Exhibit 10.7
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of and effective as of August 23, 2007, is by and
between Contract Freighters, Inc. (the "Employer"), and Herbert J. Schmidt
(the "Executive") and supersedes all prior severance agreements between the
Executive and the Employer or any Affiliate.
WHEREAS, the Employer (a) considers it essential to foster the continued
employment of key management personnel, (b) recognizes that the possibility
of a Change in Control exists and that such possibility, 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
Employer, and (c) has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the Employer's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Employer and the Executive hereby agree as follows:
* The Term of this Agreement shall commence on August 23, 2007 and expire
as provided in the definition of "Term" in Section 1 of the attached
Terms and Conditions, all of which (including definitions) are hereby
incorporated by reference.
* The Executive agrees that, subject to the Terms and Conditions, in the
event of a Potential Change in Control during the Term, the Executive
will remain in the employ of the Employer until the earliest of (a) a
date which is six (6) months from the date of such Potential Change in
Control, (b) the date of a Change in Control, (c) the date of
termination by the Executive of the Executive's employment for Good
Reason or by reason of death, disability or retirement in accordance
with the Con-way Inc. Retirement Plan, including early retirement, or
(d) the termination by the Employer of the Executive's employment for
any reason.
* If the Executive incurs a Severance following a Change in Control or
Potential Change in Control and during the Term, the Executive shall be
entitled to receive (a) a Severance Payment equal to three (3) times the
sum of the Executive's annual base salary and Annual Bonus in a lump sum
and (b) Severance Benefits for a period of 36 months following the
Severance Date, as provided in the attached Terms and Conditions.
* If the Executive transfers to and becomes an employee of an Affiliate,
the Employer shall assign this Agreement to the Affiliate and the
Affiliate shall become the Employer and shall assume the obligations of
the Employer.
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|THE EMPLOYER | |
| | |
|By: Contract Freighters, Inc. | Con-way Inc. hereby assumes the |
|/s/ Jennifer W. Pileggi | obligations imposed by the |
|------------------------ | second sentence of Section 3.1 |
|Name: Jennifer W. Pileggi | of the attached Terms |
|Title: Secretary | and Conditions. |
| | |
- -----------------------------------------------------------------------------
| | |
|EXECUTIVE |CON-WAY INC. |
|/s/ Herbert J. Schmidt | |
|------------------------- |By: /s/ Douglas W. Stotlar |
|Name: Herbert J. Schmidt | ------------------------- |
|Address: 4527 Goldfinch Road |Name: Douglas W. Stotlar |
| Joplin, MO 64804 |Title: President - CEO |
| | |
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TERMS AND CONDITIONS OF SEVERANCE AGREEMENT
Table of Contents
1. Definitions................................
2. Compensation other than Severance Payments
and Benefits..............................
3. Severance Payments and Benefits............
4. Excise Tax Gross-Up........................
5. Notice of Termination......................
6. General Provisions.........................
Exhibit A - Waiver and Release of Claims.......
Exhibit B - Assignment and Assumption of Agreement
1. DEFINITIONS. As hereinafter used:
"Affiliate" means an affiliate of the Company, as defined in Rule 12b-2
promulgated under Section 12 of the Exchange Act, including any Business
Unit.
"Agreement" means the Severance Agreement to which these Terms and
Conditions are attached, including the Terms and Conditions, which are
incorporated by reference in the Agreement. If there is any
inconsistency between the Severance Agreement and these Terms and
Conditions, the Terms and Conditions shall govern.
"Annual Bonus" means the annual bonus payable with respect to a calendar
year under the ICP (Incentive Compensation Plan) applicable to an
Executive or other applicable annual bonus or arrangement determined as
if such Annual Bonus had been earned to the extent of 100% of the
Executive's target bonus opportunity, as opposed to the maximum 200%.
The Annual Bonus does not include any amount payable under the Con-way
Inc. Value Management Plan or any other long-term incentive plan.
"Auditor" shall have the meaning set forth in Section 4.2 hereof.
"Base Amount" shall have the meaning set forth in Section 280G(b)(3) of
the Code.
"Board" means the Board of Directors of the Company.
"Business Unit" is defined in Section 2 of the EIP.
"Cause" for termination by the Employer of the Executive's employment
means (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Employer (other
than any such failure resulting from the Executive's incapacity due to
disability, including physical or mental illness or any such actual or
anticipated failure after the issuance by the Executive of a notice of
intent to terminate employment for Good Reason, as provided in the
definition of Good Reason) after a written demand for substantial
performance is delivered to the Executive by or on behalf of the
Employer Board, which demand specifically identifies the manner in which
the Employer Board believes that the Executive has not substantially
performed the Executive's duties, or (ii) the willful engaging by the
Executive in conduct which is demonstrably and materially injurious to
the Employer, the Company or an Affiliate, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, no act, or failure
to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in
the best interest of the Employer, the Company or an Affiliate. In the
event of a dispute concerning the application of this provision, no
claim by the Employer that Cause exists shall be given effect unless the
Employer establishes (iii) to the Employer Board and (iv) in the event
of an arbitration to resolve the dispute, to the arbitrator, by clear
and convincing evidence that Cause exists.
"Change in Control" means the occurrence of any one of the events
described in clauses (a) through (d) of the definition of "Change in
Control" in Section 2 of the EIP or the occurrence of the event
described in the following clause (e), which shall apply for purposes of
the Agreement instead of clause (e) of the definition of "Change in
Control" in Section 2 of the EIP:
(e) Disposition of a Business Unit. There is consummated the
Disposition of a Business Unit; provided, however, that this
clause (e) shall apply only to an Executive who immediately prior
to the Disposition of a Business Unit was employed by (and on the
payroll of) the Business Unit that was the subject of the
Disposition of a Business Unit.
The following Examples illustrate clause (e):
Example 1. The ownership interests of Business Unit X are sold to
an unrelated purchaser. Executive A was employed by (and on the
payroll of) Business Unit X immediately prior to the sale. A
Change in Control has taken place with respect to Executive A.
Example 2. The assets of Business Unit Y are sold to an unrelated
purchaser. Executive B was employed by (and on the payroll of)
Business Unit Y immediately prior to the sale. A Change in Control
has taken place with respect to Executive B.
Example 3. Executive C is employed by (and on the payroll of) a
Business Unit as described in either Example 1 or 2, except that
Executive C remains employed by (and on the payroll of) a Business
Unit that continues to be a Business Unit of the Company following
the sale. A Change in Control has taken place with respect to
Executive C.
Because the EIP is not intended to serve the same purpose as the
Agreement, whether a "Change in Control" has taken place under the EIP
is not relevant in determining whether benefits are payable under the
Agreement. For example, in Example 3, a Change in Control took place for
Executive C under the Agreement, but no Change in Control took place for
Executive C under the EIP. If Executive C terminates employment six
months after the Change in Control occurred under the Agreement,
Executive C may or may not be entitled to benefits under the Agreement,
depending on the facts surrounding the termination of employment.
However, no Change in Control would take place under the EIP with
respect to Executive C under the facts of Example 3, whether or not
benefits are due under the Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Company" means Con-way Inc., a corporation organized under the laws of
the State of Delaware, or any successor corporation.
"Disposition of a Business Unit" is defined in Section 2 of the EIP.
"EIP" means the Con-way Inc. 1997 Equity and Incentive Plan, as amended
from time to time, or any successor plan.
"Employer" means the person specified in the first paragraph of the
Agreement or any assignee or successor (including a successor who
assumes the Agreement following a Change in Control). The fourth bullet
of the Agreement provides that, if the Executive transfers to the
Company or an Affiliate, the Agreement will be assigned, resulting in a
change in the Employer. A draft form of assignment and assumption is
attached as Exhibit B. Notwithstanding the preceding provisions of this
definition, if (and for as long as) the Executive is an employee of
Vector SCM, LLC, (i) the Employer means Vector SCM, LLC or any
successor, (ii) the Company shall fulfill the obligations of the
Employer under the Agreement, and (iii) clause (e) of the definition of
Change in Control shall not apply to the Executive.
"Employer Board" means the Board of Directors of the Employer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
"Excise Tax" means any excise tax imposed under Section 4999 of the
Code.
"Executive" means the person specified in the first paragraph of the
Agreement.
"Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express
written consent) after any Change in Control of any one of the following
acts by the Employer, or failures by the Employer to act, unless such
act or failure to act is corrected within 30 days of receipt by the
Employer of notice of the Executive's intent to terminate for Good
Reason hereunder:
(1) the failure of the successor company, following the Change in
Control, to assume the Agreement and all obligations thereunder,
as of the date of such Change in Control;
(2) the assignment to the Executive of duties inconsistent with the
Executive's status as an executive of the Employer or a
substantial adverse alteration in the nature or status of the
Executive's responsibilities from those in effect immediately
prior to the Change in Control;
(3) a reduction by the Employer in the Executive's base salary, cash
bonus opportunity, or long term incentive opportunity, each as in
effect immediately prior to the Change in Control or as the same
may thereafter be increased from time to time;
(4) the relocation of the Executive's principal place of employment to
a location that results in an increase in the Executive's one way
commute of at least 50 miles more than the Executive's one way
commute immediately prior to the Change in Control,
(5) a substantial increase in the Executive's business travel
obligations from the Executive's business travel obligations
immediately prior to the Change in Control;
(6) the failure by the Employer to pay to the Executive when due any
portion of the Executive's current compensation;
(7) the failure by the Employer to continue to provide the Executive
with benefits substantially similar to those enjoyed by the
Executive under any of the Employer's pension, savings, life
insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the
Change in Control (except for across-the-board changes similarly
affecting all or substantially all employees of the Employer and
any entity in control of the Employer), the taking of any other
action by the Employer which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of
any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or the failure by the Employer to
provide the Executive with the number of paid vacation days or PTO
days (days of paid time off) to which the Executive was entitled.
If a Change in Control takes place with respect to the Executive solely
because of the Disposition of a Business Unit as described in clause (e)
of the definition of Change in Control and the Executive continues to be
employed by the Company or an Affiliate, but the position the Executive
previously held is no longer needed, then, for purposes of determining
whether there is a substantial adverse alteration in the nature or
status of the Executive's responsibilities under clause (2) above, all
the facts and circumstances shall be taken into account, and no single
or selected set of facts shall be determinative. In particular, if the
Executive receives a bona fide offer of a new or different position with
the Company or an Affiliate, the fact or set of facts that, under the
Executive's new position, fewer employees may be supervised and/or fewer
functional areas may be within the Exective's span of control shall not
be determinative.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to
disability, including physical or mental illness, except as provided in
the penultimate paragraph of the definition of Severance.
If Good Reason first occurs during the last 30 days of the Term and the
Executive gives notice of the Executive's intent to terminate for Good
Reason before the end of the Term, the correction period referred to in
the first sentence of this definition of Good Reason shall end on the
date of termination specified in Section 5.3.
The Executive's continued employment after Good Reason occurs shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
"Gross Up Payment" shall have the meaning set forth in Section 4.1
hereof.
"Person" means any person, as such term is used in Sections 13(d) and
14(d) of the Exchange Act other than (i) the Company or its Affiliates,
(ii) any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or its Affiliates, and (iii) any corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of the Common
Stock.
"Potential Change in Control" shall be deemed to have occurred if:
(1) the Company or any Affiliate enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(2) the Company or any "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act publicly announces an
intention to take or to consider actions, including but not
limited to proxy contests or consent solicitations, which, if
consummated, would constitute a Change in Control;
(3) any Person becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
the Company representing 15% or more of either the then
outstanding shares of the common stock, par value $0.625 per
share, of the Company or the combined voting power of the
Company's then outstanding securities (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates); or
(4) the Board or the Employer Board if the Employer is other than the
Company adopts a resolution to the effect that, for purposes of
the Agreement, a Potential Change in Control has occurred.
If the Potential Change in Control referred to in clause (1) or (2)
would arise because of an event described in clause (e) in the
definition of Change in Control, the Potential Change in Control shall
apply only if the Executive is employed by (and on the payroll of) the
Business Unit that would be the subject of the Disposition of a Business
Unit.
"Severance" means the termination of an Executive's employment with the
Employer following a Change in Control and during the Term of the
Agreement, (i) by the Employer other than for Cause, or (ii) by the
Executive for Good Reason.
For purposes of the Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the
Employer without Cause or by the Executive with Good Reason if (i) the
Executive's employment is terminated by the Employer without Cause
following a Potential Change in Control but prior to a Change in Control
(whether or not a Change in Control ever occurs) and such termination
was at the request or direction of a Person who has entered into an
agreement with the Company or Affiliate the consummation of which would
constitute a Change in Control, (ii) the Executive terminates employment
for Good Reason following a Potential Change in Control but prior to a
Change in Control (whether or not a Change in Control ever occurs) and
the circumstance or event which constitutes Good Reason occurs at the
request or direction of such Person; or (iii) the Executive's employment
is terminated by the Employer without Cause or by the Executive for Good
Reason and such termination or the circumstance or event which
constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control
ever occurs). For purposes of this paragraph, a Change in Control shall
be deemed to have occurred for purposes of the definition of Good Reason
if a Potential Change in Control has occurred or if the termination or
the circumstance or event which would constitute Good Reason if a Change
in Control had occurred is in connection with or in anticipation of a
Change in Control (whether or not a Change in Control ever occurs).
An Executive will not be considered to have incurred a Severance (i) if
the Executive's employment is discontinued by reason of the Executive's
death or disability, including a physical or mental condition causing
such Executive's inability to substantially perform the Executive's
duties with the Employer for a period of six consecutive months or (ii)
by reason of the divestiture of a facility, sale of a business or
business unit, or the outsourcing of a business activity with which the
Executive is affiliated, notwithstanding the fact that such divestiture,
sale or outsourcing constitutes, or takes place following a Change in
Control and during the Term of the Agreement, if the Executive is
offered a position with the successor company that, if accepted, would
not give rise to Good Reason, and such successor company agrees to
assume the obligations of the Agreement with respect to such Executive.
If any benefits provided to the Executive under the Agreement are
treated as deferred compensation subject to Code section 409A, the
Executive will not be considered to have incurred a Severance until the
Executive incurs a "separation from service," becomes "disabled," or
dies; provided, however, that if an "unforseeable emergency" occurs, the
Severance Payment may be made to the extent permitted by Code section
409A(a)(2)(B)(ii)(II). (The terms quoted in the immediately-preceding
sentence have the meanings set forth in Code section 409A(a)(2)(A).)
"Severance Benefits" means:
(1) life, disability and accident benefits substantially similar to
those provided to the Executive and the Executive's dependents
immediately prior to the Severance or, if more favorable to the
Executive, immediately prior to the Change in Control, at no
greater cost to the Executive than the cost to the Executive
immediately prior to the Severance or the Change in Control in
this Agreement; provided, however, that, unless the Change in
Control took place because of the event described in clause (e) of
the definition of Change in Control, the Employer may apply to
such benefits any across the board changes similarly affecting all
or substantially all employees participating in such benefits;
(2) health and dental benefits provided to the Executive and the
Executive's dependents under the Company's health and dental plan
as in effect immediately prior to the Severance or, if more
favorable to the Executive, those provided to the Executive and
the Executive's dependents immediately prior to the Change in
Control, at no cost to the Executive; and
(3) outplacement services determined by the Company to be suitable to
the Executive's position, at no cost to the Executive;
in each case for the number of months specified in the Agreement
following such Executive's Severance Date; provided, however, that
(4) benefits otherwise receivable pursuant to (1) and (2) shall be
reduced to the extent benefits of the same type are received by or
made available to the Executive or the Executive's dependents
following the Executive's termination of employment (and any such
benefits shall be reported to the Employer by the Executive);
(5) the Employer shall reimburse the Executive for the excess, if any,
of the cost to the Executive of benefits received or made
available pursuant to (1) and (2) over such cost immediately prior
to the Severance or, if more favorable to the Executive,
immediately prior to the Change in Control;
(6) if the Executive dies, the Employer shall continue to provide the
Executive's dependents with the benefits otherwise receivable
pursuant to (1) and (2) on the same basis as if the Executive had
survived, and
(7) if any such benefits are treated as deferred compensation subject
to Code section 409A and the Executive is a "specified employee"
as defined in Code section 409A(a)(2)(B)(i), the Executive shall
pay the full cost of such benefits for the first six months after
the Severance Date and the Employer shall reimburse the Executive
for such payments as soon as practicable thereafter.
"Severance Date" means the date on which an Executive incurs a
Severance, which should be the date of termination as determined under
Section 5.3.
"Severance Payment" means a payment, in lieu of any other severance
payment or benefit pursuant to any other plan or agreement of the
Employer, the Company or any Affiliate to which the Executive is
otherwise entitled, of an amount equal to the number of years specified
in the Agreement times the sum of (i) the Executive's annual base salary
immediately prior to the time of Severance or, if higher, in effect
immediately prior to the Change in Control and (ii) the Executive's
Annual Bonus for the calendar year in which the Change in Control
occurred.
"Tax Counsel" shall have the meaning set forth in Section 4.2 hereof.
"Term" means the period of time commencing on the date specified in the
Agreement and continuing through December 31 of the following year;
provided, however, that commencing on January 1 of such following year,
and each January 1 thereafter, the Term shall automatically be extended
for one additional year unless, not later than September 30 of the
preceding year, the Employer or the Executive shall have given notice
not to extend the Term; and further provided, however, that if a Change
in Control shall occur during the Term, the Term shall expire no earlier
than 24 months beyond the month in which such Change in Control
occurred.
"Terms and Conditions" means these terms and conditions.
"Total Payments" means those payments so described in Section 4.1
hereof.
2. COMPENSATION OTHER THAN SEVERANCE PAYMENTS AND BENEFITS.
2.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-
time duties with the Employer as a result of incapacity due to
disability, including physical or mental illness, the Employer
shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with
all compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement
maintained by the Employer during such period (other than any
disability plan), until the Executive's employment is terminated
by the Employer for disability.
2.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Employer
shall pay the Executive's full salary to the Executive through the
Severance Date at the rate in effect immediately prior to the
Severance Date or, if higher, the rate in effect immediately prior
to the Change in Control, together with all compensation and
benefits payable to the Executive through the Severance Date under
the terms of the Employer's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the
Severance Date or, if more favorable to the Executive, as in
effect immediately prior to the Change in Control.
2.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Employer
shall pay to the Executive the Executive's normal post termination
compensation and benefits as such payments become due (other than
severance payments under any severance plan as in effect
immediately prior to the Severance). Such post termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements as in
effect immediately prior to the Severance or, if more favorable to
the Executive, as in effect immediately prior to the Change in
Control.
3. SEVERANCE PAYMENTS AND BENEFITS.
3.1 If the Executive incurs a Severance, the Executive shall be
entitled to receive from the Employer (i) the Severance Payment
and (ii) Severance Benefits. If the Employer is not the Company,
the Employer does not provide the Severance Payment and the
Severance Benefits and the Severance is related to a Change in
Control or a Potential Change in Control that occurred other than
because of the Disposition of a Business Unit as provided in
clause (e) of the definition of Change in Control, the Company
shall fulfill the obligations of the Employer under the Agreement,
and the Executive need not exhaust the remedies provided in
Section 3.4 and 3.5 against the Employer before being entitled to
receive the Severance Payment and the Severance Benefits from the
Company.
3.2 The Employer shall pay the Severance Payment to the Executive in a
cash lump sum, on the date that is 6 months after the Severance
Date or as soon as practicable thereafter, but in no event later
than 10 business days immediately following such date.
3.3 The Executive shall not be eligible to receive a Severance Payment
or Severance Benefits under the Agreement unless the Executive
(or, in the event of the death of the Executive, the executor,
personal representative or administrator of the Executive's
estate) first executes a written release substantially in the form
attached as Exhibit A hereto and the Executive executes the
release within 6 months after the Severance Date.
3.4 In the event that the Executive or a dependent of the Executive
believes that he or she is not receiving the full benefits to
which he or she is entitled under the Agreement, such person may
make a claim to the Employer Board (or the Board if the second
sentence of Section 3.1 applies), and the claims procedure set
forth in Section 8 of the EIP shall apply with the Employer Board
(or the Board if the second sentence of Section 3.1 applies)
treated as the Committee.
3.5 Any further dispute or controversy arising under or in connection
with the Agreement which remains after the final decision of the
Board as contemplated by Section 3.4 shall be finally settled
exclusively by arbitration in San Francisco, California, in
accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the clear and convincing
evidentiary standard set forth in the definition of Cause in this
Agreement shall apply; and provided further, that the arbitrator
shall apply the applicable provisions of ERISA, and applicable
regulations adopted thereunder, in such arbitration proceeding.
Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
3.6 The Employer shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking in good faith to
obtain or enforce any benefit or right provided by the Agreement.
Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as
the Employer reasonably may require. The Employer shall not be
obligated to pay legal fees and expenses incurred by any person
other than the Executive. However, the Employer shall be obligated
to pay legal fees and expenses incurred by the Executive on behalf
of the Executive's dependents and legal fees and expenses incurred
by the estate of the Executive on behalf of the Executive or the
Executive's dependents.
3.7 The Employer shall be entitled to withhold from amounts to be paid
to the Executive hereunder any federal, state or local withholding
or other taxes or charges which it is from time to time required
to withhold.
3.8 The Employer agrees that, if the Executive's employment with the
Employer terminates following a Change in Control that is
applicable to the Executive and during the Term of the Agreement,
the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive
hereunder. Further, the amount of any payment or benefit provided
for in the Agreement shall not be reduced (except as provided in
clause (4) of the definition of Severance Benefits) by any
compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Employer, or
otherwise.
4. EXCISE TAX GROSS-UP.
4.1 Whether or not the Executive becomes entitled to the Severance
Payment and Severance Benefits, if any of the payments or benefits
received or to be received by the Executive in connection with a
Change in Control or the Executive's termination of employment
(whether pursuant to the terms of the Agreement or any other
agreement, plan, or arrangement with the Employer, any Person
whose actions result in a Change in Control or any Person
affiliated with the Employer or such Person) (such payments or
benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to the Excise
Tax, the Employer shall pay to the Executive an additional amount
(the "Gross Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments
and any federal, state and local income and employment taxes and
Excise Tax upon the Gross-Up Payment (but without deducting
federal, state and local income and employment taxes on the Total
Payments), shall be equal to the Total Payments.
4.2 For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the Code)
unless, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the accounting firm
which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) should not constitute parachute
payments, including by reason of Section 280G(b)(4)(A) of the
Code, (ii) all "excess parachute payments" within the meaning of
Section 280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the Base Amount
allocable to such reasonable compensation, or should otherwise not
be subject to the Excise Tax and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by
the Auditor in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the
amount of the Gross Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal
income taxation in the calendar year in which the Gross Up Payment
is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the
Executive's residence at the time of the Severance (or if there is
no Severance, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 4.2), net of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
4.3 In the event that the Excise Tax is finally determined to be less
than the amount taken into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to the Company, within
five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of
the Gross Up Payment attributable to such reduction (plus that
portion of the Gross Up Payment attributable to the Excise Tax and
federal, state and local income and employment taxes imposed on
the Gross Up Payment being repaid by the Executive, to the extent
that such repayment results in a reduction in the Excise Tax and a
dollar-for-dollar reduction in the Executive's taxable income and
wages for purposes of federal, state and local income and
employment taxes). In the event that the Excise Tax is determined
to exceed the amount taken into account hereunder in calculating
the Gross-Up Payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross Up Payment), the Company shall make an additional Gross
Up Payment in respect of such excess (plus any interest, penalties
or additions payable by the Executive with respect to such excess)
within five (5) business days following the time that the amount
of such excess is finally determined. The Executive and the
Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax
with respect to the Total Payments.
4.4 The payments provided in Section 4.1 shall be made on the date
that is 6 months after the Severance Date or as soon as
practicable thereafter; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day,
the Employer shall pay to the Executive on such day an estimate,
as determined in good faith by the Employer or, in the case of
payments under Section 4.1 or 4.3, in accordance with Section 4.2,
of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments
(together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments
when due) at 120% of the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined. In the
event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall be
paid by the Executive to the Employer not later than the fifth
(5th) business day after demand by the Employer. At the time that
payments are made under the Agreement, the Employer shall provide
the Executive with a written statement setting forth the manner in
which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other
advice the Employer has received from Tax Counsel, the Auditor or
other advisors or consultants (and any such opinions or advice
which are in writing shall be attached to the statement).
4.5 The Employer also shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking in good faith to
obtain or enforce any benefit or right provided by the Agreement
or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any
payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's
written requests for payment accompanied with such evidence of
fees and expenses incurred as the Employer reasonably may require.
5. NOTICE OF TERMINATION.
5.1 After a Change in Control and during the Term, any purported
termination of the Executive's employment (other than by reason of
death) shall be communicated by written notice of termination from
the Employer to the Executive or the Executive to the Employer in
accordance with Section 6.9.
5.2 The notice of termination shall indicate the specific termination
provision in the Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated. A notice of termination for Cause shall
include a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Employer Board at a meeting of the Employer
Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's
counsel, to be heard before the Employer Board) finding that, in
the good faith opinion of the Employer Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the
definition of Cause herein, and specifying the particulars thereof
in detail.
5.3 The notice of termination shall specify the date of termination
which, in the case of a termination by the Employer, shall not be
less than thirty (30) days (except in the case of a termination
for Cause) and, in the case of a termination by the Executive,
shall not be less than thirty (30) days nor more than sixty (60)
days, respectively, from the date such notice of termination is
given.
(1) Once the Employer or the Executive has specified a date of
termination in a notice of termination, the date of
termination cannot be changed by the Employer or the
Executive except by mutual consent.
(2) The date of termination must be at least 30 days after the
notice of termination unless the termination is for Good
Reason and Good Reason first occurs during the last 30 days
of the Term (determined without regard to this Section
5.3(2)), in which event the date of termination shall be (i)
the end of the Term (determined without regard to this
Section 5.3(2)) if the Employer receives notice of the
Executive's intent to terminate for Good Reason ten days or
more before the end of the Term (determined without regard to
this Section 5.3(2)) or (ii) the later of ten days after
receipt by the Employer of notice of the Executive's intent
to terminate for Good Reason or five days after the end of
the Term (determined without regard to this Section 5.3(2))
if the Employer does not receive notice of the Executive's
intent to terminate for Good Reason ten days or more before
the end of the Term (determined without regard to this
Section 5.3(2)).
6. GENERAL PROVISIONS.
6.1 Except as otherwise provided herein or by law, no right or
interest of the Executive under the Agreement shall be assignable
or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by
execution, levy, garnishment, attachment, pledge or in any manner;
no attempted assignment or transfer thereof shall be effective;
and no right or interest of the Executive under the Agreement
shall be liable for, or subject to, any obligation or liability of
such Executive. When a payment is due under the Agreement to an
Executive who is unable to care for his or her affairs, payment
may be made directly to the Executive's legal guardian or personal
representative.
6.2 If the Employer, the Company or any Affiliate is obligated
pursuant to applicable law or by virtue of being a party to a
contract (other than this Agreement) to pay severance pay, a
termination indemnity, notice pay or the like or if the Employer,
the Company or any Affiliate is obligated by law to provide
advance notice of separation ("Notice Period"), then any Severance
Payment hereunder shall be reduced by the amount of any such
severance pay, termination indemnity, notice pay or the like, as
applicable, and by the amount of any compensation received during
any Notice Period.
6.3 Neither the Agreement, nor any modification thereof, nor the
creation of any fund, trust or account, nor the payment of any
benefits shall be construed as giving any Executive, or any person
whomsoever, the right to be retained in the service of the
Employer, and the Executive shall remain subject to discharge to
the same extent as if the Agreement had never been executed.
6.4 If any provision of the Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Agreement shall be
construed and enforced as if such provisions had not been
included.
6.5 If any provision of the Agreement would cause compensation to be
includible in the Executive's income pursuant to Code section
409A(a)(1)(A), such provision shall be void, and the Employer
shall amend the Agreement retroactively in such a way as to
achieve substantially similar economic results without causing
such inclusion. Any such amendment shall be binding on the
Executive unless the Executive objects within 30 days after a copy
of such amendment is delivered to the Executive. In any event,
the Executive will be solely responsible for any adverse tax
consequences to the Executive.
6.6 The Agreement shall be binding upon and shall inure to the benefit
of and be enforceable by the Employer and its successors and
assigns, and by each Executive and by the personal and legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees of each Executive. If any
Executive shall die while any amount would still be payable to
such Executive (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of the
Agreement to the executors, personal representatives or
administrators of the Executive's estate.
6.7 The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Agreement,
and shall not be employed in the construction of the Agreement.
6.8 The Agreement shall not be funded. The Executive shall not have
any right to, or interest in, any assets of the Employer which may
be applied by the Employer to the payment of benefits or other
rights under the Agreement.
6.9 All notices and all other communications provided for in the
Agreement (i) shall be in writing, (ii) shall be hand delivered,
sent by overnight courier or by United States registered mail,
return receipt requested and postage prepaid, addressed, in the
case of the Employer, to the principal office of the Employer,
attention President, and in the case of the Company, to 2855
Campus Drive, San Mateo, California 94403, attention General
Counsel, and in the case of the Executive, to the last known
address of the Executive, and (iii) shall be effective only upon
actual receipt.
6.10 The Agreement shall be construed and enforced according to the
laws of the State of Delaware (without giving effect to the
conflict of laws principles thereof) to the extent not preempted
by federal law, which shall otherwise control.
EXHIBIT A
---------
WAIVER AND RELEASE OF CLAIMS
----------------------------
In consideration of, and subject to, the payment to be made to me by
____________ (the "Employer") of the "Severance Payment" (as defined in the
Severance Agreement, dated as of _________, entered into between me and the
Company (the "Agreement")), I hereby waive any claims I may have for
employment or re-employment by the Employer or any parent or subsidiary of
the Employer after the date hereof, and I further agree to and do release and
forever discharge the Employer and any parent or subsidiary of the Employer,
and their respective past and present officers, directors, shareholders,
insurers, employees and agents from any and all claims and causes of action,
known or unknown, arising out of or relating to my employment with the
Employer or any parent or subsidiary of the Employer, or the termination
thereof, including, but not limited to, wrongful discharge, breach of
contract, tort, fraud, the Civil Rights Acts, Age Discrimination in
Employment Act, Employee Retirement Income Security Act of 1974, Americans
with Disabilities Act, or any other federal, state or local legislation or
common law relating to employment or discrimination in employment or
otherwise.
Notwithstanding the foregoing or any other provision hereof, nothing in this
Waiver and Release of Claims shall adversely affect (i) my rights to
Severance Benefits under the Agreement; (ii) my rights to benefits other than
severance payments or benefits under plans, programs and arrangements of the
Employer or any parent or subsidiary of the Employer; or (iii) my rights to
indemnification under any indemnification agreement, applicable law or the
certificates of incorporation or bylaws of the Employer or any parent or
subsidiary of the Employer, (iv) my rights under any director's and officers'
liability insurance policy covering me, (v) my workers compensation rights,
or (vi) my unemployment insurance rights.
I acknowledge that I have signed this Waiver and Release of Claims
voluntarily, knowingly, of my own free will and without reservation or
duress, and that no promises or representations have been made to me by any
person to induce me to do so other than the promise of payment set forth in
the first paragraph above and the Employer's acknowledgment of my rights
reserved under the second paragraph above.
I understand that this release will be deemed to be an application for
benefits under the Agreement and that my entitlement thereto shall be
governed by the terms and conditions of the Agreement and any applicable
plan. I expressly hereby consent to such terms and conditions.
I acknowledge that I have been given not less than forty-five (45) days to
review and consider this Waiver and Release of Claims (unless I have signed a
written waiver of such review and consideration period), and that I have had
the opportunity to consult with an attorney or other advisor of my choice and
have been advised by the Company to do so if I choose. I may revoke this
Waiver and Release of Claims seven days or less after its execution by
providing written notice to the Employer.
I acknowledge that it is my intention and the intention of the Employer in
executing this Waiver and Release of Claims that the same shall be effective
as a bar to each and every claim, demand and cause of action hereinabove
specified. In furtherance of this intention, I hereby expressly waive any and
all rights and benefits conferred upon me by the provisions of SECTION 1542
OF THE CALIFORNIA CIVIL CODE, to the extent applicable to me, and expressly I
consent that this Waiver and Release of Claims shall be given full force and
effect according to each and all of its express terms and provisions,
including as well those related to unknown and unsuspected claims, demands and
causes of action, if any, as well as those relating to any other claims,
demands and causes of action hereinabove specified. SECTION 1542 provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR."
I acknowledge that I may hereafter discover claims or facts in addition to or
different from those which I now know or believe to exist with respect to the
subject matter of this Waiver and Release of Claims and which, if known or
suspected at the time of executing this Waiver and Release of Claims, may
have materially affected this settlement.
Finally, I acknowledge that I have read this Waiver and Release of Claims and
understand all of its terms.
_________________________________________________________
Signature of Executive
_________________________________________________________
Print Name
_________________________________________________________
Date Signed
EXHIBIT B
---------
Assignment and Assumption of
Severance Agreement
Between ____________ and
______________,
As of ___________
____________ (the "Old Employer") and ______________ (the "Executive") have
entered into a Severance Agreement dated ______________ (the "Agreement").
The Executive is transferring employment from the Old Employer to
____________ (the "New Employer"), effective ________. The fourth bullet of
the Agreement provides that, if the Executive transfers to the Company or an
Affiliate, the Old Employer shall assign the Agreement to the Company or
Affiliate. To order to carry out the provisions of the fourth bullet of the
Agreement -
1. The Old Employer hereby assigns the Agreement to the New Employer.
2. The New Employer hereby assumes the obligations of the Old Employer
under the Agreement.
3. The assignment and assumption are effective as of the date employment is
transferred.
4. The Executive hereby acknowledges receipt of notice of the assignment
and assumption.
- -----------------------------------------------------------------
|THE OLD EMPLOYER |THE NEW EMPLOYER |
| | |
| | |
|By: ___________________________|By: ___________________________|
|Name: |Name: |
|Title: |Title: |
- -----------------------------------------------------------------
| | |
|EXECUTIVE | |
| | |
| | |
|______________________________ | |
|Name: Herbert J. Schmidt | |
- -----------------------------------------------------------------