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May 15, 1995
Dear :
We are pleased to inform you that the Board of Directors (the
"Board") of Measurex Corporation ("Measurex" or the "Company") has recently
authorized and approved a special severance benefit program for you and other
key executives. The purpose of this letter agreement is to set forth the terms
and conditions of your benefit package and to explain the limitations which will
govern the overall value of your benefits.
Your severance benefits will become payable in the event your
employment terminates within a specified time period following certain changes
in ownership or control of the Company. To understand the full scope of your
severance benefits, you should familiarize yourself with the definitional
provisions of Paragraph 1 of this letter. The benefits comprising your severance
package are detailed in Paragraph 2, and the dollar limitations on the overall
value of your benefit package are specified in Paragraph 3. The remaining
paragraphs deal with ancillary matters affecting your severance arrangement.
1. DEFINITIONS. For purposes of your severance benefits under
this letter agreement, the following definitions will be in effect:
"Actual Average Compensation" means your average W-2 wages and
other compensation received from Measurex for the five (5) calendar years (or
such fewer number of actual calendar years of employment with Measurex)
completed immediately prior to the calendar year in which the Change in Control
is effected. Any W-2 wages or other compensation for a partial year of
employment with Measurex will be annualized, in accordance with the frequency
with which such wages are paid during such partial year, before inclusion within
your Actual Average Compensation. Should your employment with Measurex commence
in the calendar year in which the Change in Control is effected, then your
Actual Average Compensation will be equal in amount to your rate of base salary
in effect for that year plus all other items of compensation received from
Measurex for such year. If any of your compensation from Measurex during such
five (5)-year or shorter period was not included in your W-2 wages for U.S.
income tax purposes, either because you were not a U.S. citizen or resident or
because such compensation was excludible from income as foreign earned income
under Code Section 911 or as pre-tax income under Code Section 125 or 402(g),
then such compensation will nevertheless be included in your Actual Average
Compensation to the same extent as if it were part of your W-2 wages.
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"Change in Control" means:
(i) the successful acquisition by a person or a group of
related persons, other than the Company or a person controlling, controlled by
or under common control with the Company, of beneficial ownership (as determined
pursuant to the provisions of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of fifty percent (50%) or more of the Company's outstanding
voting securities pursuant to a transaction or series of related transactions
which the Board does not at any time recommend the Company's shareholders to
accept or approve,
(ii) the first date within any period of thirty-six (36)
consecutive months or less on which there is effected a change in the
composition of the Measurex Board such that a majority of the Board ceases, by
reason of one or more contested elections for Board membership, to be comprised
of individuals who either (I) have been members of the Measurex Board
continuously since the beginning of such period or (II) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (I) who were still in office
at the time such election or nomination was approved by the Board,
(iii) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the State in which the Company is incorporated,
(iv) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company,
(v) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to person or persons different from the persons holding those
securities immediately prior to such merger, or
(vi) the issuance by the Company of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities (determined after such issuance) in a single
transaction or a series of related transactions.
"Code" means the Internal Revenue Code of 1986, as periodicaly
amended.
"Common Stock" means the Company's common stock.
"Fair Market Value" means, with respect to any shares of Common
Stock subject to any Severance-Accelerated Option or Acquisition-Accelerated
Option, the value per share determined by averaging the lowest and highest
selling prices per share of Common Stock on the date in question on the
principal exchange on which the Common Stock is then listed or admitted to
trading, as such prices are officially quoted by the composite tape of
transactions on such exchange. If there are no reported sales of Common Stock on
the principal exchange on such date, then the average of the lowest and
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highest selling prices on such exchange on the next preceding day for which
there do exist such quotations shall be determinative of Fair Market Value.
"Involuntary Termination" means the termination of your
employment with Measurex:
- involuntarily upon your discharge or dismissal, or
- voluntarily or involuntarily following (I) a change in your
position with the Company which materially reduces your level of
responsibility, (II) a reduction in your level of compensation
(including base salary, fringe benefits and participation in
non-discretionary bonus programs under which awards are payable
pursuant to objective financial or performance standards) or (III) a
change in your place of employment which is more than fifty (50) miles
from your place of employment prior to the Change in Control, provided
and only if such change or reduction is effected without your written
concurrence.
"Option" means any option granted to you under the Plan which
is outstanding at the time of either the Change in Control or your subsequent
Involuntary Termination. Your Options will be divided into two (2) separate
categories as follows:
Acquisition-Accelerated Options: any outstanding
Option (or installment thereof) which accelerates, pursuant to the
automatic acceleration provisions of the agreement evidencing that
Option, upon a change in control or ownership of the Company under
certain specified circumstances.
Severance-Accelerated Options: any outstanding Option
(or installment thereof) which accelerates upon your Involuntary
Termination pursuant to Paragraph 2(a) of this letter agreement.
"Option Parachute Payment" means, with respect to any
Acquisition-Accelerated Option or any Severance-Accelerated Option, the portion
of that Option deemed to be a parachute payment under Code Section 280G and the
Treasury Regulations issued thereunder. The portion of such Option which is
categorized as an Option Parachute Payment shall be calculated in accordance
with the valuation provisions established under Code Section 280G and the
applicable Treasury Regulations and shall include an appropriate dollar
adjustment to reflect the lapse of your obligation to remain in the employ of
Measurex as a condition to the vesting of the accelerated installment. In no
event, however, shall the Option Parachute Payment attributable to any
Acquisition-Accelerated Option or Severance-Accelerated Option (or accelerated
installment) exceed the spread (the excess of the Fair Market Value of the
accelerated option shares over the option exercise price payable for those
shares) existing at the time of acceleration.
"Other Parachute Payment" means any payment in the nature of
compensation (other than the benefits to which you become entitled under
Paragraph 2 of this letter agreement) which are made to you in connection with
the Change in Control and which accordingly qualify as parachute payments within
the meaning of Code Section 280G(b)(2) and the Treasury Regulations issued
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thereunder. Your Other Parachute Payments shall include (without limitation) the
Present Value, measured as of the Change in Control, of the aggregate Option
Parachute Payment attributable to your Acquisition-Accelerated Options (if any).
"Present Value" means the value, determined as of the date of
the Change in Control, of any payment in the nature of compensation to which you
become entitled in connection with either the Change in Control or your
subsequent termination of employment, including (without limitation) the Option
Parachute Payment attributable to your Severance-Acceleration Options, your
Severance Payment under Paragraph 2 of this letter agreement and the Option
Parachute Payment attributable to your Acquisition-Accelerated Options. The
Present Value of each such payment shall be determined in accordance with the
provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one
hundred twenty percent (120%) of the applicable Federal rate in effect at the
time of such determination, compounded semi-annually to the effective date of
the Change in Control.
"Plan" means either (i) the Measurex Corporation 1993 Stock
Option Plan, as amended from time to time, or (ii) the predecessor Measurex
Corporation 1981 Stock Option Plan, as previously amended from time to time.
"Termination for Cause" shall mean an Involuntary
Termination of your employment by reason of (i) your commission of any act of
fraud or embezzlement, (ii) your knowingly unauthorized disclosure of
confidential information or trade secrets of the Company, (iii) excessive
absenteeism or tardiness on your part with respect to your scheduled working
hours or your continual neglect of the duties and responsibilities assigned to
you, (iv) any intentional act of insubordination on your part or your habitual
failure to comply with Company policies establishing standards of conduct
applicable to all employees or (v) any intentional misconduct on your part
which adversely affects the business reputation of the Company in a material
manner.
2. SEVERANCE BENEFITS. Should there occur an Involuntary
Termination of your employment (other than a Termination for Cause) within
eighteen (18) months following a Change in Control, then you will become
entitled to the severance benefits specified below, subject, however, to the
dollar limitation of Paragraph 3 of this letter agreement.
(a) Option Acceleration. Each of your outstanding Options
under the Plan, other than your Acquisition-Accelerated Options, will (to the
extent not then otherwise exercisable) be automatically accelerated so that each
such Severance-Accelerated Option will become immediately exercisable for the
total number of shares purchasable thereunder. Each Severance-Accelerated Option
accelerated hereunder will remain exercisable for a period of ninety (90) days
following your Involuntary Termination and may be exercised for any or all of
the accelerated shares in accordance with the exercise provisions of the
agreement evidencing that Option. However, in no event may any
Severance-Accelerated Option be exercised after the specified expiration date of
the option term.
(b) Severance Payment. Measurex will make a lump sum cash
payment (the "Severance Payment") to you, within ninety (90) days after your
Involuntary Termination, in an amount equal in Present Value (measured as of the
Change in Control) to the excess (if any) of (I) 2.99
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times your Actual Average Compensation over (II) the Present Value (also
measured as of the Change of Control) of the aggregate Option Parachute Payment
attributable to all your accelerated Options.
3. REDUCTION OF SEVERANCE BENEFITS. Except to the limited
extent (if any) otherwise provided under subparagraph (d) below, the aggregate
Present Value (measured as of the Change in Control) of the benefits to which
you become entitled under Paragraph 2 at the time of your Involuntary
Termination (namely the Severance Payment and the Option Parachute Payment
attributable to your Severance-Accelerated Options) shall not exceed in amount
the difference between (i) 2.99 times your Actual Average Compensation and (ii)
the Present Value, measured as of the Change in Control, of all Other Parachute
Payments to which you are entitled. Accordingly, except as otherwise provided
under subparagraph (d) below, your Options shall not be accelerated and no
Severance Payment shall be made to you pursuant to this letter agreement, to the
extent the Present Value as of the Change in Control of (I) the aggregate Option
Parachute Payment attributable to your Severance-Accelerated Options plus (II)
your Severance Payment would, when added to the Present Value of your Other
Parachute Payments, exceed 2.99 times your Actual Average Compensation (the
"Parachute Limit").
For purposes of the foregoing Parachute Limit, the following
provisions shall be in effect:
(a) In the event there is any disagreement between you and the
Company as to whether one or more payments to which you become entitled in
connection with either the Change in Control or your subsequent Involuntary
Termination constitute Option Parachute Payments or Other Parachute Payments or
as to the determination of the Present Value thereof, such dispute shall be
resolved as follows:
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or applicable
judicial decisions) specifically address the status of any such payment or the
method of valuation therefor, the characterization afforded to such payment by
the Regulations (or such decisions) shall, together with the applicable
valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the status of any payment in dispute, the
matter shall be submitted for resolution to independent counsel mutually
acceptable to you and the Company ("Independent Counsel"). The resolution
reached by Independent Counsel shall be final and controlling; provided,
however, that if in the judgment of Independent Counsel the status of the
payment in dispute can be resolved through the obtainment of a private letter
ruling from the Internal Revenue Service, a formal and proper request for such
ruling shall be prepared and submitted by Independent Counsel, and the
determination made by the Internal Revenue Service in the issued ruling shall be
controlling. All expenses incurred in connection with the retention of
Independent Counsel and (if applicable) the preparation and submission of the
ruling request shall be shared equally by you and the Company.
(iii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the appropriate valuation methodology for any
payment in dispute, the Present Value
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thereof shall, at the Independent Counsel's election, be determined through an
independent third-party appraisal, and the expenses incurred in obtaining such
appraisal shall be shared equally by you and the Company.
(b) No Severance Payment shall be made to you under Paragraph
2(b) of this letter agreement until the Present Value of the Option Parachute
Payment attributable to both your Severance-Accelerated Options and your
Acquisition-Accelerated Options has been determined and the status of any
payments in dispute under Paragraph 3(a) above has been resolved in accordance
therewith. However, you will be permitted to exercise your Severance-Accelerated
Options at any time during the ninety (90) day (or shorter) period immediately
following your Involuntary Termination, provided any and all shares of Common
Stock purchased under your Severance-Accelerated Options shall, together with
the exercise price paid for those shares, be held in escrow by the Company. To
the extent your purchased shares are held in escrow, you will have the right to
(i) direct the sale of such shares, provided the sale proceeds are immediately
deposited in escrow, (ii) exercise all voting rights with respect to such shares
and (iii) receive dividends declared on such shares, provided such dividends are
immediately deposited in escrow.
(c) Once the requisite determinations under Paragraph 3(a)
have been made, then to the extent the aggregate Present Value, measured as of
the Change in Control, of (1) the Option Parachute Payment attributable to your
Severance-Accelerated Options (or installments thereof) plus (2) your Severance
Payment would, when added to the Present Value of all your Other Parachute
Payments (including the Option Parachute Payment attributable to your
Acquisition-Accelerated Options), exceed the Parachute Limit, the following
reductions to the benefits otherwise payable to you hereunder shall be made:
First, your Severance Payment shall be reduced.
Then, any outstanding Severance-Accelerated Options shall
immediately terminate and cease to be exercisable. If there is
more than one such Option outstanding, then the
Severance-Accelerated Options with the lowest option spread
shall be the first to terminate.
Finally, to the extent one or more of your outstanding
Severance-Accelerated Options (or installments thereof) shall
have been exercised following your Involuntary Termination,
such exercises shall be rescinded (with the
Severance-Accelerated Options with the lowest option spread to
be the first rescinded) by refunding to you the exercise price
paid for the purchased shares and returning those shares (plus
any cash dividends paid thereon) to the Company. To the extent
the shares purchased under such accelerated Options (or
accelerated installments thereof) shall have been sold while
held in escrow, the sale proceeds attributable to those shares
shall be allocated as follows: first an amount not to exceed
the exercise price you paid for such shares shall be refunded
to you, and then the balance of the proceeds (together with
any cash dividends paid on those shares) shall be returned to
the Company.
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To the extent any shares or cash proceeds remain in the escrow
account under Paragraph 3(b) above after the reductions specified in this
subparagraph (c) have been made, those shares or proceeds shall be promptly
distributed to you.
(d) Notwithstanding any provision to the contrary set forth in
the preceding subparagraphs of this Paragraph 3, the aggregate Present Value of
your Severance Payment and the Option Parachute Payment attributable to your
Severance-Accelerated Options shall not be reduced below that amount (if any)
which, when added to the Present Value of all the Other Parachute Payments to
which you are entitled, would nevertheless qualify as reasonable compensation
within the standards established under Code Section 280G(b)(4).
(e) This Paragraph 3 shall in all events be interpreted in
such manner as shall avoid the imposition of excise taxes under Code Section
4999, and the disallowance of deductions under Code Section 280G(a) with respect
to any of the benefits paid pursuant to Paragraph 2 of this letter agreement.
4. DEATH. Should you die before the Severance Payment (if any)
to which you become entitled under Paragraph 2(b) of this letter agreement is
actually made, then such payment will be made, on the due date hereunder had you
survived, to the executors or administrators of your estate. Should you die
before you exercise your Severance-Accelerated Options (if any), then such
Options may (subject to applicable escrow requirements under Paragraph 3(b)) be
exercised, within twelve (12) months after your death, by the executors or
administrators of your estate or by persons to whom the Options are transferred
pursuant to your will or in accordance with the law of descent and distribution.
In no event, however, may any such Severance-Accelerated Option be exercised
after the specified expiration date of the option term.
5. GENERAL CREDITOR STATUS. The Severance Payment to which you
may become entitled under Paragraph 2(b) shall be paid, when due, from the
general assets of the Company, and no trust fund, escrow arrangement or other
segregated account shall be established as a funding vehicle for such payment.
Accordingly, your right (or the right of the executors or administrators of your
estate) to receive such Severance Payment shall at all times be that of a
general creditor of the Company and shall have no priority over the claims of
other general creditors.
6. INDEMNIFICATION. The indemnification provisions for
Officers and Directors under the Measurex Bylaws shall (to the maximum extent
permitted by law) be extended to you, during the period following your
Involuntary Termination, with respect to any and all matters, events or
transactions occurring or effected during your period of employment with the
Company.
7. TERMINATION. This letter agreement and the severance
benefits payable hereunder will automatically terminate and cease to be
effective at the close of business on December 31, 1999, unless a Change in
Control has in fact been consummated on or before that date.
8. MISCELLANEOUS. The provisions of this letter agreement
shall be binding upon the Company, its successors and assigns (including,
without limitation, the surviving entity or successor
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party resulting from the Change in Control) and shall be construed and
interpreted under the laws of the State of California. This letter agreement
supersedes and terminates all other existing agreements between you and the
Company relating to the subject of severance benefits payable upon a change in
control or ownership of the Company, including (without limitation) your July
31, 1989 letter agreement with the Company on such subject. This letter
agreement may only be amended by written instrument signed by you and an
authorized officer of the Company.
9. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this
Agreement is intended to provide you with any right to continue in the employ of
Company (or any subsidiary) for any period of specific duration or interfere
with or otherwise restrict in any way your rights or the rights of the Company
(or any subsidiary), which rights are hereby expressly reserved by each, to
terminate your employment at any time for any reason whatsoever, with or without
cause.
10. AFFECT UPON POOLING ACCOUNTING. Should there occur a
Change in Control which is expressly conditioned upon the accounting treatment
of such transaction as a pooling of interests under Accounting Principles Board
Opinion No. 16 ("Business Combinations"), and to the extent one or more
severance benefits otherwise payable to you under Paragraph 2 of this letter
agreement would preclude such pooling accounting, then such severance benefit or
benefits shall not become due and payable to you and you hereby waive your
rights and entitlement to those benefits in such case.
11. ATTORNEY FEES. In the event legal proceedings should be
initiated by you or by the Company with respect to any controversy, claim or
dispute relating to the interpretation or application of the provisions of this
letter agreement or any benefits payable hereunder, the prevailing party in such
proceedings will be entitled to recover from the losing party reasonable
attorney fees and costs incurred in connection with such proceedings, including
any fees and costs which would otherwise be chargeable to the prevailing party
under subsection (a)(ii) of Paragraph 3 of this letter agreement in the absence
of such legal proceedings, or in the enforcement or collection of any judgment
or award rendered in such proceedings. For purposes of this Paragraph 11, the
prevailing party means the party determined by the court to have most nearly
prevailed in the proceedings, even if that party does not prevail in all
matters, and does not necessarily mean the party in whose favor the judgment is
actually rendered. If the Company materially breaches any of its obligations
under this letter agreement and fails to cure that breach within thirty (30)
days after written notice from you, you will then be entitled to reimbursement
from the Company for any reasonable expenses and attorney fees you incur in
having the Company subsequently cure that breach, whether or not legal
proceedings are actually commenced in connection with such breach.
Please indicate your acceptance of the foregoing by signing
the enclosed copy of this letter and returning it to the Company.
Very truly yours,
MEASUREX CORPORATION
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By _______________________
Title: ___________________
ACCEPTANCE
I hereby agree to all the terms and provisions of the
foregoing letter agreement governing the severance benefits which may become
payable to me in connection with certain changes in control or ownership of
Measurex Corporation, such acceptance effective as of the date first above
written.
Signature: __________________________
Name: ___________________________
