CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered
into effective as of September 12, 1996, by and between Xxxxxxx X. Xxxxxx
(the "Employee") and InnerDyne, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that another company or other entity may from time to
time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company's
Board of Directors (the "Board"). The Board recognizes that such
consideration can be a distraction to the Employee and can cause the Employee
to consider alternative employment opportunities. The Board has determined
that it is in the best interests of the Company and its stockholders to
assure that the Company will have the continued dedication and objectivity of
the Employee, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue
his employment with the Company.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon termination of the Employee's employment in connection
with a Change of Control, which benefits are intended to provide the Employee
with financial security and provide sufficient income and encouragement to
the Employee to remain with the Company notwithstanding the possibility of a
Change of Control.
D. To accomplish the foregoing objectives, the Compensation Committee of
the Board has directed the Company, upon execution of this Agreement by the
Employee, to agree to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in
Section 3 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at-will, as
defined under applicable law. If the Employee's employment terminates for
any reason, including (without limitation) any termination prior to a Change
of Control, the Employee shall not be entitled to any payments, benefits,
damages, awards or compensation other than as provided by this Agreement, or
as may otherwise be available in accordance with the terms of Employee's
offer letter from the Company dated September 15, 1993 (the "Offer Letter"),
the terms of certain Board resolutions and agreements issued to the Employee
with respect to the grant of stock options for the
Company's securities and the Company's established employee plans and written
policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (i) the date that all obligations of the
parties hereunder have been satisfied or (ii) two (2) years after a Change of
Control. A termination of this Agreement pursuant to the preceding sentence
shall be effective for all purposes, except that such termination shall not
affect the payment or provision of compensation or benefits on account of a
termination of employment occurring prior to the termination of this
Agreement.
2. CHANGE OF CONTROL.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. Subject to
Section 4 below, if the Employee's employment with the Company is terminated
at any time within two (2) years after a Change of Control, then the Employee
shall be entitled to receive severance benefits as follows:
(i) VOLUNTARY RESIGNATION. If the Employee voluntarily
resigns from the Company (other than as an Involuntary Termination (as
defined below), then the Employee shall not be entitled to receive severance
payments under this Agreement. The Employee will receive payment(s) for all
salary, bonuses and unpaid vacation accrued as of the date of the Employee's
termination of employment and the Employee's benefits will be continued under
the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of termination and in
accordance with applicable law.
(ii) INVOLUNTARY TERMINATION. If the Employee's
employment is terminated as a result of an Involuntary Termination other than
for Cause, then, subject to the provisions of Section 5 below, each stock
option to purchase the Company's Common Stock granted to the Employee over
the course of his employment with the Company and held by the Employee on the
date of termination of employment shall become immediately vested on such
date and each such option shall be exercisable in accordance with the
provisions of the option agreement and plan pursuant to which such option was
granted. In addition, the Employee will receive payment(s) for all salary,
bonuses and unpaid vacation accrued as of the date of the Employee's
termination of employment and the Employee's benefits will be continued under
the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of termination and in
accordance with applicable law and the Offer Letter.
(iii) INVOLUNTARY TERMINATION FOR CAUSE. If the
Employee's employment is terminated for Cause, then the Employee shall not be
entitled to receive severance payments under this Agreement. The Employee
will receive payment(s) for all salary, bonuses and unpaid vacation accrued
as of the date of the Employee's termination of employment and the Employee's
benefits will be continued under the Company's then existing benefit plans
and policies in accordance with such plans and policies in effect on the date
of termination and in accordance with applicable law.
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(b) TERMINATION APART FROM CHANGE OF CONTROL. In the event
the Employee's employment terminates for any reason, either prior to the
occurrence of a Change of Control or after the two year period following the
effective date of a Change of Control, then the Employee shall not be
entitled to receive any severance payments under this Agreement. The
Employee will receive payment(s) for all salary, bonuses and unpaid vacation
accrued as of the date of the Employee's termination of employment and the
Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in
effect on the date of termination and in accordance with applicable law and
the Offer Letter.
3. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:
(i) OWNERSHIP. Any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the Company's
then outstanding voting securities WITHOUT the approval of the Board; or
(ii) MERGER/SALE OF ASSETS. A merger or consolidation of
the Company whether or not approved by the Board, other than 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 the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iii) CHANGE IN BOARD COMPOSITION. A change in the
composition of the Board, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of September 12,
1996 or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company).
(b) CAUSE. "Cause" shall mean (i) gross negligence or
willful misconduct in the performance of the Employee's duties to the Company
where such gross negligence or willful misconduct has resulted or is likely
to result in substantial and material damage to the Company or its
subsidiaries (ii) repeated unexplained or unjustified absence from
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the Company, (iii) a material and willful violation of any federal or state
law; (iv) commission of any act of fraud with respect to the Company; or (v)
conviction of a felony or a crime involving moral turpitude causing material
harm to the standing and reputation of the Company, in each case as
determined in good faith by the Board.
(c) INVOLUNTARY TERMINATION. "Involuntary Termination" shall
include any termination by the Company other than for Cause and the
Employee's voluntary termination, upon thirty (30) days prior written notice
to the Company, following (i) a material reduction or change in job duties,
responsibilities and requirements inconsistent with the Employee's position
with the Company and the Employee's prior duties, responsibilities and
requirements or a change in the Employee's reporting relationship such that
the Employee is no longer reporting to the Board; (ii) any reduction of the
Employee's base compensation (other than in connection with a general
decrease in base salaries for most officers of the successor corporation); or
(iii) the Employee's refusal to relocate to a facility or location more than
thirty (30) miles from the Company's current location.
4. LIMITATION ON PAYMENTS. In the event that the severance
and other benefits provided for in this Agreement to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee's severance benefits under Sections 4(b)(iii) and
(iv) shall be payable either:
(a) in full, or
(b) as to such lesser amount
which would result in no portion of such severance benefits being subject to
excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Employee on an after-tax basis, of the
greatest amount of severance benefits under Section 2(a) notwithstanding that
all or some portion of such severance benefits may be taxable under Section
4999 of the Code. Unless the Company and the Employee otherwise agree in
writing, any determination required under this Section 4 shall be made in
writing by the independent public accountants of the Company (the
"Accountants"), whose determination shall be conclusive and binding upon the
Employee and the Company for all purposes. For purposes of making the
calculations required by this Section 4, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Section
280G and 4999 of the Code. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company
shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section 4.
5. CERTAIN BUSINESS COMBINATIONS. In the event it is determined
by the Board, upon consultation with the Company management and the Company's
independent public
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accountants, that the enforcement of any agreement between Employee and the
Company, including the provisions of Section 2(a) of this Agreement, which
allows for the acceleration of vesting of stock options granted for the
Company's Common Stock following of a Change of Control, would preclude
accounting for any proposed business combination of the Company involving a
Change of Control as a pooling of interests, and the Board otherwise desires
to approve such a proposed business transaction which requires as a condition
to the closing of such transaction that it be accounted for as a pooling of
interests, then any such provision of this Agreement shall be null and void.
For purposes of this Section 5, the Board's determination shall require the
unanimous approval of the non-employee Board members.
6. SUCCESSORS. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's
business and/or assets shall assume the obligations under this Agreement and
agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. The terms of this Agreement
and all of the Employee's rights hereunder shall inure to the benefit of, and
be enforceable by, the Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
7. NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. Mailed notices
to the Employee shall be addressed to the Employee at the home address which
the Employee most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
8. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether
by seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) WAIVER. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed
to in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). 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.
(c) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into
by either party with respect to the
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subject matter hereof. This Agreement supersedes any agreement of the same
title and concerning similar subject matter dated prior to the date of this
Agreement, and by execution of this Agreement both parties agree that any
such predecessor agreement shall be deemed null and void.
(d) CHOICE OF LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of California without reference to conflict of laws provisions.
(e) SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any jurisdiction and
to any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the
remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision
shall be substituted therefor to carry out, insofar as may be valid and
enforceable, the intent and purpose of the invalid or unenforceable term or
provision.
(f) ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement may be settled at the option of either
party by binding arbitration in the County of Santa Clara, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. Punitive damages shall not be awarded.
(g) LEGAL FEES AND EXPENSES. The parties shall each bear
their own expenses, legal fees and other fees incurred in connection with
this Agreement.
(h) NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option
or assignment, either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection (h)
shall be void.
(i) EMPLOYMENT TAXES. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(j) ASSIGNMENT BY COMPANY. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment.
In the case of any such assignment, the term "Company" when used in a
section of this Agreement shall mean the corporation that actually employs
the Employee.
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(k) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
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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.
INNERDYNE, INC. XXXXXXX X. XXXXXX
By: /s/XXX X. XXXXX By: /s/XXXXXXX X. XXXXXX
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Xxx X. Xxxxx, Chairman,
Compensation Committee
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