SEVERANCE AGREEMENT
This Severance Agreement is entered into this 16th day of July,
1997 between Tejon Ranch Co., a
Delaware corporation (the "Company") and EMPLOYEE NAME (the
"Executive").
RECITALS
The Company considers it essential and in the best interest of
its stockholders to foster the
continuous employment of key management personnel. The Company
further recognizes that, as in the
case of many publicly held corporations, the possibility of a
change of control of the Company may
exist and that such possibility, and the uncertainty and
questions which it may raise among
management, may create concerns for, and the distraction of,
management personnel and may even result
in departures which might have otherwise not have taken place,
all to the detriment of the Company and
its stockholders. The Company now desires to take steps to
reinforce and encourage the continued
attention and dedication of members of the Company'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 of control of the Company.
AGREEMENT
1. Payment of Severance Benefits Upon Change of Control. In
the event of a Change of Control of the Company (as defined in
Section 3) during the two-year period from the date of this
Agreement, Executive shall be entitled to the Severance Benefits
set forth in Section 2, but only if:
a. the Executive's employment by the Company or the
successor owner of its business is terminated
by the Company or such successor without Cause (as
defined in Section 4) during the two years
after the occurrence of the Change of Control;
b. the Executive terminates his or her employment with
the Company or its successor for Good Reason
(as defined in Section 5) during the two years after
the occurrence of the Change of Control;
c. the Executive's employment by the Company is
terminated by the Company within three months prior
to the Change in Control and such termination (i) was
at the request of a third party who had
taken steps to effect the Change in Control at the
time of the request of (ii) otherwise arose
in connection with or in anticipation of the Change in
Control; or
d. the Executive terminates his or her employment with
the Company for Good Reason during the
period commencing three months prior to the Change in
Control and the event referred to in Section 5 (a),
(b) or (c) constituting Good Reason (i) occurs at the
request of a third party who had taken steps to effect
the Change in Control at the time of the request or
(ii) otherwise arose in connection with or in
anticipation of the Change in Control.
Any resignation by the Executive at the request of the Board of
Directors shall be treated as a termination by the Company
pursuant to (a) or (c) above (whichever is applicable) but shall
not necessarily mean that the requirements of (c)(i) or (ii) have
been satisfied. The effective date of any termination of
employment referred to in (a) or (c) above shall be the date
specified by the Company or the successor owner of its business,
and the effective date of any termination of employment referred
to in (b) or (d) above shall be the date specified in the notice,
the date specified by the Executive orally or, if no such date is
specified orally, the date the Executive ceases working for the
Company or the successor owner of its business on a full time
basis.
2. Definition of Severance Benefits.
2.1 Amount of Benefits. Except as provided in Section 2.2, the
Severance Benefits
a. continuation of payments equal to the Executive's base
salary (at the greater of the rate in effect
immediately prior to the Change in Control or the rate
in effect immediately prior to the termination of his
or her employment) for a period of 30 full months
after the effective date of termination of the
Executive's employment as described in Section 1, such
payments to be made on the same dates the Executive's
salary would have been paid if his or her employment
had not terminated;
b. payments equal to the Executive's Three-Year Average
Bonus (as defined in Section 6), for each of the two
full fiscal years commencing after the effective date
of the termination of his or her employment plus a
payment equal to one-half of the Executive's Three-Year
Average Bonus for the third full fiscal year commencing
after such termination, such payments to be made on the
dates the Executive's bonuses for those years would
have been paid if his or her employment had not
terminated;
c. a payment equal to either (i) a prorated portion of the
Executive's bonus for the year in which the effective
date of termination of the Executive's employment
occurs based upon the number of days in the year prior
to such termination of employment as compared to the
full year, but only if all performance and other
criteria for earning the bonus have been satisfied as
of the date of termination (other than the criterion
that the Executive continue to be employed) or (ii) if
such performance criteria have not been established or
satisfied as of the effective date of termination, then
such prorated portion of the Executive's Three-Year
Bonus, such payment to be made in the case of either
(i) or (ii) above on the date the Executive's bonus for
the year of termination would have been paid if his or
her employment had not terminated; continuation of the
Company's contribution to health and life insurance
benefits for the period from the effective date of
termination of employment until the earlier of
expiration of the period of salary continuation
referred to in (a) above or the date the Executive
becomes employed on a full-time basis by another
employer and is covered by a medical plan provided by
such employer with no remaining applicable exclusions
for pre-existing conditions;
e. if the Executive has the right to use a Company car or
a country club membership at the expense of the
Company, continuation of such use for a period of three
months after the effective date of termination of the
Executive's employment; and
f. if the Executive's principal residence is a house owned
and provided by the Company, continuation of the use of
such residence rent-free for a period of three months
after termination of Executive's employment, the right
to rent such residence for an additional three months
at a monthly rent of $750 and the right to rent such
residence for an additional two months at a monthly
rental of $1,500.
In addition to the foregoing Severance Benefits, the Executive
will continue to be entitled to his or her benefits under the
Company's existing Pension Plan and Supplemental Executive
Retirement Plan as determined in accordance with the terms of
those plans taking into account the termination of the
Executive's employment. If the Executive has been credited with
more than 15 years of service under such plans as of the
effective date of termination of his or her employment, he or she
shall also be credited with additional years of service under the
plans for the period of salary continuation referred to in (a)
above to the extent such credit is permitted by the plans.
Notwithstanding (a) through (f) above, in the case of termination
of employment prior to the occurrence of a Change of Control, the
Company shall have no obligation to pay or provide any
Severance Benefits prior to the occurrence of the Change of
Control and, to the extent Section 1(c) or (d) applies, the
amount of Severance Benefits shall be determined as if the
Executive's employment terminated effective upon the occurrence
of the Change of Control, except that the Company shall have
no obligation to provide the benefits in (e) or (f) above to the
extent that, upon the occurrence of the Change in Control, those
benefits would have already terminated had they commenced on the
date of termination of employment.
Notwithstanding (b) and (c) above, the benefits set forth in
those subparagraphs shall not be payable if the Executive had
been advised, prior to the Change in Control, that he or she
would not be eligible to earn a bonus for the year in which the
termination of employment becomes effective.
2.2 Reduction of Amount of Severance Benefits. In the event
the Company determines that payment of any of the Severance
Benefits would result in the imposition of any tax imposed by
Section 4999 of the Internal Revenue Code of 1986 (or any
successor statute) and the regulations thereunder, the Severance
Benefits shall be reduced to such extent as the Company
determines is necessary to avoid the imposition of any such tax.
Such reductions shall first be made in the bonus payments
referred to in Section 2.1(b) in reverse chronological order and
thereafter, if necessary, to the payments referred to in Section
2.1(c) and the salary payments referred to in Section 2(a) in
that order of priority and each in reverse chronological order.
2.3 Resolution of Disagreements. The Company shall make its
determination as to whether any reduction in Severance Benefits
is required pursuant to Section 2.2 within 15 days after the
termination of the employment of the Executive and again promptly
after the Executive exercises any stock options and shall deliver
to the Executive written notice of the determination together
with the Company's detailed calculations supporting its
conclusion. If the Executive does not agree with the Company's
determination, he or she shall notify the Company in writing
of that disagreement within 30 days after receipt of the
Company's notice and detailed calculations. Failure to give such
notice of disagreement shall be deemed to constitute acceptance
of the determination by the Company and such determination shall
become final and binding on the parties. The notice by the
Executive shall set forth in reasonable detail why the Executive
disagrees with the determination made by the Company and shall be
accompanied by the Executive's detailed calculations supporting
his or her conclusion. If the Company and the Executive have not
resolved their disagreement within ten days after the Company
receives the Executive's notice and detailed calculations, the
Company and the Executive shall refer the matter to the firm then
serving a s the independent certified public accountants of the
Company, whose determination shall be final and binding on both
parties. The Company will endeavor to cause the accounting firm
to give both the Executive and the Company written notice of its
determination accompanied by its detailed calculations. If the
Company does not then have a firm serving as its independent
certified public accountants or if the firm then serving in that
capacity refuses to resolve the matter or fails to provide
written notice of its determination accompanied by its detailed
calculations within 30 days after the matter is referred to it,
then either party will have the right to commence an arbitration
pursuant to Section 13 to resolve the matter. The fees and
expenses of the accounting firm will be paid by the Company.
If the Company determines that payment of the full Severance
Benefits will result in the imposition of a tax as provided
above, the Company will have the right to withhold from the
payment of Severance Benefits the amount of any reduction
determined by it in accordance with Section 2.2. If the
Executive disagrees with the determination by the Company, the
Company shall have the right to continue to withhold the payments
of such amounts until the matter is finally resolved. If such
resolution indicates that the Company's determination was
incorrect, the Company shall promptly pay to the Executive any
amount of Severance Benefits which would not have been withheld,
with interest forthe period that the payment was withheld at the
reference rate then in effect of the Bank of America National
Trust and Savings Association. If such final resolution
indicates that the Company did not
withhold sufficient funds from the payment of Severance Benefits,
the Executive shall promptly refund to the Company any amount
which should have been withheld with interest determined as
provided above.
3. Definition of Change of Control.
3.1 Events Constituting Change of Control. For purposes of
this Agreement, a "Change of Control" of the Company shall be
deemed to have occurred if any one of the following events
occurs:
a. except as provided in Section 3.3, the acquisition by
any person or group of beneficial ownership of 28% or
more of the outstanding shares of Common Stock of the
Company or, if there are then outstanding any other
voting securities of the Company, such acquisition of
28% or more of the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors, but
only if at the time of the acquisition or within one
year thereafter the Board of Directors of the Company
(if the Company continues to own its business), or the
Board of Directors of any successor owner of its
business consists of a majority of directors who are
not Incumbent Directors;
b. the Company sells all or substantially all of its
assets (or consummates any transaction having
a similar effect) or the Company merges or consolidates
with another entity or completes a reorganization,
except that:
i. no such transaction shall be deemed to
constitute a Change of Control if the holders
of the voting securities of the Company
outstanding immediately prior to the
transaction own immediately after the
transaction in approximately the same
proportions more than 72% of the
combined voting power of the voting
securities of the entity purchasing the
assets or surviving the merger or
consolidation or, in the case of a
reorganization, more than 72% of the combined
voting power of the voting securities of the
Company; and
ii. no such transactions shall be deemed to
constitute a Change of Control if:
A. the holders of the voting securities of
the Company outstanding immediately
prior to the transaction own immediately
after the transaction in approximately
the same proportions less than 72% but
more than 50% of the combined voting
power of the voting securities of the
entity purchasing the assets or
surviving the merger or consolidation
or, in the case of a reorganization,
less than 72% and more than 50% of the
combined voting power of the voting
securities of the Company unless
B. at the time of the acquisition or within
one year thereafter the Board of
Directors of the Company (if the Company
continues to own its business), or the
Board of Directors of any successor
owner of its business consists of a
majority of directors who are not
Incumbent Directors;
c. the Company is liquidated; or
d. The Board of Directors of the Company (if the Company
continues to own its business) or the board of
directors or comparable governing body of any successor
owner of its business (as a result of a transaction
which is not itself a Change of Control) consists of a
majority of directors or members who are not Incumbent
Directors.
For purposes of this Agreement, any Change of Control as a result
of an event described in (a), (b), (c) or (d) above will be
deemed to have occurred upon the occurrence of f the event unless
in the case of (a) or (b)(ii) the requisite change in the
majority of the Board of Directors or the Company or the
successor owner of its business does not occur at the time, in
which event the Change of Control, if any, will be deemed to
occur upon such change in the majority of such Board of Directors
(provided that such change occurs within the one year period
referred to above).
3.2 Definition of Incumbent Directors. For purposes of Section
3.1 and subject to the last sentence of this Section 3.2,
"Incumbent Directors" include only those persons who are:
i. serving as directors of the Company on the
date of this Agreement,
ii. elected by a majority of the directors
referred to in (i) or selected by a majority
of such directors to be nominated for
election by the stockholders and are elected
or
iii. elected by a majority of the directors
referred to in (i) or (ii) or selected by a
majority of such directors to be nominated
for election by the stockholders and are
elected.
Notwithstanding the foregoing, directors elected or selected as
provided in (ii) or (iii) above after an event described in
Section 3.1(a) or 3.1(b)(ii) shall not be Incumbent Directors
unless they satisfy all of the following requirements:
A. they were elected to fill a vacancy resulting from the
resignation of or the failure to re-nominate a director who is
then 70 years of age or older or to replace a director who has
died or ceases to be a director (by resignation, removal or
otherwise) as a result of physical or mental disability;
B. they are not, officers, directors or employees of (or hold
any comparable position with respect to), or have record or
beneficial ownership of more than one percent (1%) of the
outstanding shares or other equity interests of, any person or
member of any group which acquires Common Stock or other voting
securities of the Company as described in Section 3.1(a) or
3.1(b)(ii) or any affiliate of any such person or member, or a
spouse or relative of any such officer, director, employee,
record or beneficial owner, person, member of a group or
affiliate;
C. during the five years prior to their becoming directors,
they have not had any relationship with any person or member of
any group which acquires Common Stock or other voting securities
of the Company as described in Section 3.1(a) or 3.1(b)(ii) or
any affiliate of any such person or member that would be required
by Item 404(b) of Regulation S-K or any successor provision to be
disclosed in proxy statement for such person, member or affiliate
if such person, member or affiliate were subject to the rules of
the Securities and Exchange Commission applicable to the
solicitation of proxies and had solicited proxies for a fiscal
year while, or the fiscal year immediately after, such
relationship existed; and
D. they have not been suggested, designated or selected for
nomination as a director by any officer, director, employee,
record or beneficial owner, person, member of a group, affiliate,
spouse or relative referred to in (B) above (except that merely
participating as a director of the Company in a vote of the
directors of the Company to elect, nominate or designate for
nomination a candidate for a directorship shall not mean that the
candidate was "suggested, designated or selected for nomination"
by such director within the meaning of this Clause D).
3.3 Exception for Certain Acquisitions of Stock. Section
3.1(a) shall not include any acquisition of beneficial ownership
of Common Stock or other voting securities of the Company (i)
directly from the Company or (ii) by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
entity controlled by the Company. In the event of the redemption
of outstanding shares of Common Stock or other voting securities
by the Company, any resulting increase in the percentage of
outstanding shares or other voting securities beneficially owned
by any person or group shall be taken into account in determining
whether the percentage in Section 3.1(a) has been met or exceeded
except as provided in the following sentence. No acquisition of
additional outstanding shares of Common Stock or other voting
securities of the Company by Ardell Investment Company, M.H.
Sherman Company, The Times Mirror Company or the Times Mirror
Foundation and no increase in the percentage of outstanding
shares or other voting securities beneficially owned by any of
them resulting from any redemption of shares or other voting
securities by the Company shall result in a Change of Control
pursuant to Section 3.1(a) unless, in either case, the resulting
increase in the percentage of beneficial ownership of Ardell
Investment Company and M.H. Sherman Company in the aggregate or
by The Times Mirror Company and the Times Mirror Foundation in
the aggregate exceeds 10%.
3.4 Definition of Person, Acquisition, Group and Beneficial
Ownership. For purposes of this Agreement the term "person"
shall have the meaning set forth in the Securities Exchange Act
of 1934 and the terms "acquisition," "group," and "beneficial
ownership" shall have the meanings set forth in Rules 13d-3 and
13d-5 of the Rules of the Security and Exchange Commission
adopted under the Securities Exchange Act of 1934.
4. Definition of Termination for Cause. The Executive's
employment shall be deemed to have been terminated for "Cause" if
such employment terminates as a result of:
a. the death of the Executive;
b. the Executive becoming unable to perform the essential
duties of his or her position, even with reasonable
accommodation, as a result of any physical or mental condition
for a period of more than ninety (90) consecutive days or for
ninety (90) nonconsecutive days in any three hundred sixty-five
(365) day period; or
c. the Executive's professional dishonesty; willful
misconduct; breach of fiduciary duty involving self-dealing or
personal profits; intentional failure to perform duties or abide
by Company policies, in each case to the extent such duties or
policies have been communicated to the Executive in writing or
their existence is otherwise known to the Executive and the
Executive has not cured such failure within a reasonable time
after notice of such failure is given to him
or her; conviction, entry of a plea of guilty or nolo contendere
in connection with any alleged violation or an actual violation
of any law, rule, regulation (other than traffic violations or
similar offenses) or any cease-and-desist or other court order;
involvement in any legal proceeding which, in the opinion of
legal counsel to the Company, would be required to be disclosed
pursuant to Item 401(d) of Regulation S-K of the Securities and
Exchange Commission; any non-prescription use of any controlled
substance or the use of alcohol or any other non-controlled
substance which the Board of Directors of the Company reasonable
determines renders the Executive unfit to serve in his or her
capacity as an officer of the Company; or any act or omission
which has a material adverse effect on the public image,
reputation or integrity of the Company.
5. Definition of "Good Reason". For purposes of this
Agreement the Executive shall be deemed to have terminated his or
her employment for "God Reason" if such a termination results
from:
a. a substantial reduction in the duties and responsibilities
of the Executive below those he or she had in the position he or
she held immediately prior to the Change in Control;
b. the Company shall require the Executive to have as his or
her principal location of work any location which is not within
75 miles of Lebec, California.
c. the Company shall (i) reduce the base salary of the
Executive by more than 5% or (ii) change the objective criteria
for calculating the annual bonus that can be earned by the
Executive or, if no such objective criteria exists, change the
amount of the annual bonus such that, in either case, the
Executive cannot reasonably be expected to earn in salary and
bonus combined (taking into account any reduction in salary
referred to in (i) above) at least 90% of the average amount he
or she had earned in salary and bonus combined for the last thee
full fiscal years preceding the year for which the bonus is
changed or such lesser number of full fiscal years during which
the Executive has been employed by the Company; or
d. the Company fails to require a successor to expressly
assume this Agreement as required in Section 9 below.
If objective criteria for calculating the amount of the annual
bonus of the Executive are not established prior to or during the
year for which the bonus is paid, then the calculation in (c)(ii)
above shall be based on the actual amount of the bonus when it is
determined and the 180 day periodreferred in the following
paragraph shall not begin to run until the amount of the bonus is
known to the Executive.
Notwithstanding the foregoing, none of the events referred to in
(a) through (c) above shall constitute Good Reason unless the
Executive gives written notice to the Company of his or her
election to terminate his or her employment for such reason
within 180 days after he or she becomes aware of the existence of
facts or circumstances constituting Good Reason. Such notice
shall set forth in reasonable detail the facts and circumstances
constituting the Good Reason and, if the Good Reason is a curable
condition, shall provide the Company with 30 days to cure such
condition. The notice shall also specify the date when the
termination of employment is to become effective (if the Good
Reason is not curable or is curable and not cured within the 30
days), which date shall be not less than 60 days and not more
than 180 days from the date the notice is given.
6. Definition of "Three-Year Average Bonus". For purposes of
determining the amount of the Severance Benefit referred to in
Section 2.1(b) and (c) (subject to the last paragraph of Section
2.1), an Executive's "Three-Year Average Bonus" shall be deemed
to be the average of the bonuses paid for the three most recent
full fiscal years preceding the date of termination of the
Executive's employment, or, if the Executive was not an executive
officer of the Company during such three year period or could not
have earned a bonus during such three year period, then (subject
to the last paragraph of Section 2.1) the average annual bonus
for such shorter time that he or she was an executive officer of
the Company and could have earned a bonus. Notwithstanding the
foregoing, if all performance and other criteria for earnings the
bonus for the year in which termination of the Executive's
employment occurs have been satisfied as of the effective date of
such termination (other than the criterion that the Executive
continued to be employed), then the full bonus for that year and
the two most recent full fiscal years shall be averaged to
determine the Three-Year Average Bonus.
7. Employment At Will. The employment relationship
contemplated by this Agreement is an at will relationship under
which either the Executive or the Company has the right at any
time to terminate the employment relationship with or without
Cause or Good Reason and without notice, subject only to the
payment of the Severance Benefits set forth in Section 2 to the
extent that they become payable under the terms of this
Agreement. Nothing in this Agreement is intended to create a
term of employment for a period of years or otherwise.
8. Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of
any Severance Benefit provided for in this Agreement be reduced
by any compensation earned by Executive as a result of employment
by another employer, except as provided in Section 2.1(d).
Notwithstanding the foregoing, in the event that the Executive is
entitled, by operation of any applicable law, to unemployment
compensation benefits or benefits under the Worker Adjustment
and Retraining Act of 1988 (known as the "WARN" Act) in
connection with the termination of his or her employment in
addition to those required to be paid to him or her under this
Agreement, then to the extent permitted by applicable statutory
law governing severance payments or notice of termination of
employment, the Company shall be entitled to offset the amounts
payable hereunder by the amounts of any such statutorily mandated
payments.
9. Assumption of Agreement. The Company will require any
successor (whether by purchase of assets, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
all of the obligations of the Company under this Agreement.
10. Assignment and Successors in Interest. This Agreement is
personal to the Executive and is not assignable by him or her.
This Agreement shall inure to the benefit of and be enforceable
by the Executive and his or her personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees.
11. Withholding Taxes. Any payments provided for hereunder
shall be paid net of any applicable withholding required under
federal, state or local law.
12. Covenants of Executive. During the period that Executive
is receiving payments described in Section 1(a) above, he or she
will not solicit any employees to accept employment for any other
person or entity and will not disclose to any person or entity,
except as necessary to enforce this Agreement or as required by
law, any information concerning the Company or its business that
Executive knows to be of a confidential or non-public nature.
13. Notice. All notices, requests, demands and other
communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when personally
delivered, in the case of the Company to an executive officer
other than the Executive, or when mailed by United States mail,
postage prepaid, return receipt requested, addressed, in the case
of the Company to 4436 Lebec Road, Lebec, California 93243 or, in
the case of the Executive to the address set forth beneath his or
her signature hereto, or such other address as my be provided by
either party as to himself, herself or itself in the manner set
forth above.
14. Arbitration. Except as provided in Section 2.3, all
disputes or controversies arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Los
Angeles or Bakersfield, California in accordance with the rules
of the American Arbitration Association then in effect, provided
that the arbitrator or arbitrators shall decide the dispute or
controversy in accordance with California law as applied to this
Agreement. Judgement may be entered on the arbitrator's award in
any court having jurisdiction.
15. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws
of the State of California applicable to the agreements between
residents of California to be performed entirely within
California.
16. Attorneys' Fees. In the event of any litigation or
arbitration arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover his, her or its
reasonable attorneys' fees incurred in connection therewith.
17. Entire Agreement. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter
contained herein and supersedes all prior agreements, promises,
covenants, arrangements, commitments, communications,
representations, or warranties, whether oral or written.
18. Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by parties hereto.
No waiver by either party hereto at any time of any breach by the
other party or of any right or remedy under this Agreement shall
constitute a waiver of any other breach, right or remedy,
whether or not similar in nature.
19. Counterparts. This Agreement may be executed in two
counterparts each of which shall be deemed an original but both
of which together shall constitute one and the same instrument.
TEJON RANCH CO.
By: /s/ Robert A. Stine /s/ EMPLOYEE SIGNATURE
Employee Address