MICROCHIP TECHNOLOGY INCORPORATED CHANGE OF CONTROL SEVERANCE AGREEMENT
EXHIBIT
10.2
MICROCHIP
TECHNOLOGY INCORPORATED
This
Change of Control Severance Agreement (the “Agreement”) is made and entered into
by and between _______________ (the “Employee”) and Microchip Technology
Incorporated (the “Company”), effective as of __________________ (the “Effective
Date”).
RECITALS
1. It
is expected that the Company from time to time will consider the possibility
of
an acquisition by another company or other change of control. The
Board of Directors of the Company (the “Board”) recognizes that such
consideration can be a distraction to the Employee and can cause the Employee
to
consider alternative employment opportunities. The Board has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication and objectivity
of
the Employee, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined herein) of the Company.
2. The
Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his or her
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
3. The
Board believes that it is imperative to provide the Employee with certain
severance benefits upon the Employee’s termination of employment following a
Change of Control. These benefits will provide the Employee with
enhanced financial security and incentive and encouragement to remain with
the
Company notwithstanding the possibility of a Change of Control.
4. Certain
capitalized terms used in the Agreement are defined in Section 5
below.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows:
1. Term
of Agreement. This Agreement shall terminate upon the date that
all of the obligations of the parties hereto with respect to this Agreement
have
been satisfied.
2. At-Will
Employment. The Company and the Employee acknowledge that the
Employee’s employment is and shall continue to be at-will, as defined under
applicable law, except as may otherwise be specifically provided under the
terms
of any written formal employment agreement or offer letter between the Company
and the Employee (an “Employment Agreement”). If the Employee’s
employment terminates prior to the Change of Control Period, the Employee shall
not be entitled to any payments, benefits, damages, awards or compensation
other
than as provided by this Agreement, or under his or her Employment Agreement
if
any exists in writing, or as may otherwise be available in accordance with
the
Company’s established employee plans.
3. Severance
Benefits.
(a) Benefits
Following Termination During Change of Control Period. Upon
termination of employment for any reason other than for “Cause” (as defined
herein) during the Change of Control Period the Employee shall receive the
following benefit:
(i) Equity
Compensation Acceleration. One hundred percent (100%) of the
Employee’s outstanding stock options, stock appreciation rights, restricted
stock units and other Company equity compensation awards (the “Equity
Compensation Awards”) shall immediately vest and become
exercisable. Any Company stock options and stock appreciation rights
shall remain exercisable following the Employee’s employment termination for the
period prescribed in the respective option and stock appreciation right
agreements.
(b) Involuntary
Termination Other than for Cause, Voluntary Termination for Good Reason During
the Change of Control Period. If within the three-month period
preceding or any time following a Change of Control (the “Change of Control
Period”), (i) the Employee terminates his or her employment with the Company (or
any parent or subsidiary of the Company) for “Good Reason” (as defined herein)
or (ii) the Company (or any parent or subsidiary of the Company) terminates
the
Employee’s employment for other than “Cause” (as defined herein), and the
Employee signs, and does not revoke, a standard release of claims with the
Company in a form acceptable to the Company (the “Release”), then the Employee
shall receive the following severance from the Company:
(i) Severance
Payment. The Employee shall be entitled to receive a lump-sum
severance payment (less applicable withholding taxes) equal to one hundred
percent of the Employee’s annual base salary (as in effect immediately prior to
(A) the Change of Control, or (B) the Employee’s termination of employment,
whichever is greater) plus one hundred percent (100%) of the Employee’s target
bonuses for which the Employee was or would have been eligible (for the fiscal
year in which the Change of Control or the Employee’s termination occurs,
whichever is greater.)
(ii) Continued
Employee Benefits. Reimbursement of Employee’s health, dental,
vision, and life insurance coverage at the same level of coverage as was
provided to such Employee immediately prior to termination and at the same
ratio
of Company premium subsidy to Employee premium payment as was in effect
immediately prior to termination (the “Company-Paid Coverage”). If
such coverage included the Employee’s eligible dependents immediately prior to
termination, such dependents shall also be covered at Company
expense. Company-Paid Coverage shall continue until the earlier of
(A) twelve (12) months from the date of termination, or (B) the date upon which
the Employee and his dependents become covered under another employer’s group
health, dental, vision, long-term disability or life insurance plans that
provide Employee and his dependents with comparable benefits and levels of
coverage; provided, however that if such reimbursement results in the imposition
of additional taxes to the Employee under Section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”), Employee shall be paid an additional full
gross-up for such additional taxes, so that he is in the same position, on
an
after-tax basis, as if such taxes did not apply. For purposes of
Title X of the Consolidated Budget Reconciliation Act of 1985 (“COBRA”), the
date of the “qualifying event” for Employee and his or her dependents shall be
the date upon which the Company-Paid Coverage terminates. Coverage in
this section is dependent on the valid and timely election of continued COBRA
coverage under applicable law.
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(c) Timing
of Severance Payments. Except as otherwise provided herein, the
severance payment to which Employee is entitled shall be paid by the Company
to
Employee in cash and in full, not later than ten (10) calendar days after the
effective date of the Release. If the Employee should die before all
amounts have been paid, such unpaid amounts shall be paid in a lump-sum payment
(less any withholding taxes) to the Employee’s designated beneficiary, if
living, or otherwise to the personal representative of the Employee’s
estate.
(d) Voluntary
Resignation. If the Employee’s employment with the Company
terminates during the Change of Control Period voluntarily by the Employee
other
than for Good Reason, then the Employee shall not be entitled to receive
severance or other benefits except for those described in 3(a)(i) and as may
then be established under the Company’s then existing severance and benefits
plans and practices or pursuant to other written agreements with the
Company.
(e) Termination
for Cause; Termination Prior to Change of Control Period. In the
event the Employee’s employment is terminated for Cause, or for any reason prior
to the Change of Control Period, then the Employee shall not be entitled to
receive severance and any other benefits except as may then be established
under
the Company’s existing written severance and benefits plans and practices or
pursuant to other written agreements with the Company.
(f) Internal
Revenue Code Section 409A. Notwithstanding any other
provision of this Agreement, if the Employee is a “key employee” under Code
Section 409A and a delay in making any payment or providing any benefit under
this Agreement is required by Code Section 409A and any Treasury Regulations,
and IRS guidance thereunder, or necessary in the good faith judgment of the
Company, to avoid the Employee incurring additional tax under Section 409A,
such
payments shall not be made until the end of six (6) months following the date
of
the Employee’s separation from service in accordance with Code Section
409A.
4. Golden
Parachute Excise Tax.
(a) Parachute
Payment Full Gross-Up. In the event that the benefits provided
for in this agreement or otherwise payable to Employee, including vesting
acceleration upon a change of control pursuant to Company equity plans or any
Employment Agreement which may exist (i) constitute “parachute payments”
within the meaning of Section 280G of the Code, (ii) are subject to the
excise tax imposed by Section 4999 of the Code, then (A) the benefits shall
be
delivered in full, and (B) the Employee shall receive a payment from the Company
sufficient to pay such excise tax plus an additional payment from the Company
sufficient to pay the excise tax and federal and state income and employment
taxes arising from the payments made by the Company to Employee pursuant to
this
sentence.
(b) 280G
Determinations. Unless the Company and the Employee otherwise agree in
writing, the determination of Employee’s excise tax liability and the amount
required to be paid under this Section 4 shall be made in writing by a national
“Big Four” accounting firm selected by the Company (the
“Accountants”). For purposes of making the calculations required by
this Section 4, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999
of
the Code. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The
Company
shall bear all costs the Accountants may reasonably incur in connection with
any
calculations contemplated by this Section 4.
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5. Definition
of Terms. The following terms referred to in this Agreement shall
have the following meanings:
(a) Cause. “Cause”
shall mean (i) a willful act of personal dishonesty taken by the Employee
in connection with his responsibilities as an employee and intended to result
in
substantial personal enrichment of the Employee, (ii) Employee being
convicted of, or pleading nolo contendere to, a felony that is materially and
demonstrably injurious to the Company, and (iii) following delivery to the
Employee of a written demand for performance from the Company which describes
the basis for the Company’s reasonable belief that the Employee has not
substantially performed his duties, continued violations by the Employee of
the
Employee’s obligations to the Company which are demonstrably willful and
deliberate on the Employee’s part.
For
the
purposes of this Section 5(a), no act or failure to act shall be considered
“willful” unless done or omitted to be done in bad faith and without reasonable
belief that the act or omission was in or not opposed to the best interests
of
the Company. Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board of Directors of the Company
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done or omitted to be done in good faith and in the best
interests of the Company. Notwithstanding anything herein to the
contrary, the Employee shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a copy of
a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board of Directors of the Company at a meeting
of the Board called and held for the purpose (after reasonable notice to the
Employee and an opportunity for the Employee with Employee’s counsel to be heard
before the Board) finding that in the good faith opinion of the Board the
Employee was properly terminated for Cause.
(b) Change
of Control. “Change of Control” means the occurrence of any of
the following:
(i) Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company’s then outstanding voting securities; or
(ii) A
change in the composition of the Board of Directors of the Company as a result
of which fewer than a majority of the directors are “Incumbent
Directors.” “Incumbent Directors” shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board of Directors with the affirmative votes
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for election as a director without
objection to such nomination) of at least three-quarters of the Incumbent
Directors at the time of such election or nomination (but shall not include
an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors of the Company);
or
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(iii) The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%)
of
the total voting power represented by the voting securities of the Company
or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iv) The
consummation of the sale, lease or other disposition by the Company of all
or
substantially all the Company’s assets.
(c) Good
Reason. “Good Reason” means without the Employee’s express
written consent (i) a material reduction of the Employee’s duties, title,
authority or responsibilities, relative to the Employee’s duties, title,
authority or responsibilities as in effect immediately prior to such reduction,
or the assignment to Employee of such reduced duties, title, authority or
responsibilities, including a reduction in duties, title, authority or
responsibilities solely by virtue of the Company being acquired and made part
of
a larger entity; (ii) a substantial reduction of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to such reduction; (iii) a reduction by the Company in the base salary
or
target bonus opportunity of the Employee as in effect immediately prior to
such
reduction; (iv) a material reduction by the Company in the kind or level of
benefits to which the Employee was entitled immediately prior to such reduction
with the result that such Employee’s overall benefits package is significantly
reduced; (v) the relocation of the Employee to a facility or a location more
than thirty (30) miles from the one at which Employee is then presently
employed.
6. Successors.
(a) The
Company’s Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company’s business and/or
assets shall assume the obligations under this Agreement and agree expressly
to
perform the obligations under this Agreement in the same manner and to the
same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the
term “Company” shall include any successor to the Company’s business and/or
assets which executes and delivers the assumption agreement described in this
Section 6(a) or which becomes bound by the terms of this Agreement by operation
of law.
(b) The
Employee’s Successors. The terms of this Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable
by,
the Employee’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
7. Notice.
(a) General. All
notices and other communications required or permitted hereunder shall be in
writing, shall be effective when given, and shall in any event be deemed to
be
given upon receipt or, if earlier, (i) five (5) days after deposit
with the U.S. Postal Service or other applicable postal service, if delivered
by
first class mail, postage prepaid, (ii) upon delivery, if delivered by
hand, (iii) one (1) business day after the business day of deposit with
Federal Express or similar overnight courier, freight prepaid or
(iv) one (1) business
5
day
after
the business day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed (A) if to Employee, at his or her
last known residential address and (B) if to the
Company, at the address of its principal corporate offices
(attention: Secretary), or in any such case at such other address as
a party may designate by ten (10) days’ advance written notice to the other
party pursuant to the provisions above.
(b) Notice
of Termination. Any termination by the Company for Cause or by
the Employee for Good Reason or as a result of a voluntary resignation shall
be
communicated by a notice of termination to the other party hereto given in
accordance with Section 7(a) of this Agreement. Such notice shall
indicate the specific termination provision in this Agreement relied upon,
shall
set forth in reasonable detail the facts and circumstances claimed to provide
a
basis for termination under the provision so indicated, and shall specify the
termination date (which shall be not more than thirty (30) days after the giving
of such notice). The failure by the Employee to include in the notice
any fact or circumstance which contributes to a showing of Good Reason shall
not
waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his or her rights
hereunder.
8. Miscellaneous
Provisions.
(a) No
Duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that the Employee may receive from any other
source, except as set forth in Section 3(b)(ii)(B).
(b) Waiver.
No provision of this Agreement shall be modified, waived or discharged unless
the modification, waiver or discharge is agreed to in writing and signed by
the
Employee and by an authorized officer of the Company (other than the
Employee). Employee and the Company agree to work in good faith to
consider amendments to this Agreement which are necessary or appropriate to
avoid imposition of any additional tax or income recognition under Section
409A
prior to the actual payment of amounts to the Employee. The parties agree to
cooperate with each other and to take reasonably necessary steps in this
regard. No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another
time.
(c) Headings. All
captions and section headings used in this Agreement are for convenient
reference only and do not form a part of this Agreement.
(d) Entire
Agreement. This Agreement, along with other written agreements
relating to the subject matter hereof between Employee and a duly authorized
Company officer constitute the entire agreement of the parties hereto and
supersede in their entirety all prior representations, understandings,
undertakings or agreements (whether oral or written and whether expressed or
implied) of the parties with respect to the subject matter hereof.
(e) Choice
of Law; Arbitration. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State
of
Arizona. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Phoenix,
Arizona, by three arbitrators in accordance with the then current rules of
the
American Arbitration Association. The prevailing party in any arbitration shall
be entitled to injunctive relief to enforce the arbitration award.
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The
parties agree to waive their right to have any dispute regarding this Agreement
resolved in a court of law by judge or jury. The Judgment may be
entered on the arbitrator’s award in any court having
jurisdiction. This Section shall not prevent either party from
seeking injunctive relief (or any other provisional remedy) relating to
employee’s obligations under this Agreement. The Company shall bear the costs
and expenses arising out of or in connection with any arbitration pursuant
to
this Section 8(e), including Employee’s costs and reasonable attorney’s
fees.
(f) Severability. The
invalidity or unenforceability of any provision or provisions of this Agreement
shall not affect the validity or enforceability of any other provision hereof,
which shall remain in full force and effect.
(g) Withholding. All
payments made pursuant to this Agreement will be subject to withholding of
applicable income and employment taxes.
(h) Counterparts. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together will constitute one and the same
instrument.
IN
WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of
the Company by its duly authorized officer, as of the day and year set forth
below.
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EMPLOYEE
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