CHANGE IN CONTROL AGREEMENT
This Agreement, dated April 15, 1996, is made by and between
National Computer Systems, Inc., a Minnesota corporation (the "Company"), and
______________________________ (the "Executive").
The Board of Directors of the Company 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 of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control of the Company. The
Board believes that it is imperative to diminish the inevitable distraction of
the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change in Control, to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change in Control and to provide the Executive with
compensation and benefit arrangements upon a Change in Control which ensure that
the compensation and benefit expectations of the Executive will be satisfied and
which are competitive with those of other corporations. To accomplish these
objectives, the Board has authorized this Agreement.
In consideration of the premises and the mutual covenants
contained in this Agreement, the Company and the Executive agree as follows:
1. Definitions. The definitions set forth in Exhibit A to this
Agreement are incorporated herein by reference.
2. Term of Agreement. This Agreement shall continue in effect
until the earliest of (i) termination of Executive's employment prior to a
Change in Control, (ii) a Payment Event shall have occurred and the Company
shall have performed all of its obligations and satisfied all of its liabilities
under this Agreement or (iii) January 31 of the year following at least six
months' notice of nonrenewal by either party if such January 31 occurs prior to
a Change in Control.
3. Severance Payments. Upon a Payment Event, in lieu of any
further salary payments and any cash severance benefit otherwise payable to the
Executive, (a) the Company shall pay to the Executive in cash, within 10 days of
the Payment Event, the Severance Payment and (b), for an 18-month period after
the Payment Event or until such earlier time that the Executive becomes
reemployed, the Company shall arrange to provide the Executive with life,
accident and health insurance benefits substantially similar to those that the
Executive was receiving upon a Change in Control. Notwithstanding any provision
of any incentive compensation plan requiring continued employment after the
completed fiscal year or other measuring period as a condition to payment, the
Company shall pay to the Executive an amount, in cash, equal to the amount of
any incentive compensation that was allocated or awarded to the Executive for a
completed fiscal year or other measuring period preceding the occurrence of a
Payment Event not yet paid to the Executive.
4. Acceleration of Vesting. Notwithstanding the terms of any
option, restricted stock grant, stock appreciation right, performance share plan
or any other agreement, now existing or hereafter entered into, in which
Executive receives an interest in stock of the Company or a right to obtain an
interest in stock in the Company or whose economic value depends upon the stock
performance of the Company ("Award"), subject to the passage of time, a future
event or the payment of money, such Award shall accelerate and become fully
vested upon a Payment Event as though all time had passed, all events had
occurred and all performances had been attained.
5. Limitation on Payments. In the event that any payment or
benefit received or to be received by Executive (whether payable pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (collectively the "Total Payments") would not be deductible (in whole or
in part) by the Company as a result of Section 280G of the Code, the Total
Payments shall be reduced until no portion of the Total Payments is not
deductible as a result of Section 280G of the Code. For purposes of this
limitation (i) no portion of the Total Payments the receipt or enjoyment of
which Executive shall have effectively waived in writing prior to the date of
payment of the Severance Payments shall be taken into account, (ii) no portion
of the Total Payments shall be taken into account which in the opinion of tax
counsel selected by the Company's independent auditors and acceptable to
Executive does not constitute a "parachute payment" within the meaning of
Section 280G(b) (2) of the Code, (iii) the Severance Payments shall be reduced
only to the extent necessary so that the Total Payments (other than those
referred to in clause (ii)) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4) of the
Code, in the opinion of the tax counsel referred to in clause (ii), and (iv) the
value of any non-cash benefit or any deferred cash payment included in the Total
Payments shall be determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
6. Fees and Expenses. The Company shall pay to the Executive
reasonable legal fees and reasonable expenses incurred in good faith by the
Executive in obtaining the Severance Payment (including, but not limited to, all
such fees and expenses, if any, in seeking in good faith to obtain or enforce
any benefit or right provided by this 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 payment
shall be made within five business days after delivery of the Executive's
written request for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
7. No Mitigation. The Company agrees that if a Payment Event
occurs, the Executive is not required to seek other employment or to attempt in
any way to reduce any amounts payable to the Executive by the Company. The
amount of any payment or benefit provided for in Section 3 (other than clause
(b)) shall not be reduced 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 Company or any
Subsidiary, or otherwise.
8. Miscellaneous.
(a) Governing Law. All matters relating to the interpretation,
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the State of Minnesota without giving effect to any choice
or conflict of law provision or rule (whether of the State of Minnesota or any
other jurisdiction) that would cause the application of laws of any jurisdiction
other than the State of Minnesota.
(b) Entire Agreement. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
(c) Amendments. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.
(d) No Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
(e) Successor to Company. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place.
(f) Successor to Executive. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (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 this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
(g) Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon actual receipt:
To the Company:
National Computer Systems, Inc.
P.O. Box 9365
Minneapolis, MN 55440
To the Executive:
__________________________
11000 Prairie Lakes Drive
Eden Prairie, MN 55344
(h) Counterparts. This Agreement may be simultaneously
executed in any number of counterparts, and such counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
(i) Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect.
(j) Captions and Headings. The captions and paragraph headings
used in this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of this Agreement or any of the
provisions hereof.
IN WITNESS WHEREOF, Executive and the Company have executed
this Agreement as of the date set forth in the first paragraph.
NATIONAL COMPUTER SYSTEMS, INC.
By: /S/ Russell A. Gullotti
Russell A. Gullotti
Its: Chairman, President and Chief
Executive Officer
-------------------------------
Executive
EXHIBIT A
"Acquiring Person" shall mean any Person who or which, alone
or together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the shares of Common Stock then outstanding,
but shall not include the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding shares of Common Stock organized, appointed or established for, or
pursuant to the terms of, any such plan. For purposes of this Agreement, any
calculation of the number of shares of Common Stock outstanding at any
particular time, including for purposes of determining the particular percentage
of such outstanding shares of Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i)
of the General Rules and Regulations under the Exchange Act.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Applicable Incentive Amount" means the pro rata maximum
amount payable to the Executive pursuant to all incentive compensation plans
with a performance period commencing coincident with or most recently prior to
the date on which the Change in Control or Payment Trigger, whichever applies,
occurs, assuming that the Executive were continuously employed by the Company or
a Subsidiary until the last day of the performance period.
"Beneficial Owner" means beneficial owner (as defined in Rule
13d-3 under the Exchange Act) and "beneficially own" has a meaning correlative
therewith.
"Cause" means (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the Company or a
Subsidiary, as such duties may be defined from time to time, or abide by the
written policies of the Company or of the Executive's primary employer (other
than any such failure resulting from the Executive's termination for Good Reason
by the Executive) after a written demand for substantial performance is
delivered to the Executive by the Board of Directors which demand specifically
identifies the manner in which the Board of Directors believes that the
Executive has not substantially performed the Executive's duties or has not
abided by written policies, or (ii) the willful engaging by the Executive in
conduct which is demonstrably and materially injurious to the Company or its
Subsidiaries, 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 Company and its Subsidiaries.
"Change in Control" means (i) a public announcement (which,
for purposes of this definition, shall include, without limitation, a report
filed pursuant to Section 13(d) of the Exchange Act) is made by the Company or
any Person that such Person has become an Acquiring Person, unless approved by
the Board of Directors, (ii) a public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) is made by the Company or any Person that
such Person beneficially owns more than 50% of the Common Stock, regardless of
whether approved by the Board of Directors, (iii) a tender or exchange offer by
any Person (other than the Company, any Subsidiary of the Company or any
employee benefit plan of the Company or of any Subsidiary of the Company or any
entity holding shares of Common Stock organized, appointed or established for,
or pursuant to the terms of, any such plan) is commenced (within the meaning of
Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act), if,
upon the consummation thereof, such Person would be an Acquiring Person, (iv)
the Company enters into a merger, consolidation or statutory share exchange with
any other Person in which the surviving entity would not have as its directors
at least 60% of the Continuing Directors and would not have at least 60% of its
common stock owned by the common shareholders of the Company prior to such
merger, consolidation or statutory share exchange, or (v) a sale or disposition
of all or substantially all of the assets of the Company or the dissolution of
the Company.
"Code" means the Internal Revenue Code of 1986, as the same
may be amended from time to time.
"Common Stock" means the Company's Common Stock, $.03 par
value per share.
"Continuing Director" means any Person who is a member of the
Board of Directors of the Company, is not an Acquiring Person or an Affiliate or
Associate of an Acquiring Person or a representative of an Acquiring Person or
of any such Affiliate or Associate, and was a member of the Board of Directors
immediately prior to a Change in Control. A Continuing Director also means any
Person who subsequently becomes a member of the Board of Directors of the
Company and is not an Acquiring Person or an Affiliate or Associate of an
Acquiring Person or a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's initial nomination for election or
initial election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors; provided that any Person who first becomes
a member of the Board of Directors of the Company in connection with a
transaction described by clause (iv) of the definition of "Change in Control"
shall not be a Continuing Director.
"Disability" means any physical or mental illness or
impairment that renders Executive unable to substantially perform all of such
Executive's duties and services hereunder in a satisfactory manner for a period
of 60 consecutive days.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Good Reason" means (i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's position (including
status, office, title and reporting requirement), authority, duties or
responsibilities or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; (ii) the Company's requiring the Executive to be
based at any office or location further than 60 miles from Executive's place of
employment immediately prior to a Change in Control; (iii) any purported
termination by the Company of the Executive's employment otherwise than as
expressly permitted by this Agreement; (iv) any failure by the Company to comply
with and satisfy Section 8(e) of this Agreement, provided that such successor
has received at least ten days prior written notice from the Company or the
Executive of the requirements of Section 8(e) of the Agreement; (v) a reduction
in the Executive's annual base salary as in effect on the date hereof or as the
same may be increased from time to time; (vi) the failure by the Company or a
Subsidiary to pay to the Executive any portion of the Executive's compensation
within seven days of the date of such compensation is due; (vii) the failure by
the Company or a Subsidiary to continue in effect any compensation plan in which
the Executive participates immediately prior to the Change in Control which is
material to the Executive's total compensation unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan or arrangement) has been
made with respect to such plan, or the failure by the Company or a Subsidiary to
continue the Executive's participation therein (or in such substitute or
alternative plan or arrangement) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed at the time of the
Change in Control; or (viii) the failure by the Company or a Subsidiary to
continue to provide the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's or a Subsidiary's
retirement, life insurance, medical, health and accident, or disability plans in
which the Executive was participating at the time of the Change in Control, the
taking of any action by the Company or a Subsidiary which would directly or
indirectly materially reduce any of such benefits or deprive the Executive of
any material fringe benefit enjoyed by the Executive at the time of the Change
in Control, or the failure by the Company or a Subsidiary to provide the
Executive with the number of paid vacation days to which the Executive is
entitled on the basis of years of service with the Company and its Subsidiary in
accordance with the Company's or a Subsidiary's normal vacation policy in effect
at the time of the Change in Control.
"Payment Event" means the occurrence of a Change in Control
coincident with or followed (i) at any time before the end of the 12th month
immediately following the month in which the Change in Control occurred, by the
termination of the Executive's employment with the Company or a Subsidiary for
any reason other than (A) by the Executive without Good Reason, (B) by the
Company as a result of the Disability of the Executive or for Cause or (C) as a
result of the death of the Executive or (ii) in the event the Executive remains
continuously employed by the Company or a Subsidiary until the end of the 12th
month immediately following the month in which the Change in Control occurred,
the termination of the Executive's employment with the Company or a Subsidiary,
at any time during the three-month period immediately following the expiration
of such 12-month period, for any reason other than (A) by the Company as a
result of the Disability of the Executive or (B) as a result of the death of the
Executive. Any transfer of the Executive's employment from the Company to a
Subsidiary, from a Subsidiary to the Company, or from one Subsidiary to another
Subsidiary shall not constitute a termination of the Executive's employment for
purposes of this Agreement.
"Person" means any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"Severance Payment" means an amount equal to the higher of (a)
two times Executive's annual base salary in effect immediately prior to the
occurrence of the Change in Control plus the Applicable Incentive Amount or (b)
two times Executive's annual base salary in effect immediately prior to the
occurrence of the Payment Event plus the Applicable Incentive Amount.
"Subsidiary" means a corporation or other entity or
enterprise, whether incorporated or unincorporated, of which at least a majority
of the securities or other interests having by their terms ordinary voting power
to elect a majority of the board of directors or others serving similar
functions with respect to such corporation or other entity or enterprise is
owned, directly or indirectly, by the Company.