
remain applicable until the third anniversary of the date upon which the Change in Control occurs.
On such third 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 fifty (50) 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 three (3) 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 three types of events:
(1) the willful and deliberate refusal of Executive to comply with a lawful,
written instruction of the Board of Directors, which refusal is not remedied by
Executive within a reasonable period of time after his receipt of written notice
from the Company identifying the refusal, so long as the instruction is consistent
with the scope and responsibilities of Executive’s position prior to the Change in
Control;
(2) an act or acts of personal dishonesty by Executive which were intended to
result in substantial personal enrichment of Executive at the expense of the
Company; or
(3) Executives conviction of any felony involving an act of moral turpitude.
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”).
(a) For purposes of this Agreement, Executive’s “Compensation” shall equal the sum of
(i) Executive’s highest annual salary rate with the Company within the three year period
ending on the date of Executive’s Qualifying Termination, plus (ii) a “Bonus Increment.” The
Bonus Increment shall equal the annualized average of all bonuses and incentive compensation
payments paid to Executive during the two (2) year period immediately before the date of
Executive’s Qualifying Termination under all of the Company’s bonus and incentive
compensation plans or arrangements.
(b) 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.
(a) In the event of a Qualifying Termination, any and all unvested stock options of
Executive shall immediately become fully vested and exercisable.
(b) In the event of a Qualifying Termination, Executive shall be entitled to continue
to participate in the following executive benefit programs which had been made available to
Executive (including his family) before the Qualifying Termination: group medical insurance,
group dental insurance, group-term life insurance, and disability insurance. These programs
shall be continued at no cost to Executive, except to the extent that tax rules require the
inclusion of the value of such benefits in Executive’s income. The programs shall be
continued in the same way and at the same level as immediately prior to the Qualifying
Termination. The programs shall continue for Executive’s benefit for two (2) years after
the date of the Qualifying Termination; provided, however, that Executive’s
participation in each of such programs shall be earlier terminated or reduced, as
applicable, if and to the extent Executive receives benefits as a result of concurrent
coverage through another 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
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. Section 409A Compliance.
(a) Notwithstanding any provision of this Agreement to the contrary, if, at the time of
Executive’s termination of employment with the Company, he is a “specified employee” as
defined in Section 409A of the Internal Revenue Code (the “Code”), and one or more of the
payments or benefits received or to be received by Executive pursuant to this Agreement
would constitute deferred compensation subject to Section 409A, no such payment or benefit
will be provided under this Agreement until the earliest of (A) the date which is six (6)
months after his “separation from service” for any reason, other than death or “disability”
(as such terms are used in Section 409A(a)(2) of the Code), (B) the date of his death or
“disability” (as such term is used in Section 409A(a)(2)(C) of the Code) or (C) the
effective date of a “change in the ownership or effective control” of the Company (as such
term is used in Section 409A(a)(2)(A)(v) of the Code) (the “Deferred Payment”). The
provisions of this Section 9 shall only apply to the extent required to avoid Executive’s
incurrence of any penalty tax or interest under Section 409A of the Code or any regulations
or Treasury guidance promulgated thereunder. In addition, if any provision of this
Agreement would cause Executive to incur any penalty tax or interest under Section 409A of
the Code or any regulations or Treasury guidance promulgated thereunder, the Company shall
reform such provision to maintain to the maximum extent practicable the original intent of
the applicable provision without violating the provisions of Section 409A of the Code.
(b) In the event the six-month delay described in this Section 9 applies, the Company
shall make an irrevocable contribution in the amount of the Deferred Payment to a rabbi
trust which shall take the form of the model rabbi trust described in Internal Revenue
Service Revenue Procedure 92-64, which amount (along with any net income received by the
trust) shall be paid by the trust to the Executive on the six-month anniversary of his
termination of employment, and the trust shall terminate at such time. The trustee shall be
chosen by the Company in its reasonable discretion. The Company shall pay the reasonable
expenses of establishing and maintaining the trust.
10. 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, 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 three (3) 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.
11. Non-Exclusivity of Rights. Subject to Section 6(b) 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(b) 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.
12. 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).
13. 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.
14. 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.
15. Modifications. This Agreement may be amended or modified only by an instrument in
writing executed by all of the parties hereto.
16. 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 17 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 San Diego or 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 or the County of San
Diego of a petition pursuant to CCP Section 638(1) (a “Petition”). Said Petition shall
designate as a referee a Judge from the list of retired San Diego County and 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 San Diego County or 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 or the San Diego County Superior Court, as relevant, appoint as
referee a retired San Diego County or 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 16 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.
17. 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:
Xxxxxxxx, Inc.
|
Xxxxxxx X. Xxxxxx, Xx. | |
0000 Xxxxx Xxxxxx Xxxx
|
0 Xxxxxxxxxx Xxxxx | |
Xxxxxxxx, Xxxxxxxxxx 00000
|
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 | |
Attn: President |
18. Captions. The captions of this Agreement are inserted for convenience and do not
constitute a part hereof.
19. 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.
20. 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.
[Remainder of page left blank intentionally, signatures on following page]
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first written above in Carlsbad, California.
| XXXXXXXX, INC. | ||||
| By: | /s/ Xxxxx X. X’Xxxxxx | |||
| Title: | Chairman, Compensation and Human Resources Committee | |||
| XXXXXXX X. XXXXXX, XX. | ||||
| By: | /s/ Xxxxxxx X. Xxxxxx, Xx. | |||
