VP CONTINUITY AGREEMENT
This
VP
Continuity Agreement (the “Agreement”) is made and entered into effective as of
_____________, by and between ___________ (the “Employee”) and ArthroCare
Corporation, a Delaware corporation (the “Company”).
R
E C I T
A L S
A. It
is
expected that the Company from time to time will consider the possibility of
a
Change of Control (as defined below). The Board of Directors of the Company
recognizes that such consideration can be a distraction to the Employee and
can
cause the Employee to consider alternative employment opportunities. The Board
of Directors has determined that it is in the best interests of the Company
and
its shareholders 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.
B. The
Board
of Directors believes that it is in the best interests of the Company and its
shareholders to provide the Employee with an incentive to continue his/her
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its shareholders.
C. The
Board
of Directors believes that it is imperative to provide the Employee with certain
benefits upon a Change of Control and, under certain circumstances, upon
termination of the Employee’s employment, which benefits are intended to provide
the Employee with financial security and sufficient incentive and encouragement
to remain with the Company notwithstanding the possibility of a Change of
Control or a termination of employment.
D. Certain
capitalized terms used in the Agreement are defined in Section 7
below.
In
consideration of the mutual covenants herein contained, and in consideration
of
the continuing employment of Employee by the Company, the parties agree as
follows:
1. Duties
and Scope of Employment.
The
Company shall continue to employ the Employee in the position of Vice President,
____________, as such position was defined in terms of responsibilities and
compensation as of the effective date of this Agreement; provided, however,
that
the Board of Directors shall have the right, subject to the other provisions
of
this Agreement, at any time prior to the occurrence of a Change of Control,
to
revise such responsibilities and compensation as the Board of Directors in
its
discretion may deem necessary or appropriate. The Employee shall comply with
and
be bound by the Company’s operating policies, procedures and practices from time
to time in effect during his/her employment. During the term of the Employee’s
employment with the Company, the Employee shall devote his/her full time, skill
and attention to his/her duties and responsibilities, and shall perform them
faithfully, diligently
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and
competently, and the Employee shall use his/her best efforts to further the
business of the Company and its affiliated entities.
2. Base
Compensation.
The
Company shall pay the Employee as compensation for his/her services a base
salary, along with such performance bonus amounts as the Board of Directors
shall authorize, in its discretion, from time to time. Such salary shall be
paid
periodically in accordance with normal Company payroll policies. The Employee’s
compensation (including bonus amounts) specified in this Section 2,
together with any increases in such compensation that the Board of Directors
may
grant from time to time, is referred to in this Agreement as the Employee’s
“Base Compensation.”
3. Employee
Benefits.
The
Employee shall be eligible to participate in the employee benefit plans and
compensation programs maintained by the Company and applicable to other key
employees of the Company, including (without limitation) retirement plans,
savings or profit-sharing plans, stock option, incentive or other bonus plans,
life, disability, health, accident and other insurance programs, paid vacations,
and similar plans or programs, subject in each case to the generally applicable
terms and conditions of the applicable plan or program in question and to the
determination of any committee administering such plan or program.
4. 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. If the Employee’s
employment terminates for any reason, the Employee shall not be entitled to
any
payments, benefits, damages, awards or compensation other than as provided
by
this Agreement, subject, however, to such terms as stated in the offer of
employment letter dated _______________, or as may otherwise be available in
accordance with the Company’s established employee plans and policies at the
time of termination. The terms of this Agreement shall terminate upon the
earlier of (i) termination of the Employee’s position as an executive officer of
the Company; (ii) the date that all obligations of the parties hereunder
have been satisfied or (iii) the date 24 months after a Change of Control
(the “Expiration Date”). A termination of the terms of this Agreement pursuant
to the preceding sentence shall be effective for all purposes, except that
such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
5. Equity
Acceleration Upon a Change of Control.
Upon a
Change of Control, Employee shall immediately become 50% vested with respect
to
any outstanding unvested options to purchase the Company’s capital stock or
outstanding stock appreciation rights (SARs) that Employee then holds and/or
any
restrictions with respect to 50% of the unvested restricted shares and
restricted stock units (RSUs) of the Company’s capital stock that Employee then
holds shall immediately lapse at the time of the Change of Control.
6. Equity
Acceleration Upon a Hostile Takeover.
Upon a
Hostile Takeover,
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Employee
shall immediately become 100% vested with respect to any outstanding options
to
purchase the Company’s capital stock or
outstanding SARs that
Employee then holds and/or any restrictions with respect to restricted shares
and RSUs of the Company’s capital stock that Employee then holds shall
immediately lapse.
7. Termination
Following a Change of Control.
If the
Employee’s employment with the Company terminates at any time within twenty four
(24) months after a change of control, then Employee shall be entitled to
receive severance benefits as follows:
(a) Involuntary
Termination.
If the
Employee’s employment with the Company terminates in an Involuntary Termination,
then the Employee shall be entitled to receive severance benefits as
follows:
(i) Severance
Pay.
During
the Compensation Continuation Period, the Company shall pay the Employee
continuing payments of severance pay in accordance with its normal payroll
practices at a rate equal to the Employee’s Current Compensation. Such severance
payments shall be paid monthly. In addition, during the Compensation
Continuation Period, the Company shall continue to make available to the
Employee and the Employee's spouse and dependents any group health plans, life
insurance plans and other benefits plans and programs of the Company on the
date
of such termination of employment to the extent permitted by law and subject
to
the terms and conditions of the relevant plan or program.
(ii) Medical
Benefits.
The
Company shall reimburse the Employee for the amount of his or her premium
payment for group health coverage, if any, elected by the Employee pursuant
to
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”); provided, however, that (A) such reimbursement shall not exceed
$650.00 per month, and (B) the Employee shall be solely responsible for all
matters relating to his or her continuation of coverage pursuant to COBRA,
including (without limitation) his or her election of such coverage and his
or
her timely payment of premiums; provided, further, that upon the earlier to
occur of (C) the time that the Employee no longer constitutes a Qualified
Beneficiary (as such term is defined in Section 4980B(g)(1) of the Internal
Revenue Code of 1986, as amended) and (D) the date twenty-four (24) months
following the Employee’s termination, the Company’s obligations to reimburse the
Employee under this subsection (ii) shall cease; provided, finally, that if
the Company's obligations under this subsection (ii) cease pursuant to
clause (C), the Company shall make a lump sum payment to the Employee equal
to the product of the last monthly reimbursement paid to the Employee pursuant
to this subsection (ii) multiplied by six (6).
(iii)
Outplacement
Services.
During
the twenty-four (24) months following termination of the Employee’s employment,
the Employee shall be entitled to executive-level outplacement services at
the
Company's expense, not to exceed $15,000. Such services shall be provided by
a
firm selected by the Employee from a list compiled by the Company.
(iv)
Equity
Acceleration.
At the
time of the Involuntary Termination, Employee shall immediately become 100%
vested with respect to any outstanding
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options
to purchase the Company’s capital stock or outstanding SARs that Employee then
holds and/or any restrictions with respect to restricted shares and RSUs of
the
Company’s capital stock that Employee then holds shall immediately
lapse.
(b) Voluntary
Resignation; Termination For Cause.
If the
Employee voluntarily resigns from the Company (other than in an Involuntary
Termination), or if the Company terminates the Employee’s employment for Cause,
then the Employee shall not be entitled to receive severance or other benefits
under this Section 7, but shall be eligible for those benefits (if any) as
may then be established under any other Section of this Agreement or the
Company’s then-existing severance and benefits plans and policies at the time of
such termination.
(c) Disability;
Death.
If the
Company terminates the Employee’s employment as a result of the Employee’s
Disability, or such Employee’s employment terminates due to the death of the
Employee, either in connection with or apart from a Change of Control, then
the
Employee shall not be entitled to receive severance or other benefits under
this
Section 7, but shall be eligible for those benefits (if any) as may then be
established under any other Section of this Agreement or the Company’s
then-existing severance and benefits plans and policies at the time of such
Disability or death.
8. Termination
Apart from a Change of Control.
If the
Employee’s employment with the Company terminates at any time either prior to
the occurrence of a Change of Control or after the twenty-four month period
following the effective date of a Change of Control, then the Employee shall
not
be entitled to receive severance or other benefits under this Agreement, but
shall be eligible for those benefits (if any) as may be established under the
Company’s then-existing severance and benefits plans and policies at the time of
such termination, or as may be provided in the offer of employment letter dated
_______________.
9. Definition
of Terms.
The
following terms referred to in this Agreement shall have the following
meanings:
(a) Cause.
“Cause”
shall mean (i) any act of personal dishonesty taken by the Employee in
connection with his/her responsibilities as an employee and intended to result
in substantial personal enrichment of the Employee, (ii) the Employee’s
commission of a felony or an act of fraud against the Company or its affiliates,
(iii) a willful act by the Employee that constitutes gross misconduct and
that is injurious to the Company, and (iv) continued violations by the Employee
of the Employee’s obligations under Section 1 of this Agreement, which are
demonstrably willful and deliberate on the Employee’s part after there has been
delivered to the Employee a written demand for performance from the Company
that
describes the basis for the Company’s belief that the Employee has not
substantially performed his/her duties along with an opportunity for the
Employee to meet such demands, which the Employee fails to accomplish within
a
reasonable period of time.
(b) Change
of Control.
“Change
of Control” shall mean the occurrence of any of the following
events:
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(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 fifteen percent (15%) or more of the
total voting power represented by the Company’s then outstanding voting
securities;
(ii) A
merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation that 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) more than 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;
(iii)
The
approval by the shareholders of the Company of a plan of complete liquidation
of
the Company or an agreement for the sale or disposition by the Company of all
or
substantially all of the Company’s assets; or
(iv)
A
change in the composition of the Board, 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 with
the affirmative votes of at least a majority of those directors whose election
or nomination was not in connection with any transaction described in
subsections (i), (ii) or (iii) or in connection with an actual or
threatened proxy contest relating to the election of directors of the
Company.
(c) Compensation
Continuation Period.
“Compensation Continuation Period” shall mean the period of time commencing with
termination of the Employee's employment in an Involuntary Termination during
the term of this Agreement and ending with the expiration of twenty-four (24)
months following the date of the Employee's termination.
(d) Current
Compensation. “Current
Compensation” shall mean an amount equal to the greater of (i) Employee’s Base
Compensation earned in the fiscal year preceding the fiscal year of Employee’s
termination; or (ii) Employee’s Base Compensation for the fiscal year of
Employee’s termination, including 100% of any bonus which the Employee could
have earned during such fiscal year, assuming the achievement of all relevant
Employee and Company goals, milestones and performance criteria.
(e) Disability.
“Disability” shall mean that the Employee has been unable to perform his duties
under this Agreement as the result of his incapacity due to physical or mental
illness, and such inability, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company
or
its insurers and acceptable to the Employee or the Employee’s legal
representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after
at
least 30 days’ written notice by the Company of its intention to terminate the
Employee’s
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employment.
In the event that the Employee resumes the performance of substantially all
of
his/her duties hereunder before the termination of his employment becomes
effective, the notice of intent to terminate shall automatically be deemed
to
have been revoked.
(f) Hostile
Takeover.
“Hostile Takeover” shall mean any “person” (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) becoming 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, without the approval of the
Company’s Board of Directors;
(g) Involuntary
Termination.
“Involuntary Termination” shall mean (i) without the Employee’s express
written consent, the assignment to the Employee of any duties or the significant
reduction of the Employee’s duties, either of which is inconsistent with the
Employee’s position with the Company and his/her responsibilities in effect
immediately prior to such assignment, or the removal of the Employee from such
position and responsibilities; (ii) without
the Employee’s express written consent, a substantial reduction, without good
business reasons, 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 Compensation of the Employee
as in effect immediately prior to such reduction; (iv) a material reduction
by the Company in the kind or level of employee benefits to which the Employee
is entitled immediately prior to such reduction, with the result that the
Employee’s overall benefits package is significantly reduced; (v) the
relocation of the Employee to a facility or a location more than 30 miles from
the Employee’s then present location, without the Employee’s express written
consent; (vi) any purported termination of the Employee by the Company that
is not effected for Disability or for Cause, or any purported termination for
which the grounds relied upon are not valid; or (vii) the failure of the Company
to obtain the assumption of this Agreement by any successors contemplated in
Section 9 below; provided, however, that no Involuntary Termination shall be
deemed to have occurred if any such successor substitutes an agreement for
this
Agreement providing comparable severance benefits to those provided for in
this
Agreement.
10. Golden
Parachute Excise Tax.
(a) Reimbursement.
In the
event that it shall be determined that any payment or other benefit by the
Company to or for the benefit of the Employee under this Agreement, whether
paid
or payable, but determined without regard to any additional payments required
under this Section (the “Payments”), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code (the “Excise Tax”), then the
Employee shall be entitled to receive an additional payment from the Company
(the "First Reimbursement Payment") equal to one hundred percent (100%) of
any
Excise Tax actually paid or payable by the Employee in connection with the
Payments, plus an additional payment from the Company in such amount that after
payment of all taxes (including, without limitation, any interest and penalties
on such
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taxes
and
the Excise Tax) on the Reimbursement Payment, the Employee retains an amount
equal to the Reimbursement Payment.
(b) Determination.
Unless
the Company and the Employee otherwise agree in writing, any determination
required under this Section shall be made in writing by the Company’s primary
independent public accounting firm (the “Accountants”), whose determination
shall be conclusive and binding upon the Employee and the Company for all
purposes. For purposes of making the calculations required by this Section,
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 their
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
11. Successors.
(a) Company’s
Successors.
Any
successor to the Company (whether direct or indirect and whether by purchase,
lease, merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company’s business and 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 assets that executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of
this Agreement by operation of law.
(b) 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, devisees and
legatees.
12. Notice.
(a) General.
Notices
and all other communications contemplated by this Agreement shall be in writing
and shall be deemed to have been duly given when delivered personally, or by
facsimile, or three business days after deposit in the U.S. mail by registered
or certified mail, return receipt requested and postage prepaid. In the case
of
the Employee, mailed notices shall be addressed to him/her at the home address
which he/she most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its
Secretary.
(b) Notice
of Termination.
Any
termination by the Company for Cause or by the Employee as a result of an
Involuntary Termination shall be communicated by a notice of
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termination
to the other party hereto given in accordance with this Section. 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 15 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 Involuntary Termination
shall not waive any right of the Employee hereunder or preclude the Employee
from asserting such fact or circumstance in enforcing his/her rights
hereunder.
13. Confidentiality.
The
Parties hereto each agree to use their best efforts to maintain in confidence
the underlying facts leading up to this Agreement, the existence of this
Agreement, the contents and terms of this Agreement, and the consideration
for
this Agreement. Each Party hereto agrees not to disclose or use and to take
every reasonable precaution to prevent disclosure or use of any such information
to or by third parties, and each agrees that there will be no publicity,
directly or indirectly, concerning any such information. The parties hereto
agree that breach of this Section shall constitute a material breach of this
Agreement that shall entitle the non-breaching party to all available legal
and
equitable remedies including, but not limited to, recision of this Agreement.
The parties hereto further agree that all benefits to the Employee under this
Agreement shall be conditioned on his/her compliance with his/her obligations
under this Section.
14. Miscellaneous
Provisions.
(a) No
Duty to Mitigate.
The
Employee shall not be required to mitigate the amount of any payment or benefit
contemplated by this Agreement (whether by seeking new employment or in any
other manner), nor (except as otherwise provided in this Agreement) shall any
such payment or benefit be reduced by the Employee obtaining new employment
or
by any earnings that the Employee may receive from any other
source.
(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).
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) Whole
Agreement.
No
agreements, representations or understandings (whether oral or written and
whether express or implied) between the parties with regard to severance or
other benefits in connection with a Change of Control that are not expressly
set
forth or referred to in this Agreement have been made or entered into by either
party.
(d) Choice
of Law.
The
validity and interpretation of this Agreement shall be governed by the laws
of
the State of California without reference to rules of conflicts of law. Employee
hereby consents to the personal jurisdiction of the state and federal courts
located in
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California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(e) Severability.
If any
portion of this Agreement is held by an arbitrator or a court of competent
jurisdiction to conflict with any federal, state or local law, or to be
otherwise invalid or unenforceable, such portion of this Agreement shall be
of
no force or effect and the remaining provisions of this Agreement shall
otherwise remain in full force and effect and be construed as if such portion
had not been included in this Agreement.
(f) Arbitration.
Employee agrees that any dispute or controversy arising out of, relating to,
or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled
by
binding arbitration to be held in Santa Xxxxx County, California in accordance
with the rules of the American Arbitration Association then in effect. The
prevailing party shall be entitled to recover its attorneys’ fees. Judgment may
be entered on the arbitrator’s award in any court having jurisdiction. Punitive
damages shall not be awarded.
(g) No
Assignment of Benefits.
The
rights of any person to payments or benefits under this Agreement shall not
be
made subject to option or assignment, either by voluntary or involuntary
assignment or by operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor’s process, and any action in violation
of this subsection (g) shall be void.
(h) Employment
Taxes.
All
payments made pursuant to this Agreement will be subject to withholding of
applicable income and employment taxes.
(i) Assignment
by Company.
The
Company may assign its rights under this Agreement to an affiliate, and an
affiliate may assign its rights under this Agreement to another affiliate of
the
Company or to the Company; provided, however, that no assignment shall be made
if the net worth of the assignee is less than the net worth of the Company
at
the time of assignment. In the case of any such assignment, the term “Company”
when used in a Section of this Agreement shall mean the corporation that
actually employs the Employee.
(j) 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.
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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 first above
written.
COMPANY:
ARTHROCARE
CORPORATION
By:
________________________________________
Title:
_______________________________________
EMPLOYEE:
______________________________________
(Signature)
______________________________________
(Print
Name)
Date:
_______________________________________
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