EXHIBIT 10.7
SEVERANCE AGREEMENT
This Severance Agreement is entered into this ____ day of
July, 1997 between Tejon Ranch Co., a Delaware corporation
(the "Company") and _______ (the "Executive").
R E C I T A L S
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.
A G R E E M E N T
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
or (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 of termination delivered pursuant to Section 5 or, if
no date is 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 referred to in Section 1 shall
include and be limited to the following:
(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 [up 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 Average 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;
(d) 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 of
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 a
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 as 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
should not have been withheld, with interest for the 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 transaction 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 the event unless
in the case of (a) or (b)(ii) the requisite change in the
majority of the Board of Directors of the Company or the
successor owner of its business does not occur at that 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" includes 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)
and (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 a 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 reasonably 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 "Good 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 exist, 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 three
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 calculatlion in
(c)(ii) above shall be based on the actual amount of the bonus
when it is determined and the 180 day period referred 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 earning 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 may 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. Judgment 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: (Address)