Exhibit 10.4
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this ____ day of ______________, ____ by and between
Xxxxxxxx, Inc., a Minnesota corporation with its principal offices at
Northfield, Minnesota ("Sheldahl") and _________________________________
(the "Executive").
WHEREAS, Xxxxxxxx considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best
interests of Xxxxxxxx and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to Executive's
intimate knowledge of the business and affairs of Xxxxxxxx, its policies,
methods, personnel and problems, a significant contribution to the
profitability, growth and financial strength of Xxxxxxxx; and
WHEREAS, Xxxxxxxx, as a publicly held corporation, recognizes that the
possibility of a Change in Control may exist and that such possibility and the
uncertainty and questions which it may raise among management, may result in
the departure or distraction of the Executive in the performance of the
Executive's duties to the detriment of Xxxxxxxx and its shareholders; and
WHEREAS, Executive is willing to remain in the employ of Xxxxxxxx upon the
understanding that Xxxxxxxx will provide income security if the Executive's
employment is terminated under certain terms and conditions; and
WHEREAS, it is in the best interests of Xxxxxxxx and its stockholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Executive, to their assigned duties without distraction
and to ensure the continued availability to Xxxxxxxx of the Executive in the
event of a Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until August 21, 1999. After August 21,
1999, this Agreement shall automatically renew for successive one-year
periods unless Xxxxxxxx notifies the Executive of termination of the
Agreement at least sixty (60) days prior to the end of the initial term
or any renewal term. Notwithstanding the preceding sentence, if a
Change in Control occurs, this Agreement shall continue in effect for
a period of 36 months from the date of the occurrence of a Change in
Control. Notwithstanding anything herein to the contrary, the
Executive's employment shall be at all times at the will of Xxxxxxxx,
and nothing in this Agreement shall prohibit or limit the right of
Xxxxxxxx or Executive, prior to a Change in Control, to terminate the
employment of Executive for any reason or for no reason.
2. Change in Control. No benefits shall be payable hereunder unless there
shall have been a Change in Control, as set forth below.
(a) For purposes of this Agreement, a "Change in Control" of Xxxxxxxx
shall mean a change in control which would be required to be reported
in response to Item 1 of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
Xxxxxxxx is then subject to such reporting requirement, including,
without limitation, if:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
Xxxxxxxx representing 20% or more of the combined voting power of
Xxxxxxxx'x then outstanding securities;
(ii) there ceases to be a majority of the Board of Directors comprised of:
(A) individuals who on the date hereof constituted the Board of
Xxxxxxxx, and (b) any new director who subsequently was elected
or nominated for election by a majority of the directors who held
such office immediately prior to a Change in Control; or
(iii) Xxxxxxxx disposes of at least 75% of its assets, other than to an
entity owned 50% or greater by Xxxxxxxx or any of its subsidiaries.
(b) A Change in Control which arises from a transaction or series of
transactions which are not authorized, recommended or approved by
formal action taken by the Board of Directors as determined in Section
2(a)(ii) above shall be referred to as an "Unapproved Change in
Control." A Change in Control which has been authorized, recommended
or approved by the Board of Directors as determined in Section 2(a)
(ii) above shall be referred to as an "Approved Change in Control."
(c) Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a Change in Control of Xxxxxxxx occurring
after the date hereof, Executive will remain in the employ of Xxxxxxxx
for a period of 12 months from the occurrence of such Change in Control
of Xxxxxxxx.
3. Termination Following Change in Control. If a Change in Control shall
have occurred during the term of this Agreement and Executive's
employment is thereafter terminated, Executive shall be entitled to
the benefits provided in subsection 4(d) unless such termination is
(A) because of Executive's Death or Retirement, (B) by Xxxxxxxx for
Cause or Disability, or (C) by Executive other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due to
physical or mental illness, the Executive shall have been absent from
the full-time performance of Executive's duties with Xxxxxxxx for six
consecutive months, and within 30 days after written Notice of
Termination is given the Executive shall not have returned to the full-
time performance of the Executive's duties, Xxxxxxxx may terminate
Executive's employment for "Disability". Any question as to the
existence of Executive's Disability upon which Executive and Xxxxxxxx
cannot agree shall be determined by a qualified independent physician
selected by Executive (or, if the Executive is unable to make such
selection, it shall be made by any adult member of the Executive's
immediate family), and approved by Xxxxxxxx. The determination of
such physician made in writing to Xxxxxxxx and to Executive shall be
final and conclusive for all purposes of this Agreement. Termination
by Executive of Executive's employment based on "Retirement" shall
mean retirement at or after the date the Executive has attained age 65.
(b) Cause. Termination by Xxxxxxxx of Executive's employment for "Cause"
shall mean: (i) the willful and continued failure of Executive to
perform his essential duties; (ii) the willful engaging by Executive
in illegal conduct, or (iii) gross misconduct materially injurious to
Xxxxxxxx, which, in the case of clause (i) and (iii), the Executive
has not cured, in the sole opinion of the Board, determined in good
faith, within 10 days of receipt of the Notice of Termination.
(c) Good Reason. Executive shall be entitled to terminate his employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without Executive's express written consent, any of the following:
(i) the assignment to Executive of any duties inconsistent with Executive's
status or position with Xxxxxxxx, or a substantial reduction in the
nature or status of Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(ii) a reduction by Xxxxxxxx in Executive's annual base salary in effect
immediately prior to a Change in Control;
(iii) the relocation of Xxxxxxxx'x principal executive offices to a location
more than fifty miles from Northfield, Minnesota or Sheldahl requiring
Executive to be based anywhere other than Xxxxxxxx'x principal
executive offices except for required travel on Xxxxxxxx'x business
to an extent substantially consistent with Executive's prior business
travel obligations;
(iv) the failure by Xxxxxxxx to continue to provide Executive with benefits
a least as favorable to those enjoyed by Executive under any of
Xxxxxxxx'x pension, life insurance, medical, health and accident,
disability, deferred compensation, incentive awards, incentive stock
options, or savings plans in which Executive was participating at the
time of the Change in Control, the taking of any action by Xxxxxxxx
which would directly or indirectly materially reduce any of such
benefits or deprive Executive of any material fringe benefit enjoyed
at the time of the Change in Control, or the failure by Xxxxxxxx to
provide Executive with the number of paid vacation days to which
Executive is entitled at the time of the Change in Control, provided,
however, that Xxxxxxxx may amend any such plan or programs as long as
such amendments do not reduce any benefits to which Executive would
be entitled upon termination;
(v) the failure of Xxxxxxxx to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as
contemplated in Section 5; or
(vi) any purported termination of Executive's employment which is not made
pursuant to a Notice of Termination satisfying the requirements of
subsection (e) below; for purposes of this Agreement, no such purported
termination shall be effective.
(d) Voluntary Termination Deemed Good Reason. Notwithstanding anything
herein to the contrary, Executive may voluntarily terminate his
employment for any reason during the period commencing on the first
anniversary of the Change in Control and ending 30 days thereafter.
If an Unapproved Change in Control occurs, Executive may, in addition
to the opportunity provided in the preceding sentence, voluntarily
terminate his employment for any reason during the period commencing
on the 91st day following a Change in Control and ending on the 180th
day following a Change in Control. Any such termination shall be
deemed "Good Reason" for all purposes of this Agreement.
(e) Notice of Termination. Any purported termination of Executive's
employment by Xxxxxxxx or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 7. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth the facts
and circumstances claimed to provide a basis for termination of
Executive's employment.
(f) Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean:
(i) if Executive's employment is terminated for Disability, 30 days after
Notice of Termination is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties
during such 30 day period); and
(ii) if Executive's employment is terminated pursuant to subsections (b),
(c) or (d) above or for any other reason (other than Disability), the
date specified in the Notice of Termination (which, in the case of a
termination pursuant to subsection (b) above shall not be less than
10 days, and in the case of a termination pursuant to subsection (c)
or (d) above shall not be less than 10 nor more than 30 days,
respectively, from the date such Notice of Termination is given).
(g) Dispute of Termination. If, within 10 days after any Notice of
Termination is given, the party receiving such Notice of Termination
notifies the other party in good faith that a dispute exists concerning
the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement
of the parties, or by a final judgement, order or decree of a court
of competent jurisdiction in accordance with subsection 11(a) (which
is not appealable or the time for appeal therefrom having expired and
no appeal having been perfected); provided, that the date of Termination
shall be extended by a notice of dispute only if such notice is given
in good faith and the party giving such notice pursues the resolution
of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, Xxxxxxxx shall continue to pay Executive
full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, base salary) and continue
Executive as a participant in all compensation, benefit and insurance
plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the dispute is finally resolved
in accordance with this subsection. Amounts paid under this
subsection are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts
under this Agreement.
4. Compensation Upon Termination or During Disability. Following a Change
in Control of Xxxxxxxx, as defined in subsection 2(a), upon termination
of Executive's employment or during a period of Disability, Executive
shall be entitled to the following benefits:
(a) During any period that Executive fails to perform full-time duties with
Xxxxxxxx as a result of a Disability, Xxxxxxxx shall pay Executive the
base salary of the Executive at the rate in effect at the commencement
of any such period, until such time as the Executive is determined to
be eligible for long term disability benefits in accordance with
Xxxxxxxx'x insurance programs then in effect.
(b) If Executive's employment shall be terminated by Xxxxxxxx for Cause or
by Executive other than for Good Reason or Retirement, Xxxxxxxx shall
pay to Executive his full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given and
Xxxxxxxx shall have no further obligation to Executive under this
Agreement.
(c) If Executive's employment shall be terminated by Xxxxxxxx for
Disability or by Executive for Retirement, or by reason of Death,
Xxxxxxxx shall immediately commence payment to the Executive (or
Executive's designated beneficiaries or estate, if no beneficiary is
designated) any and all benefits to which the Executive is entitled
under Xxxxxxxx'x retirement and insurance programs then in effect.
(d) If Executive's employment by Xxxxxxxx shall be terminated (A) by
Xxxxxxxx other than for Cause or Disability or (B) by Executive for
Good Reason, then Executive shall be entitled to the benefits provided
below:
(i) Xxxxxxxx shall pay Executive the Executive's full base salary through
the Date of Termination at the rate in effect at the time the Notice
of Termination is given;
(ii) In lieu of any further salary payments for periods subsequent to the
Date of Termination, Xxxxxxxx shall pay a severance payment (the
"Severance Payment") equal to the amount described in (A) or (B)
below, whichever is applicable: (A) if an Unapproved Change in Control
occurs, 2.99 times the average of the annual compensation paid to
Executive by Xxxxxxxx (or any corporation ("Affiliate") affiliated
with Xxxxxxxx within the meaning of Section 1504 of the Internal
Revenue Code of 1986, as amended (the "Code")) and includable in
Executive's gross income for federal income tax purposes for the five
calendar years (or, if Executive has been employed by Xxxxxxxx for less
than five years, the number of complete calendar years of employment)
(the "Base Period") preceding the earlier of the calendar year in which
a Change in Control of Xxxxxxxx occurred or the calendar year of the
Date of Termination; or (B) if an Approved Change of Control occurs,
1.5 times such compensation. Such average shall be determined in
accordance with the temporary or final regulations promulgated under
Section 280G(e) of the Code. For purposes of this Section 4, except
as provided in the next sentence, compensation payable to Executive by
Xxxxxxxx (or an Affiliate) shall include every type and form of
compensation includable in Executive's gross income for federal income
tax purposes. Compensation shall exclude compensation recognized as
the result of the exercise of stock options or sale of the stocks
acquired or any payments actually or constructively received with
respect to a plan of deferred compensation between Xxxxxxxx and
Executive. The Severance Payment shall be made within 60 days after
the Date of Termination.
(iii) For the period of time after the Date of Termination on which the
Severance Payment is determined in accordance with paragraph (ii)
above, Executive shall be entitled to continue participation in the
life, disability, accident and health insurance benefit plans of
Xxxxxxxx substantially similar to those which the Executive is
receiving or entitled to receive immediately prior to the Notice of
Termination. Xxxxxxxx and Executive shall share the cost associated
with such coverage as if Executive were still actively employed by
Xxxxxxxx. If Executive cannot be covered under any of Xxxxxxxx'x group
plans or policies, Xxxxxxxx shall reimburse Executive for his full cost
of obtaining comparable alternative group or individual coverage
elsewhere, less any contribution that Executive would have been
required to make under Xxxxxxxx'x group plans or policies. Benefits
otherwise receivable by Executive pursuant to this paragraph (iii)
shall be reduced to the extent comparable benefits are actually
received by Executive during such period, and any such benefits
actually received by Executive shall be reported to Xxxxxxxx.
(iv) The Severance Payment shall be reduced by the value of benefits
actually provided in (iii) above and by the amount of any other
payment or the value of any benefit received or to be received by
Executive in connection with the termination of employment or
contingent upon a Change in Control of Xxxxxxxx (whether payable
pursuant to the terms of this Agreement, any other plan, agreement
or arrangement with Xxxxxxxx or an Affiliate) unless (1) Executive
shall have effectively waived receipt or enjoyment of such payment or
benefit prior to the date of payment of the Severance Payment, (2) in
the opinion of tax counsel selected by Xxxxxxxx and acceptable to
executive, such other payment or benefit does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the
Code, or (3) in the opinion of such tax counsel, the Severance Payment
(in its full amount or as partially reduced, as the case may be) plus
all other payments or benefits which constitute "parachute payments"
within the meaning of section 280G(b)(2) of the Code are reasonable
compensation for services actually rendered, within the meaning of
section 290G(b)(4) of the Code, and such payments are deductible by
Xxxxxxxx. The value of any non-cash benefit or any deferred cash
payment shall be determined by Xxxxxxxx in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
(v) If it is established pursuant to a final determination of a court or
an Internal Revenue Service proceeding that, notwithstanding the good
faith of Executive and Xxxxxxxx in applying the terms of this
Subsection 4(d), the aggregate "parachute payments" paid to or for
Executive's benefit are in an amount that would result in any portion
of such "parachute payments" not being deductible by Xxxxxxxx or its
Affiliates by reason of section 280G of the Code, then Executive
shall have an obligation to pay Xxxxxxxx upon demand an amount equal
to the sum of (1) the excess of the aggregate "parachute payments" paid
to or for the Executive's benefit over the aggregate "parachute
payments" that would have been paid to or for the Executive's benefit
without any portion of such "parachute payments" not being deductible
by reason of section 280G of the Code; and (2) interest on the amount
set forth in clause (1) of this sentence at the applicable Federal
rate (as defined in section 1274(d) of the Code) from the date of
Executive's receipt of such excess until the date of such payment.
(vi) The Severance Payment shall be in lieu of and offset the amount of
any payment to which the Executive may be entitled to in connection
with the termination of employment pursuant to the provisions of
Xxxxxxxx'x Xxxxxxxxx Pay Plan, Document No. HR04.14, as amended from
time to time, or any successor to such policy.
(e) Executive shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by
Executive as the result of employment by another employer or by
retirement benefits after the Date of Termination, or otherwise
except as specifically provided in this Section 4.
(f) In addition to all other amounts payable to Executive under this
Section 4, Executive shall be entitled to receive all benefits payable
to the Executive under the Xxxxxxxx, Inc. Employee Savings Plan and
any other plan or agreement relating to retirement benefits or
otherwise generally applicable to executive employees.
5. Employee Agreement. Executive entered into an Employee Agreement with
Xxxxxxxx in May 1996. The Employee Agreement contains certain
provisions regarding confidentiality and assignment of inventions
and non-compete provisions. If there is an Unapproved Change in
Control and thereafter Executive's employment with Xxxxxxxx shall be
terminated (A) by Xxxxxxxx other than for Cause or Disability, or (B)
by Executive for Good Reason (other than under Section 3(d) of this
Agreement), then the Executive shall be released from his non-compete
obligations under Section IV.B of the Employee Agreement. If there
is an Approved Change in Control and thereafter Executive's employment
with Xxxxxxxx shall be terminated (A) by Xxxxxxxx other than for Cause
or Disability, or (B) by Executive for Good Reason (other than under
Section 3(d) of this Agreement), then the Executive shall be released
from his non-compete obligations under Section IV.B of the Employee
Agreement following 12 months from the Date of Termination. All other
obligations of Executive under the Employee Agreement shall continue.
The Severance Payment shall constitute an offset against payments to
which Executive may be entitled to in connection with the Employee
Agreement and acceptance of such Severance Payment shall constitute
a waiver of such payments required under the Employee Agreement but
only up to the amount of the Severance Payment.
6. Funding of Payments. In order to assure the performance by Xxxxxxxx
or its successor of its obligations under this Agreement, Xxxxxxxx may
deposit in trust an amount equal to the maximum payment that will be
due the Executive under the terms hereof. Under a written trust
instrument, the Trustee shall be instructed to pay to the Executive
(or the Executive's legal representative, as the case may be) the
amount to which the Executive shall be entitled under the terms hereof,
and the balance, if any, of the trust not so paid or reserved for
payment shall be repaid to Xxxxxxxx. If Xxxxxxxx deposits funds in
trust, any payment therefrom shall be made within five days after the
occurrence of any event giving rise to Xxxxxxxx'x obligation to make
such payment hereunder. If and to the extent there are not amounts
in trust sufficient to pay Executive under this Agreement, Xxxxxxxx
shall remain liable for any and all payments due to Executive. In
accordance with the terms of such trust, at all times during the term
of this Agreement Executive shall have no rights, other than as an
unsecured general creditor of Xxxxxxxx, to any amounts held in trust
and all trust assets shall be general assets of Xxxxxxxx and subject
to the claims of creditors of Xxxxxxxx.
7. Successors; Binding Agreement.
(a) Xxxxxxxx will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of Xxxxxxxx to expressly assume and
agree to perform this Agreement in the same manner and to the same
extent that Xxxxxxxx would be required to perform it if no such
succession had taken place. Failure of Xxxxxxxx to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle
Executive to compensation from Xxxxxxxx in the same amount and on the
same terms as he would be entitled hereunder if he terminated his
employment for Good Reason following a Change in Control, except that
for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, successors, heirs, and
designated beneficiaries. If executive should die while any amount
would still be payable to Executive hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Executive's designated beneficiaries, or, if there is no such
designated beneficiary, to the Executive's estate.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States registered or certified mail, return receipt requested,
postage pre-paid, addressed to the last known residence address of the
Executive or in the case of Xxxxxxxx, to its principal office to the
attention of each of the then directors of Xxxxxxxx with a copy to
its Secretary, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
9. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the parties. No waiver by either party
thereto at anytime of any breach by the other party to this Agreement
of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or
similar time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of
Minnesota.
10. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceablity of any other
provision of this Agreement, which shall remain in full force and
effect.
11. Arbitration and Award of Attorneys' Fees.
(a) Any dispute arising between the parties relating to this Agreement
shall be resolved by binding arbitration held in the City of
Minneapolis pursuant to the Rules of the American Arbitration
Association, except as hereinafter expressly modified. If the
disputing and responding parties are unable to agree upon a resolution
within forty-five business days after the responding party's receipt
of written notice from the disputing party setting forth the nature
of the dispute, within the following ten business days the disputing
and responding parties shall select a mutually acceptable single
arbitrator to resolve the dispute or, if the parties fail or are
unable to do so, each shall within the following ten business days
select a single arbitrator, and the two so selected shall select a
third arbitrator within the following ten business days. Such single
arbitrator or, as the case may be, panel of three arbitrators acting
by majority decision, shall resolve the dispute within sixty days
after the date such arbitrator, or the last of them so selected, is
selected, or as soon thereafter as practicable. If either party
refuses or fails to select an arbitrator within the time therefor,
the other party may do so on such refusing or failing party's behalf.
The arbitrators shall have no power to award any punitive or exemplary
damages but may construe or interpret but shall not ignore or vary
the terms of this Agreement and shall be bound by controlling law.
The parties acknowledge the Executive's failure to comply with any
confidentiality, non-solicit, and non-compete provisions of any
agreement to which the Executive is bound will cause immediate and
irreparable injury to Xxxxxxxx and that therefore the arbitrators,
or a court of competent jurisdiction if an arbitration panel cannot
be immediately convened, will be empowered to provide injunctive
relief, including temporary or preliminary relief, to restrain any
such failure to comply. The arbitration award or other resolution
may be entered as a judgment at the request of the prevailing party
by any court of competent jurisdiction in Minnesota or elsewhere.
(b) In the event Xxxxxxxx fails to pay Executive any amounts owing to
Executive under this Agreement or to provide Executive any benefits
to which Executive is ultimately determined, by settlement, mediation,
arbitration, or by any court or other decision making body with
jurisdiction, to be entitled to under this Agreement, Xxxxxxxx shall
pay the legal expenses (including reasonable attorneys' fees, court
costs and other out-of-pocket expenses), incurred by Executive to
enforce his rights under this Agreement and collect or obtain such
amounts or benefits.
12. Prior Agreement. This Agreement supersedes and replaces in its
entirety all prior agreements related to a change in control of
Xxxxxxxx, including any prior Employment Agreement between Xxxxxxxx
and Executive.
XXXXXXXX, INC.
By /S/ Xxxxx X. Xxxxxxx
President and Chief Executive Officer
