CHANGE OF CONTROL AGREEMENT
This
Change of Control Agreement (the “Agreement”) is made and entered into effective
as of ______________, by and between ______________ (the “Employee”) and XXXX
Medical Systems, Inc., a Delaware corporation (the “Company”).
R
E C I T
A L S
A. It
is
understood that another company or other entity may from time to time consider
the possibility of acquiring the Company or that a change in control may
otherwise occur, with or without the approval of the Company’s Board of
Directors (the “Board”). The Board has identified the Employee, an officer of
the Company, as a key employee whose continued employment with the Company
is
critical to the Company’s future success and has determined that it is important
to provide Employee with an incentive to continue his or her employment with
the
Company in the event that the Company consummates a Change of Control
transaction. For purposes of this Agreement, this shall include Employee’s
employment in a majority-owned subsidiary or other surviving entity of an
acquiring Company.
B. To
accomplish the foregoing objectives, the Board of Directors has directed the
Company, upon execution of this Agreement by the Employee, to agree to the
terms
provided in this Agreement.
C. The
Board
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 in connection with a Change of Control, which benefits
are intended to provide the Employee with financial security and provide
sufficient income and encourage-ment to the Employee to remain with the Company
notwithstanding the possibility of a Change of Control.
D. To
accomplish the foregoing objectives, the Board of Directors has directed the
Company, upon execution of this Agreement by the Employee, to agree to the
terms
provided in this Agreement.
E. Certain
capitalized terms used in the Agreement are defined in Section 3
below.
In
consideration of the mutual covenants contained in this Agreement, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. 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, more than two months prior to a Change
of
Control, the Employee 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 established employee plans and
written policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (i) the date on which Employee ceases to be
employed as an officer of the Company, other than as a result of an involuntary
termination by the Company without Cause, (ii) the date that all
obligations of the parties hereunder have been satisfied, or (iii) fourteen
(14) months after a Change of Control. 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.
2. Change
of Control.
(a) Cash
Severance and Other Benefits.
In the
event of Employee’s Involuntary Termination (as defined below) within two months
prior to or twelve (12) months after the Change of Control, the provisions
of
this Section 2(a) shall apply.
(1) Cash
Severance Amount.
Employee shall be paid promptly after such Involuntary Termination a lump sum
Cash Severance Amount, as determined below and as reduced for applicable state,
federal and other income, employment or other required taxes. The Cash Severance
amount shall be the Employee’s Annual Target Compensation multiplied by a
fraction, the numerator of which is twelve (12) and denominator of which is
twelve (12). Annual Target Compensation shall be (i) the greater of the
Employee’s annual base salary on the date of the Involuntary Termination or the
date of the Change of Control, plus (ii) all potential annual target bonuses
or
annual target commissions (as if earned at 100% attainment) under bonus or
commission plans for which Employee was eligible and participating as of the
date of the Involuntary Termination or Change of Control, whichever results
in
the greater amount. For clarity, the special 2006 Product Milestone Bonus shall
not be considered to a part of the Annual Target Compensation. Notwithstanding
the foregoing, to the extent required because the Employee is a “key employee”
within the meaning of Section 409A of the Internal Revenue Code of (1986)
(“Code”), no payment hereunder may be made until six months after the date of
the termination.
(2) Earned
but Unpaid Bonus
or Commission Amounts.
The
Employee shall also be entitled to receive all previously earned but unpaid
bonuses or commissions applicable to periods prior to the Change of Control
based on the actual attainment metrics and payment terms as specified in the
bonus or commission plans to the extent not previously paid, less applicable
state, federal or other income, employment or other taxes.
(3) Health
and Life Coverage.
The
Employee’s Company sponsored health insurance (and that of any covered
dependents) shall be continued on the same terms applicable prior to termination
for the number of months covered by the cash severance above or until coverage
is provided by Employee’s new employer if earlier. Continuation coverage rights,
if any, under federal “COBRA” provisions shall commence when coverage hereunder
expires. Company sponsored life insurance shall continue for twelve (12) months
following termination unless comparable coverage is provided by Employee’s new
employer.
-2-
(b) Stock
Options and Restricted Stock.
(1)
Acceleration
Upon a Change of Control. In
the
event of a Change of Control, on the effective date of the transaction, fifty
percent (50%) of all unvested options to purchase the Company’s securities held
by the Employee (the “Option”) prior to the effective date of the Change of
Control transaction shall become fully vested and immediately exercisable and
shall remain exercisable as specified in Section (2)(b)(2)(ii) of this
Agreement, and repurchase rights of the Company with respect to fifty percent
(50%) of the shares of restricted stock held by the Employee purchased by the
Employee pursuant to the terms of a Stock Purchase Agreement shall immediately
lapse. In addition, unless the vesting schedule in the original grant document
or offer letter would provide for faster vesting, on each one month anniversary
of the effective date of the Change of Control transaction 1/12 of all remaining
unvested options held by the Employee shall become fully vested and immediately
exercisable and shall remain exercisable as specified in Section (2)(b)(2)(ii)
of this Agreement, and repurchase rights of the Company with respect to 1/12
of
all remaining shares of restricted stock held by Employee shall
lapse.
(2) Termination
in Connection with a Change of Control.
In the
event of an Involuntary Termination of Employee at any time within two months
prior to or twelve (12) months after a Change of Control all unvested options
held by the Employee shall become fully vested and immediately exercisable
and
shall remain exercisable as specified in Section (2)(b)(2)(ii) of this
Agreement, and repurchase rights of the Company with respect to all of the
shares of restricted stock held by the Employee purchased by the Employee
pursuant to the terms of a Stock Purchase Agreement shall immediately
lapse.
(i) Voluntary
Resignation and Termination for Cause.
If the
Employee voluntarily resigns from the Company under circumstances which do
not
constitute an Involuntary Termination within two (2) months prior to a Change
of
Control or within twelve (12) months after a Change of Control , or is
terminated for Cause, then the Employee shall not be entitled to any
acceleration of the vesting of his or her unvested options or lapse of
repurchase rights with respect to his or her restricted stock.
(ii) Time
of Exercise.
Unless
a longer period is provided for in the option agreement or new hire offer letter
between the Employee and the Company with respect to an Option, in the event
of
the Employee’s termination of employment for any reason within two months prior
to or twelve (12) months after
a
Change of Control, the Employee shall be entitled to exercise (A) consistent
with the requirements of Section 409A of the Code and provided this provision
does not result in a material compensation charge to the Company’s financial
statements (as determined by the Company’s audit committee), all outstanding
Options granted prior to _[insert
date of this Agreement]___
___,
2006 to the extent they are vested (including after giving effect to any
acceleration of vesting under this Agreement or the option agreement or new
hire
offer letter) for a period equal to the longer of (x) the fifteenth day of
the
third month following the date on which the Option would have expired by its
original terms or (y) the remainder of the calendar year in which the Option
would have expired under its original terms and (b) outstanding Options granted
after __[insert
date of this Agreement]__
___,
2006 to the extent they are vested (including after giving effect to any
acceleration of vesting under this Agreement or the option agreement or new
hire
offer letter) during the twelve (12) months following termination. In
no
event may an Option be exercised later than the expiration date of the term
of
such Option as set forth in the option agreement for such Option.
-3-
3. Definition
of Terms.
The
following terms referred to in this Agreement shall have the following
meanings:
(a) Change
of Control.
“Change
of Control” shall mean the consummation of any of the following
events:
(i) Ownership.
Any
“Person” (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) is or 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 without
the
approval of the Board of Directors of the Company; or
(ii) Merger/Sale
of Assets.
A
merger or consolidation of the Company whether or not approved by the Board
of
Directors of the Company, 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 the stockholders of the Company approve 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.
(b) Cause.
“Cause”
shall mean (i) gross negligence or willful misconduct in the performance of
the Employee’s duties to the Company where such gross negligence or willful
misconduct has resulted or is likely to result in substantial and material
damage to the Company or its subsidiaries, (ii) repeated unexplained or
unjustified absence from the Company, (iii) a material and willful
violation of any federal or state law; (iv) commission of any act of fraud
with respect to the Company; or (v) conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and reputation
of the Company, in each case as determined in good faith by the Board of
Directors of the Company.
(c) Involuntary
Termination.
“Involuntary Termination” shall include any termination by the Company other
than for Cause and shall also include the Employee’s voluntary termination for
“Good Reason” upon 30 days prior written notice to the Company by the Employee.
Good Reason shall exist in the event of (i) any material reduction in the
Employee’s duties or responsibilities; (ii) any
change in the Employee’s title (with respect to the combined entity and not just
with respect to a merger subsidiary or division) to a title of a less senior
officer; (iii) a
change
in reporting structure such that the Employee reports to an individual with
a
title (with respect to the combined entity and not just with respect to a merger
subsidiary or division) that is less senior than that of the person to whom
the
Employee reported prior to the Change of Control; (iv) any reduction of the
Employee’s base and cash bonus compensation ; or (v) the Employee’s refusal to
relocate to a location more than 25 miles from the Company’s current location.
Employee does not need to actually terminate employment with the Company to
be
entitled to payments and benefits hereunder in connection with a Good Reason
based Involuntary Termination, but the Employee may at his or her sole
discretion terminate employment in connection with an Involuntary Termination
in
connection with a Good Reason. For clarity, so long as the events giving rise
to
Good Reason occur within twelve (12) months of the Change of Control and the
Employee gives the Company at least 30 days notice of such events before
Employee terminates employment, such termination may occur more than twelve
(12)
months after a Change of Control. However, solely in order to terminate more
than twelve (12) months following a Change of Control for Good Reason pursuant
to the above, the Employee’s written notice must be received by the Company
within 60 days of the events giving rise to Good Reason.
-4-
4. 280G
Payments.
(a) In
the
event that the severance benefits provided for in this Agreement (the “Total
Payments”) constitute “Parachute Payments” within the meaning of Code
Section 280G , the excess of the Parachute Payments over three times the
five year average of compensation as computed under Code Section 280G (such
excess is referred to as the “280G Excess”) is greater than one hundred thousand
dollars ($100,000) (the “Valley”) and the Employee is subject to the excise tax
imposed by Section 4999 of the Code (the “Excise Tax”), then the Company
shall pay to the Employee an additional amount or amounts (the “Gross-Up
Payment”) such that the net amount retained by the Employee, after deduction of
any Excise Tax on the Total Payments and any federal, state and local income
and
employment taxes and the Excise Tax upon the Gross-Up Payment, shall be equal
to
the Total Payments. If the 280G Excess is less than the Valley, the Employee
may
elect to either have the amount of Employee’s payments and benefits hereunder
reduced to the point no Excise Tax is due or may receive all benefits hereunder
and pay the Excise Tax without the benefit of any Gross-Up Payment from the
Company. Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section 4 shall be made in writing
by the
Company’s independent tax advisors (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 4, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Section 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, including by reason of any state, federal
or other government audit of such calculations.
(b) The
payment of severance benefits provided for in this Agreement shall be subject
to
all applicable income, employment and social tax rules and
regulations.
-5-
5. 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/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. The terms
of this Agreement and all of the Employee’s rights 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.
6. Notice.
Notices
and all other communications contemplated by this Agreement shall be in writing
and shall be deemed to have been duly given when personally delivered or when
mailed by U.S. registered or certified mail, return receipt requested and
postage prepaid. Mailed notices to the Employee shall be addressed to the
Employee at the home address which the Employee 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.
7. Miscellaneous
Provisions.
(a) No
Duty to Mitigate.
The
Employee shall not be required to mitigate the amount of any payment
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 be reduced 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) which are not expressly set forth in this Agreement
have been made or entered into by either party with respect to the subject
matter hereof. This Agreement supersedes the Change in Control sections of
any
agreement, including any offer letter, prior Change in Control agreements,
employment agreement, option grant document, etc. concerning the payments and
benefits in a Change of Control as provided by this Agreement, dated prior
to
the date of this Agreement, and by execution of this Agreement both parties
agree that any such predecessor agreement shall be deemed null and void.
Notwithstanding the foregoing, in the event the Employee’s new hire offer letter
specifies a longer period to exercise options in the event of a Change of
Control than is specified in Section (2)(b)(2)(ii) of this Agreement, the period
specified in the offer letter shall be used. Further, the portions of the
Employee’s new hire offer letter related to any severance benefits related to a
termination not in connection with a Change in Control shall remain in full
effect and are not superseded by this Agreement.
-6-
(d) Choice
of Law.
The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of California without reference to conflict
of laws provisions.
(e) Severability.
If any
term or provision of this Agreement or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
of
this Agreement or the application of such terms and provisions to circumstances
other than those as to which it is held invalid or unenforceable, and a suitable
and equitable term or provision shall be substituted therefore to carry out,
insofar as may be valid and enforceable, the intent and purpose of the invalid
or unenforceable term or provision.
(f) Arbitration.
Any
dispute or controversy arising under or in connection with this Agreement may
be
settled at the option of either party by binding arbitration in the County
of
Santa Clara, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction. Punitive damages shall not
be awarded.
(g) Legal
Fees and Expenses.
The
parties shall each bear their own expenses, legal fees and other fees incurred
in connection with this Agreement.
(h) 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 (h) shall be void.
(i) Employment
Taxes.
All
payments made pursuant to this Agreement will be subject to withholding of
applicable income and employment taxes.
(j) Assignment
by the 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.
(k) 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.
(SIGNATURE
PAGE FOLLOWS)
-7-
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.
|
XXXX MEDICAL SYSTEMS, INC.
By:
__________________________
Title:
_________________________
|
NAME:
______________________________
|
-8-
