1
EXHIBIT 10.5
SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT (the "Agreement"), by and between Aviall,
Inc., a Delaware corporation (the "Company"), and ________________________ (the
"Executive"), dated as of this ____ day of March, 1998.
WHEREAS, the Company considers it to be in the best interests of its
stockholders to xxxxxx the continuous employment of key management personnel,
and believes that the possibility of a reorganization event of the Company and
the uncertainty and questions which it may raise among management may result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders;
WHEREAS, the Board of Directors has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a reorganization event of the
Company;
[WHEREAS, the Executive and the Company are currently parties to both
a Severance Agreement and a Change of Control Severance Agreement, each dated
December 7, 1993 (the "Old Severance Agreements"), and the Executive and the
Company desire that the Old Severance Agreements both be terminated and
superseded by this Agreement.]
NOW, THEREFORE, in consideration of the mutual premises set forth
below and for other good and valuable consideration, in order to induce the
Executive to remain in the employ of the Company, the Company agrees that the
Executive shall receive the severance benefits set forth in this Agreement in
the event his employment with the Company terminates either prior or subsequent
to a "Change of Control" of the Company under the circumstances described
below.
SECTION 1. DEFINITIONS
(a) "Annual Base Salary" shall mean the Executive's gross annual
salary before any deductions, exclusions or any deferrals or contributions
under any Company plan or program, but excluding bonuses, incentive
compensation, employee benefits or any other non-salary form of compensation
(determined without regard to any reduction in Annual Base Salary that occurs
after a Change of Control).
2
(b) "Annual Incentive Payment" shall mean the greater of (i) the
dollar amount of the annual incentive payment that would be payable to the
Executive if the Company reaches its target performance for that year under the
Company's short-term incentive program applicable to the Executive, as if all
requirements for full payment of such incentive had been met (determined
without regard to any reduction in incentive payments that results in "Good
Reason" termination) or (ii) the dollar amount of the annual incentive actually
paid or payable to the Executive for the most recently completed fiscal year.
The Annual Incentive Payment shall include, in addition to cash incentive
payments, the cash value of any restricted stock awards, which shall be equal
to the lesser of (A) the value of any restricted stock when awarded or (B) the
current market value of such restricted stock as of the date of termination.
(c) "Cause" shall mean (i) the willful breach or habitual neglect
of assigned duties related to the Company, including compliance with Company
policies; (ii) conviction (including any plea of nolo contendere) of Executive
of any felony or crime involving dishonesty; (iii) any act of personal
dishonesty knowingly taken by Executive in connection with his responsibilities
as an employee and intended to result in personal enrichment of Executive or
any other person; (iv) bad faith conduct that is materially detrimental to the
Company; (v) inability of Executive to perform Employee's duties due to alcohol
or illegal drug use; (vi) the Executive's failure to comply with any legal
written directive of the Board of Directors of the Company; or (vii) any act or
omission of the Executive which is of substantial detriment to the Company
because of the Executive's intentional failure to comply with any statute, rule
or regulation, except any act or omission believed by Executive in good faith
to have been in or not opposed to the best interest of the Company (without
intent of Executive to gain, directly or indirectly, a profit to which
Executive was not legally entitled) and except that Cause shall not mean bad
judgment or negligence other than habitual neglect of duty.
(d) "Change of Control" shall mean:
(i) The Company is merged or consolidated or reorganized
into or with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of Common Shares immediately
prior to such sale or transfer.
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Exchange Act, disclosing that any person (as the term "person" is used
in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the Voting Power;
3
(iv) The Company files a report or proxy statement with
the Securities and exchange Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or (v) If during any period of two consecutive
years, individuals who at the beginning of any such period constitute the
Directors cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Company's
shareholders of each Director first elected during such period was approved by
a vote of at least two-thirds of the Directors then still in office who were
Directors at the beginning of any such period.
Notwithstanding the foregoing provisions of Subsections (iii)
and (iv) above, a "Change in Control" shall not be deemed to have occurred for
purposes of this Agreement (i) solely because (A) the Company; (B) a
subsidiary; or (C) an Company-sponsored employee stock ownership plan or other
employee benefit plan of the Company either files or becomes obligated to file
a report or proxy statement under or in response to Schedule 13D, Schedule
14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) under the Exchange Act, disclosing beneficial ownership by it of
shares, whether in excess of 20% of the Voting Power or otherwise, or because
the Company reports that a change of control of the Company has or may have
occurred or will or may occur in the future by reason of such beneficial
ownership or (ii) solely because of a change in control of any subsidiary.
(e) "Disability" shall mean the absence of the Executive from the
full-time performance of his duties with the Company for six consecutive months
as a result of incapacity due to physical or mental illness.
(f) "Good Reason" shall mean the assignment to the Executive of
any duties materially inconsistent with the Executive's position, duties,
responsibilities and status with the Company.
(g) "Voluntary Resignation" shall mean any termination of the
Executive's employment with the Company upon such Executive's own initiative,
including Executive's retirement; provided, however, that if such Executive's
salary, title, duties, or benefits are materially reduced subsequent to or in
anticipation of a Change of Control, such resignation by the Executive shall
not be deemed a "Voluntary Resignation" for purposes of this Agreement.
SECTION 2. SEVERANCE PRIOR TO CHANGE OF CONTROL
If, during the term of this Agreement, no Change of Control
has occurred and the Executive's employment with the Company is terminated for
any reason, this Agreement shall not apply and Executive shall be entitled to
receive severance if such payments are appropriate under the Company's then
applicable severance policy. The Company shall not discharge the Executive in
anticipation of a Change of Control to avoid the Company or its successor's
obligations under this Agreement.
4
SECTION 3. SEVERANCE AFTER CHANGE OF CONTROL
If, during the term of this Agreement and following a Change of
Control, Executive's employment with the Company is terminated by the Company
for any reason other than (i) death, (ii) Cause, (iii) Disability, or (iv)
Voluntary Resignation, or if Executive terminates employment with the Company
for Good Reason (such termination of employment collectively referred to herein
as "Change of Control Termination"), Executive shall be entitled to receive,
subject to applicable Federal, state and/or local taxes and other amounts
required by governmental authorities to be withheld or deducted, the payment by
the Company of an amount equal to _______ times the sum of (x) the Executive's
Annual Base Salary as of the date of the Change of Control Termination and (y)
the Executive's Annual Incentive Payment (the "Change of Control Severance
Payment"). The Company shall distribute such Change of Control Severance
Payment to the Executive in a lump sum no later than fifteen (15) business days
after such Change of Control Termination. In addition, the Executive shall be
entitled to receive, for one year after the date of the Change of Control
Termination, health and life insurance benefits substantially identical to
those benefits to which the Executive was entitled immediately prior to the
Change of Control Termination.
SECTION 4. GROSS-UP PAYMENT
(a) In the event it shall be determined that any payment or
distribution by the Company or any of its subsidiaries or affiliates), to or
for the benefit of the Executive in accordance with Section 3 above or
otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock option agreement
(a "Payment"), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (such tax, together
with any interest and penalties, being hereafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-up Payment") in an amount such that, after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed on the Gross-up
Payment, the Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payment.
(b) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-up Payment. Such notification shall be given no
later than fifteen (15) business days after the receipt by the Executive of
such a claim by the Internal Revenue Service.
SECTION 5. VESTING OF STOCK OPTIONS
Vesting of any long-term incentive grants and awards resulting from
employment terminations, regardless of the reason for or date of such
termination, shall be governed by the long-term incentive plan document and any
grant or award agreements and shall not be affected by the terms of this
Agreement.
5
SECTION 6. AT-WILL EMPLOYMENT
The Company and the Executive acknowledge that the Executive's
employment with the Company is and shall continue to be at-will, as defined
under applicable law. If the Executive's employment terminates for any reason,
whether prior to or after a Change of Control, the Executive shall not be
entitled to any payments or benefits, other than as provided by this Agreement
or as may otherwise be available in accordance with the terms of the Company's
then existing employee plans and written policies in effect at the time of
termination.
SECTION 7. EXPIRATION OF AGREEMENT
This Agreement shall terminate, except for any unpaid obligation of
the Company hereunder, two (2) years following the date of a Change of Control
of the Company.
SECTION 8. NO OBLIGATION TO MITIGATE
(a) The Executive is under no obligation to mitigate damages in
the amount of any payment provided herein by seeking other employment or
otherwise.
(b) The amount of any payment provided herein shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by the Executive as the result of the Executive's
employment by another employer after the termination date of the Executive's
employment with the Company.
SECTION 9. ASSIGNMENT, SUCCESSORS
(a) Without limiting the rights of the Executive as provided in
Section 3 hereof, the Company shall require any successor to or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) of all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to the Executive, to expressly and
unconditionally assume and agree to perform this Agreement.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees. If the
Executive dies while any amounts are payable hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there is no such designee, to the Executive's estate.
(c) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
except by will or the laws of descent and distribution.
6
SECTION 10. NOTICE
For purposes 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 mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Aviall, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxx, Xxxxx 00000-0000
If to the Executive:
-----------------------------
-----------------------------
-----------------------------
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be modified, waived or
discharged except in a writing signed and dated by both parties. No waiver by
either party at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time.
(b) This Agreement reflects the entire agreement of the parties
with respect to its subject matter, and supersedes all previous agreements,
[including but not limited to the Old Severance Agreements which Old Severance
Agreements are hereby terminated by the parties hereto.] 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 set forth
expressly in this Agreement.
(c) This Agreement shall be governed and construed in all respects
in accordance with the internal laws of the State of Texas (without giving
effect to principles of conflicts of laws). All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(e) This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
* * * * *
7
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all on the day
and year first written above.
AVIALL, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
The Executive
Name:
-----------------------
