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EXHIBIT 10.3
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of the first day of January 1997 by and between THE DII GROUP,
INC., a Delaware corporation (the "Corporation"), and Xxxxxx X. Xxxxxxx (the
"Executive").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Corporation (the
"Board") has determined that the Executive is a key executive of the Corporation
or of a direct or indirect subsidiary of the Corporation (a "Subsidiary");
WHEREAS, the Board considers the establishment and maintenance
of a sound and vital management to be essential to protecting and enhancing the
best interests of the Corporation and its shareholders;
WHEREAS, the possibility of an unsolicited tender offer or
other takeover bid for the Corporation and the consequent change of control, and
the uncertainty and questions which such possibility may raise among management,
may result in the departure or distraction of the Executive to the detriment of
the Corporation and its shareholders;
WHEREAS, the Corporation desires to provide the Executive with
severance benefits in the event that the Executive's employment with the
Corporation or with a Subsidiary, as the case may be, is terminated under
certain circumstances in order to assure a continuing dedication by the
Executive to his duties notwithstanding the occurrence of a tender offer or
other takeover bid for the Corporation and, particularly, to ensure that the
Executive will be in a position to assess and advise the Board whether proposals
from third persons would be in the best interests of the Corporation and its
shareholders without being influenced by the uncertainties of his own situation;
WHEREAS, the Executive has agreed that in addition to his
regular duties he will, in the best interests of the Corporation and its
shareholders, assist the Corporation in the evaluation of any such takeover or
tender offer proposal or potential combination or acquisition and render such
other assistance in connection therewith as the Board may determine to be
appropriate, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. Services During Certain Events.
In the event any Person begins a tender or exchange offer,
circulates a proxy to shareholders, or takes other steps seeking to effect a
Change of Control (as hereinafter defined), the Executive will not voluntarily
terminate his employment with the Corporation or a Subsidiary, as the case may
be, and will continue to render services to the Corporation or such Subsidiary
until such Person has abandoned or terminated his or its efforts to effect a
Change of Control or until 180 days after a Change of Control has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership,
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group, association or other "person," as such term is used in Sections 13 and 14
of the Securities Exchange Act of 1934.
2. Definition of Change of Control.
(a) A Change of Control shall be deemed to have taken
place upon the occurrence of any of the following events:
(i) any Person is, becomes, or has the right to
become the beneficial owner, directly or indirectly, of securities of the
Corporation representing 20% or more of the shares of Common Stock of the
Corporation then outstanding, whether or not such Person continues to be the
beneficial owner of securities representing 20% or more of the outstanding
shares of Common Stock; or
(ii) as the result of, or in connection with, any
tender or exchange offer, merger or other business combination, sale of assets
or contested election, any announcement of an intention to make any of the
foregoing transactions, or any combination of the foregoing transactions (a
"Transaction"), those persons who were directors of the Corporation before the
Transaction and were otherwise unaffiliated with any other party to the
Transaction shall cease to constitute a majority of the Board of Directors of
the Corporation or any successor to the Corporation (a "Change in the Board");
or
(iii) the shareholders of the Corporation approve any
merger, consolidation, reorganization, liquidation, dissolution, or sale of all
or substantially all of the Corporation's assets in which neither the
Corporation nor a successor resulting from a change in domicile or form of
organization will survive as an independent, publicly owned corporation.
(b) Notwithstanding anything herein to the contrary, no
Change of Control shall be deemed to have occurred by virtue of any event which
results in any of the following:
(i) the acquisition, directly or indirectly, of 20%
or more of the outstanding shares of Common Stock of the Corporation by (A) the
Executive or a Person including the Executive, (B) the Corporation, (C) a
Subsidiary, or (D) any employee benefit plan of the Corporation or of a
Subsidiary, or any entity holding securities of the Corporation recognized,
appointed, or established by the Corporation or by a Subsidiary for or pursuant
to the terms of such plan; or
(ii) a Change in the Board resulting from any
Transaction in which the Executive or a Person including the Executive
participates directly or indirectly with any party to the Transaction other than
the Corporation.
3. Termination After Change of Control.
(a) No benefits shall be payable under this Agreement
except in the event of a Termination. For purposes of this Agreement, a
Termination shall be deemed to have occurred if any of the following events
occur within 18 months after a Change of Control:
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(i) The termination by the Corporation or a
Subsidiary, as the case may be, of the Executive's employment for any reason
other than Cause (as defined herein), death, Disability (as defined herein), or
retirement at or after his normal retirement date; or
(ii) The termination by the Executive of the
Executive's employment for Good Reason. Good Reason shall be deemed to exist
upon the occurrence, without the Executive's express written consent, of any of
the following events:
(A) A significant reduction or alteration in the
duties and responsibilities held by the Executive prior to the Change of
Control, or a change in the Executive's reporting responsibilities, titles or
status in effect immediately prior to the Change of Control, or any removal of
the Executive from or any failure to reelect the Executive to any of such
positions, except in connection with the termination of the Executive's
employment for Cause, Disability, retirement at or after his normal retirement
date, or death; or
(B) The reduction of the Executive's base salary
and/or incentive compensation in effect on the date hereof or as the same may be
increased from time to time, which is not remedied within 30 days after receipt
by the Corporation of written notice from the Executive; or the Executive's
being required to be based in any location that is more than thirty (30) miles
from the location at which the Executive performed his duties prior to the
Change of Control, except for required travel on business to an extent
substantially consistent with the Executive's present business travel
obligations; or
(C) The failure by the Corporation to continue in
effect any benefit or compensation plan in which the Executive is participating
immediately prior to the Change of Control, the taking of any action by the
Corporation which would adversely affect the Executive's participation in or
materially reduce the Executive's benefits under any of such plans, or deprive
the Executive of any material fringe benefit enjoyed by the Executive prior to
the Change of Control, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan with the
Executive, or the failure by the Corporation to provide the Executive with
vacation time to which the Executive is then entitled in accordance with the
Corporation's normal vacation policy in effect on the date hereof; or
(D) Any material breach by the Corporation of any
provision of this Agreement.
(b) The termination of the Executive's employment shall
be deemed to have been for Cause only if the termination shall have been based
on (i) the Executive having willfully and continually failed to perform
substantially his duties with the Corporation (other than such failure resulting
from incapacity due to physical or mental illness, death or disability) after a
written demand for substantial performance has been delivered to the Executive
by the Board or the President of the Corporation which specifically identifies
the manner in which the Executive is not substantially performing his duties; or
(ii) the Executive having willfully engaged in conduct which is materially and
demonstrably injurious to the Corporation. For purposes of this section, no act,
or failure to act, on the part of the Executive shall be considered "willful"
unless done, or omitted to be done, by the Executive in bad faith and without
reasonable belief that such action or omission was in, or not opposed to, the
best interests of the
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Corporation. Any act or failure to act based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of counsel to the
Corporation shall be conclusively presumed to be done or omitted to be done by
the Executive in good faith and in the best interests of the Corporation.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Executive a copy of a written resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Board at a
meeting called and held for that purpose after reasonable notice to and
opportunity for the Executive and the Executive's counsel to be heard by the
Board, finding that in the good faith opinion of the Board the Executive was
guilty of the conduct set forth above in (i) or (ii) and specifying the
particulars thereof in detail.
(c) Disability shall mean the Executive's absence from
his duties on a full time basis for one hundred eighty (180) consecutive days as
a result of his incapacity due to physical or mental illness, unless within
thirty (30) days after notice of termination due to disability is given to the
Executive following such absence he shall have returned to the full time
performance of his duties.
4. Severance Benefits.
Upon Termination and upon the written demand of the Executive,
the Executive shall be entitled to, and the Corporation shall provide the
Executive immediately with, the following severance benefits:
(a) Payment to the Executive as compensation for
services rendered to the Corporation a lump sum cash amount (subject to any
applicable payroll or other taxes required to be withheld) equal to the sum of
(i) the highest annual base salary received by the Executive during the
five-year period prior to the Change of Control (or such shorter period that the
Executive was employed by the Corporation or a Subsidiary) or, if the amount
would be greater, the highest annualized base salary that the Executive would
have received based on the highest base annual salary rate in effect during such
period and (ii) the highest annual bonus received by the Executive during such
five-year period, in each case calculated without regard to amounts deferred
under the qualified and non-qualified plans of the Corporation. In the event
that there are fewer than 12 whole or partial months remaining from the date of
Termination to the Executive's normal retirement date, the amount to be paid
hereunder will be reduced by multiplying it by a fraction the numerator of which
is the number of whole or partial months so remaining and the denominator of
which is 12.
(b) The Executive's participation in the life, accident
and health insurance plans of the Corporation prior to the Change of Control
shall be continued, or equivalent benefits provided by the Corporation, at no
direct cost to the Executive, for a period of one year from the date of
Termination (or until his normal retirement date, whichever is shorter.)
5. Stock Options and Other Plans.
The rights of the Executive at the date of Termination under
the Corporation's stock option, stock incentive, savings, cash incentive and
retirement plans or programs, including, but not limited to, any terminating
distributions and vesting of rights under such plans
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or programs shall be governed by the terms of those respective plans or programs
and any agreements between the Corporation and the Executive with respect
thereto.
6. Term.
This Agreement shall commence on the date hereof and shall
continue in effect until the one year anniversary thereof; provided, however,
that commencing on the date of such anniversary and each anniversary thereafter,
the term of this Agreement shall automatically be extended for one additional
year unless at least 90 days prior to the last day of any term, the Corporation
or the Executive shall have given notice that this Agreement shall not be
extended; and provided, further, that this Agreement shall continue in effect
for a period of eighteen months beyond the term provided herein if a Change of
Control of the Corporation shall have occurred during such term. Notwithstanding
anything herein to the contrary, this Agreement shall terminate if the Executive
or the Corporation (or a Subsidiary) terminates the employment of the Executive
prior to a Change of Control.
7. Indemnification.
If litigation or arbitration shall be brought to enforce or
interpret any provision contained herein, whether by the Corporation, the
Executive, or any other person, the Corporation will indemnify the Executive for
any reasonable attorneys' fees and disbursements incurred by the Executive in
such litigation or arbitration, and hereby agrees to pay pre-judgment interest
on any money judgment obtained by the Executive in such litigation or
arbitration calculated at the prime interest rate charged by Chemical Bank, New
York, New York in effect from time to time from the date that payment to the
Executive should have been made under this Agreement.
8. Confidentiality.
The Executive shall retain in confidence any proprietary or
confidential information known to the Executive concerning the Corporation and
its subsidiaries and their respective businesses so long as such information is
not publicly available.
9. Taxes.
(a) Notwithstanding anything herein to the contrary, if
any of the payments provided for under Section 4 of this Agreement, calculated
without regard to any other payments or benefits which the Executive has the
right to receive from the Corporation (including acceleration of vesting of
options and performance shares), would constitute a "parachute payment" (as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code")), the payments pursuant to Section 4 of this Agreement shall be reduced
to the largest amount as would result in no payments or portions thereof being
nondeductible by the Corporation under Section 280G of the Code, calculated
without regard to any other payments which the Executive has the right to
receive from the Corporation (including acceleration of vesting of options and
performance shares). In the event that the Executive and the Corporation dispute
whether there should be any reduction in payments pursuant to this Section 9,
the determination of whether such reduction is necessary shall be made by an
independent accounting firm or law firm mutually acceptable to the Executive and
the
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Corporation and such determination shall be conclusive and binding on the
Corporation and the Executive.
(b) In the event that any payment or benefit to the
Executive or for his benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with the Corporation or a change in ownership or
effective control of the Corporation or of a substantial portion of its assets
(each a "Payment" and collectively, the "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive will be entitled to receive
an additional payment (a "Gross-Up Payment"), such that the net amount retained
by the Executive, after deduction and/or payment of any Excise Tax on the
Payments and the Gross-Up Payment and any federal, state and local income tax on
the Gross-Up Payment (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file timely a tax
return or pay taxes shown due on his return, imposed with respect to such
taxes), shall be equal to the Payments. Notwithstanding the foregoing, the
amount of the Gross-Up Payment otherwise required pursuant to Section 9(b) of
this Agreement shall be reduced by an amount equal to the Gross-Up Payment (if
any) that would have been required under the preceding portion of Section 9(b)
of this Agreement if no payments or benefits arising from or relating to the
acceleration, vesting or lapsing of restrictions on incentive awards (including,
without limitation, stock options, performance shares and restricted stock) had
been made.
(c) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount of such Gross-Up
Payment shall be made at the Corporation's expense by an accounting firm
selected by the Corporation and reasonably acceptable to the Executive which is
designated as one of the five largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Corporation and the Executive within five days of the
termination date if applicable, or such other time as requested by the Executive
(provided the Executive reasonably believes that any of the Payments may be
subject to the Excise Tax) and if the Accounting Firm determines that no Excise
Tax is payable by the Executive as provided in Section 9(b) above, it shall
furnish the Executive with an opinion reasonably acceptable to the Executive to
such effect. Within ten days of the delivery of the Determination to the
Executive, the Executive shall have the right to dispute the Determination (the
"Dispute"). The Gross-Up Payment, if any, as determined pursuant to this
Paragraph 9(c) shall be paid by the Corporation to the Executive within five
days of the receipt of the Accounting Firm's determination. The existence of the
Dispute shall not in any way affect the Executive's right to receive the
Gross-Up Payment in accordance with the Determination. Upon the final resolution
of a Dispute, the Corporation shall promptly pay to the Executive any additional
amount required by such resolution. If there is no Dispute, the Determination
shall be binding, final and conclusive upon the Corporation and the Executive
subject to the application of Section 9(d) below.
(d) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion
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thereof) which should have been paid will not have been paid (an
"Underpayments"). An Underpayment shall be deemed to have occurred (i) upon
notice (formal or informal) to the Executive from any governmental taxing
authority that the Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior taxable year) may be
increased by reason of the imposition of the Excise Tax on a Payment or Payments
with respect to which the Corporation has failed to make a sufficient Gross-Up
Payment, (ii) upon a determination by a court, (iii) by reason of a
determination by the Corporation (which shall include the position taken by the
Corporation, together with its consolidated group, on its federal income tax
return) or (iv) upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall promptly notify the
Corporation and the Corporation shall promptly, but in any event, at least five
days prior to the date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up Payment equal to
the amount of the Underpayment plus an amount that, net of federal, state and
local income taxes, is equal to any interest and penalties (other than interest
and penalties imposed by reason of the Executive's failure to file timely a tax
return or pay taxes shown due on the Executive's return) imposed on the
Underpayment. An Excess Payment shall be deemed to have occurred upon a Final
Determination (as hereinafter defined) that the Excise Tax shall not be imposed
upon a Payment or Payments (or portion thereof) with respect to which the
Executive had previously received a Gross-Up Payment. A "Final Determination"
shall be deemed to have occurred when the Executive has received from the
applicable government taxing authority a refund of taxes or other reduction in
the Executive's tax liability by reason of the Excess Payment and upon either
(x) the date a determination is made by, or an agreement is entered into with,
the applicable governmental taxing authority which finally and conclusively
binds the Executive and such taxing authority, or in the event that a claim is
brought before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired or (y) the statute
of limitations period with respect to the Executive's applicable tax return has
expired. If an Excess Payment is determined to have been made, the amount of the
Excess Payment shall be treated as a loan by the Corporation to the Executive
and the Executive shall pay to the Corporation on demand (but not less than 10
days after the determination of such Excess Payment and written notice has been
delivered to the Executive) the amount of the Excess Payment plus interest at an
annual rate equal to the Applicable Federal Rate provided for in Section 1274(d)
of the Code from the date the Gross-Up Payment (to which the Excess Payment
relates) was paid to the Executive until the date of repayment to the
Corporation.
(e) Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the Determination, an Excise
Tax will be imposed on any Payment or Payments, the Corporation shall pay to the
applicable government taxing authorities as Excise Tax withholding, the amount
of the Excise Tax that the Corporation has actually withheld from the Payment or
Payments.
10. General.
(a) Obligations of the Corporation. In the event that
the Executive is employed by a Subsidiary, the Corporation while remaining as
primary obligor, may cause such Subsidiary to perform the Corporation's
obligations hereunder.
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(b) Payment Obligations Absolute. The Corporation's
obligation to pay the Executive the amounts due hereunder and to make the
arrangements provided for 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 Corporation
may have against him or anyone else under this Agreement or otherwise. Each and
every payment made hereunder by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto for any reason whatsoever.
In no event shall the Executive be obligated to seek other employment in
mitigation of the amounts payable to the Executive under any of the provisions
of this Agreement, and the obtaining of any such other employment shall in no
event effect any reduction of the Corporation's obligation to make the payments
and arrangements required to be made under this Agreement.
(c) Successors; Binding Agreement.
(i) As used in this Agreement, the Corporation refers
not only to itself but also to its successors by merger or otherwise. The
Corporation will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of its business
and/or assets, by written agreement in binding form and substance, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had occurred. Failure of the Corporation to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement, and shall entitle the Executive to make demand upon and require the
Corporation, if it is not already required to do so, to provide the severance
benefits required by Section 4 above.
(ii) This Agreement shall be binding upon and inure
to the benefit of the Executive and his estate and to the benefit of the
Corporation and any successor to the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the Executive.
(d) Severability. Any provision in this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective, and then only to the extent of such prohibition or
unenforceability without affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
(e) Controlling Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York
without reference to the principles of conflict of laws, except insofar as it
may require application of the corporation law of the State of Delaware.
(f) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered by hand to the other party, or sent by registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective party at
the address stated below or to such other address as the addressee may have
given by a similar notice:
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If to the Executive:
Xxxxxx X. Xxxxxxx
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If to the Corporation:
The DII Group, Inc.
0000 Xxxxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxx, Xxxxxxxx 00000
Attention: Chief Executive Officer
(g) Amendment. This Agreement may be modified or amended
only by an agreement in writing executed by both of the parties hereto.
(h) No Employment. Except as otherwise expressly
provided in this Agreement, this Agreement shall not confer any right or impose
any obligation on the Executive to continue in the employ of the Corporation nor
shall it limit the right of the Corporation or the Executive to terminate the
Executive's employment at any time prior to a Change of Control.
(i) Arbitration. Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in New York, New York by three arbitrators, of which each party
shall appoint one, in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes then in effect. Any arbitrator
not appointed by a party shall be selected from the CPR Panels of Distinguished
Neutrals. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. ss. 1-16. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The Corporation shall bear all costs and expenses
arising in connection with any arbitration proceeding pursuant hereto. The
arbitrators are not empowered to award damages in excess of actual damages.
(j) Conflict in Benefits. This Agreement is not intended
to and shall not repeal or terminate any other written agreement between the
Executive and the Corporation presently in effect or hereafter executed. Any
benefits provided hereunder and not provided under any other written agreement
shall be in addition to the benefits provided by any other written agreement. In
the event that the same type of benefits are covered under this Agreement and
under any other written agreement, the Executive shall have the right to elect
which benefits the Executive shall receive. Such election shall be made in
writing at the same time that the Executive makes his written demand under
Section 4 of this Agreement.
(k) Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, understandings and arrangements, whether
written or oral, between the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first written above.
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Xxxxxx X. Xxxxxxx
THE DII GROUP, INC.
By:
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Name:
Title:
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