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EXHIBIT 10.1
AGREEMENT
This Agreement, made as of the 17th day of July, 1997 by and between
TOLLGRADE COMMUNICATIONS, INC., a Pennsylvania corporation (the "Corporation")
and TIMOTHY O'BRIEN, an individual residing in the Commonwealth of Pennsylvania
and an employee of the Corporation (the "Executive").
WITNESSETH:
WHEREAS, the Board of Directors of the Corporation has determined that
it is in the best interests of the Corporation to enter into this Agreement
with the Executive to provide for compensation of the Executive upon
termination of employment under certain circumstances relating to a change in
control of the Corporation; and
WHEREAS, the Executive desires to obtain such benefits in the event
the Executive's employment is terminated under the circumstances provided
herein.
NOW, THEREFORE, in consideration of the covenants and premises
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITION OF TERMS. The following terms when used in this
Agreement shall have the meaning hereafter set forth:
"ANNUAL SALARY ADJUSTMENT PERCENTAGE" shall mean the mean average
percentage increase in base salary for all elected officers of the
Corporation during the two full calendar years immediately preceding
the time to which such percentage is being applied; provided however,
that if after a Change-in-Control, as hereinafter defined, there
should be a significant change in the number of elected officers of
the Corporation or in the manner in which they are compensated, then
the foregoing definition shall be changed by substituting for the
phrase "elected officers of the Corporation" the phrase "persons then
performing the functions formerly performed by the elected officers of
the Corporation."
"CAUSE FOR TERMINATION" shall mean:
(a) the deliberate and intentional failure by the Executive to
devote substantially his entire business time and best
efforts to the performance of his duties (other than any such
failure resulting from the Executive's incapacity due to
physical or mental illness or disability) after a demand for
substantial performance is delivered to the Executive by the
Board of Directors which specifically identifies the manner
in which the Board of Directors believes that the Executive
has not substantially performed his duties,
or
(b) wilfully engaging by the Executive in conduct which constitutes a
fraud against the Corporation or a material breach of this
Agreement,
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or
(c) the Executive's conviction of any crime which constitutes a
felony.
For purposes of this definition, no act, or failure to act, on the
Executive's part shall be considered "deliberate and intentional" or
"willfully" unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that his action or
omission was in the best interests of the Corporation.
"CHANGE-IN-CONTROL" shall mean the determination (which may be made
effective as of a particular date specified by the Board of Directors
of the Corporation) by the Board of Directors of the Corporation, made
by a majority vote that a change in control has occurred, or is about
to occur. Such a change shall not include, however, a restructuring,
reorganization, merger, or other change in capitalization in which the
Persons who own an interest in the Corporation on the date hereof (the
"Current Owners")(or any individual or entity which receives from a
Current Owner an interest in the Corporation through will or the laws
of descent and distribution) maintain more than a sixty-five percent
(65%) interest in the resultant entity. Regardless of the Board's vote
or whether or not the Board votes, a Change-in-Control will be deemed
to have occurred as of the first day any one (1) or more of the
following subparagraphs shall have been satisfied:
(a) Any Person (other than the Person in control of the Corporation as
of the date of this Agreement, or other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation, or a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation),
becomes the beneficial owner, directly or indirectly, of
securities of the Corporation representing more than thirty five
percent (35%) of the combined voting power of the Corporation's
then outstanding securities; or
(b) The stockholders of the Corporation approve:
(i) A plan of complete liquidation of the Corporation;
(ii) An agreement for the sale or disposition of all or
substantially all of the Corporation's assets; or
(iii) A merger, consolidation, or reorganization of the Corporation
with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the
voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least sixty-five percent (65%) of
the combined voting power of the voting securities of the
Corporation (or such surviving entity) outstanding
immediately after such merger, consolidation, or
reorganization.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to the Executive, if the Executive is part of a
purchasing group which consummates the Change-in-Control transaction.
The Executive shall be deemed "part of the purchasing group" for
purposes
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of the preceding sentence if the Executive is an equity participant or
has agreed to become an equity participant in the purchasing company
or group (except for (i) passive ownership of less than five percent
(5%) of the voting securities of the purchasing company; or (ii)
ownership of equity participation in the purchasing company or group
which is otherwise deemed not to be significant, as determined prior
to the Change-in-Control by a majority of the non-employee continuing
Directors of the Board of Directors of the Corporation).
"DATE OF TERMINATION" shall mean:
(a) if the Executive's employment is terminated for Disability, the
date that a Notice of Termination is given to the Executive;
(b) if the Executive terminates due to his death or Retirement, the
date of death or Retirement, respectively;
(c) if the Executive decides to terminate employment upon Good Reason
for Termination, the date following such decision specified by the
Corporation after it has been notified of the Executive's decision
to terminate employment; or
(d) if the Executive's employment is terminated for any other reason,
the date on which such termination becomes effective pursuant to a
Notice of Termination.
"DISABILITY" shall mean such incapacity due to physical or mental
illness or injury as causes the Executive to be unable to perform his
duties with the Corporation during 180 consecutive days.
"GOOD REASON FOR TERMINATION" shall mean the occurrence of:
(a) without the Executive's express written consent, the assignment to
the Executive of any duties materially and substantially
inconsistent with his positions, duties, responsibilities and
status with the Corporation immediately prior to a
Change-in-Control, or a material change in his reporting
responsibilities, titles or offices as in effect immediately prior
to a Change-in-Control, or any removal of the Executive from or
any failure to re-elect the Executive to any of such positions,
except in connection with the termination of the Executive's
employment due to Cause for Termination, Disability or Retirement
(as hereinafter defined) or as a result of the Executive's death;
(b) (i) a reduction by the Corporation prior to a Change-in-Control in
the Executive's base salary unless such reduction is the result of
the Board of Directors of the Corporation determining that the
Executive has not adequately discharged his duties;
(ii) a reduction by the Corporation after a Change-in-Control in
the Executive's base salary as in effect immediately prior to any
Change-in-Control or a failure by the Corporation after a
Change-in-Control to increase the Executive's base salary by the
Annual Salary Adjustment Percentage;
(c) a failure by the Corporation to continue to provide incentive
compensation comparable
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to that provided by the Corporation immediately prior to any
Change-in-Control;
(d) a failure by the Corporation after a Change-in-Control to continue
in effect any benefit or compensation plan, stock option plan,
pension plan, life insurance plan, health and accident plan or
disability plan in which the Executive is participating
immediately prior thereto (provided, however, that there shall not
be deemed to be any such failure if the Corporation substitutes
for the discontinued plan, a plan providing the Executive with
substantially similar benefits) or the taking of any action by the
Corporation which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits
under any of such plans or deprive the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to a
Change-in-Control (provided, however, that any act or failure to
act by the Corporation that is on a plan- wide basis, i.e., it
similarly affects all employees of the Corporation or all
employees eligible to participate in any such plan, as the case
may be, shall not constitute Good Reason for Termination);
(e) the failure of the Corporation to obtain the assumption of this
Agreement by any successor as contemplated in SECTION 10(C)
hereof;
(f) any purported termination of the employment of the Executive by
the Corporation which is not (i) due to the Executive's
Disability, Retirement (as hereinafter defined) or Cause for
Termination, or (ii) effected as a Notice of Termination, as
defined herein; or
(g) the Corporation's requiring the Executive to be based anywhere
other than the Corporation's executive offices at which the
Executive has his principal office immediately prior to a
Change-in-Control or executive offices located within 50 miles of
the location of the Corporation's executive offices immediately
prior to a Change-in-Control, except for required travel on the
Corporation's business to an extent substantially consistent with
the Executive's present business travel obligations.
"NOTICE OF TERMINATION" shall mean a written statement which sets
forth the specific reason for termination and, if such is claimed to
be a Cause for Termination or Good Reason for Termination, in
reasonable detail the facts and circumstances which indicate that such
is Cause for Termination or Good Reason for Termination.
"OPTIONS" shall mean any stock options issued pursuant to any present
or future stock option plan of the Corporation.
"PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Securities Exchange Act of 1934, as in effect on the
date hereof and used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) thereof.
"RETIREMENT" shall mean the termination of the Executive's employment
after age 65 or in accordance with any mandatory retirement
arrangement with respect to an earlier age agreed to by the Executive.
"STOCK APPRECIATION RIGHT" shall mean any stock appreciation rights
issued pursuant to any
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stock option plan of the Corporation or any future stock appreciation
rights plan.
2. TERMS OF EMPLOYMENT. The Executive acknowledges that this Agreement
does not constitute an employment contract and that the Executive's employment
relationship with the Corporation is at-will and not for any particular period.
Rather, this Agreement is only intended to set forth certain liquidated damages
to be paid in the event of termination of the Executive upon the terms and
conditions specified herein.
3. TERM OF AGREEMENT. The initial term of this Agreement shall be for
a period of four (4) years. Upon expiration of the initial term, the Company
shall, in its sole discretion, determine whether this Agreement shall be
renewed upon such terms it deems advisable.
4. PAYMENTS FOLLOWING TERMINATION OF EMPLOYMENT UPON A CHANGE-IN-
CONTROL.
(a) If the Executive's employment with the Corporation shall be
terminated:
(i) due to the Executive's death,
(ii) by the Executive other than the Executive's having terminated
for Good Reason for Termination following a
Change-in-Control, or
(iii) by the Corporation due to Cause for Termination or for
Disability or Retirement,
then the Corporation shall have no obligations to the Executive
other than to pay the Executive any unpaid portion of base salary
due until the Date of Termination and any other sums due in
accordance with the then various policies, practices and benefit
plans of the Corporation.
(b) If the Executive's employment with the Corporation shall have
terminated during the period commencing six months prior to the
date of a Change-in-Control and ending on the third anniversary of
a Change-in-Control other than in the circumstances described in
subsection (a) above, then the Corporation shall pay on or before
the fifth day following the Date of Termination (or if the Date of
Termination preceded the date of the Change-in-Control, on or
before the fifth day following the date of the Change-in-Control),
to the Executive the following sums:
(i) in cash any unpaid portion of the Executive's full base
salary for the period from the last period for which the
Executive was paid to the Date of Termination, or the date of
the Change-in-Control, as the case may be; and
(ii) an amount in cash as liquidated damages for lost future
renumeration equal to the product obtained by multiplying
(A) the lesser of
(1) two, or
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(2) a number equal to the number of calendar
months remaining from the Date of
Termination to the date on which the
Executive is 65 years of age (or, if
earlier, the age agreed to by the Executive
pursuant to any prior arrangement) divided
by twelve, or
(3) a number equal to the greater of (i) one
(1.0) and (ii) thirty six (36) less the
number of completed months commencing after
the date of the Change-in-Control during
which the Executive was employed by the
Corporation and did not have Good Reason
for Termination times (iii) one-twelfth
(1/12)
times
(B) the sum of
(1) the greater of
(i) the Executive's annual base salary
for the year in effect on the Date
of Termination (provided that in
the case of Termination for Good
Reason by the Executive the date
immediately preceding the date of
the earliest event which gave rise
to the Termination for Good Reason
by the Executive shall be used
instead of the Date of Termination)
or
(ii) the Executive's annual base salary
for the year in effect on the date
of the Change-in-Control;
plus
(2) the greater of
(i) the average annual cash award
received by the Executive as
incentive compensation or bonus for
one calendar year immediately
preceding the Date of Termination
(provided that in the case of
Termination for Good Reason by the
Executive the date immediately
preceding the date of the event
which gave rise to the Termination
for Good Reason by the Executive
shall be used instead of the Date
of Termination)
or
(ii) the average annual cash award
received by the Executive as
incentive compensation or bonus for
one calendar year immediately
preceding the date of the
Change-in-Control.
5. OUTPLACEMENT SERVICES. If the Executive's employment with the
Corporation
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should terminate under circumstances as to entitle the Executive to receive
payment hereunder, the Corporation shall reimburse the Executive for any
reasonable fees or other costs incurred by the Executive during the two (2)
years following the Date of Termination in retaining executive placement
agencies, up to a maximum dollar amount not to exceed fifteen percent (15%) of
the Executive's base salary at the time of such termination. Such reimbursement
shall be made within five (5) days following the Executive's presentment of
bills or other evidence of the costs incurred with executive placement
agencies.
6. TAX IMPLICATIONS. If any payment due to the Executive pursuant to
this Agreement result in a tax being imposed on the Executive pursuant to
Section 4999 of the Internal Revenue Code of 1954, as amended, or any successor
provision ("Section 4999"), then the Corporation shall, at the Executive's
option, either (i) reduce the total payments payable to the Executive to the
maximum amount payable without incurring the Section 4999 tax, or (ii) pay to
the Executive the total amount payable, with the understanding that Section
4999 tax will be due on that total amount.
7. BENEFITS. If the Executive's employment with the Corporation should
terminate under circumstances as to entitle the Executive to receive payment
hereunder, the Executive shall also be deemed, for purposes of medical
insurance, pension and other benefits of the Corporation, to have remained in
the continuous employment of the Corporation for the two (2) year period
following the Date of Termination and shall be entitled to all of the medical
insurance, pension or other benefits provided by the Corporation as if the
Executive had so remained in the employment of the Corporation. If, for any
reason, whether by law or provisions of the Corporation's employee medical
insurance, pension or other benefit plans, or otherwise any benefits which the
Executive would be entitled to under this SECTION 6 cannot be paid pursuant to
such employee benefit plans, then the Corporation contractually agrees to pay
the Executive the difference between the benefits which the Executive would
have received in accordance with this Section if the relevant employee medical
insurance, pension or other benefit plan could have paid such benefit and the
amount of benefits, if any, actually paid by such employee medical insurance,
pension or other benefit plan. The Corporation shall not be required to fund
its obligation to pay the foregoing difference.
8. OTHER EMPLOYMENT. In the event of termination under the
circumstances contemplated in SECTION 4(B) hereunder, the Executive shall have
no duty to seek any other employment after termination of his employment with
the Corporation and the Corporation hereby waives and agrees not to raise or
use any defense based upon the position that the Executive had a duty to
mitigate or reduce the amounts due him hereunder by seeking other employment
whether suitable or unsuitable and should the Executive obtain other
employment, then the only effect of such on the obligations of the Corporation
shall be that the Corporation shall be entitled to credit against any payments
that would otherwise be made pursuant to SECTION 7 hereof, any comparable
payments to which the executive is entitled under the employee benefit plans
maintained by the Executive's other employer or employers in connection with
services to such employer or employers after termination of this employment
with the Corporation.
9. STOCK APPRECIATION RIGHTS AND OPTIONS. If the Executive's
employment should terminate under circumstances as to entitle the Executive to
receive payment hereunder, then with respect to any standing Stock Appreciation
Rights and/or Options which did not immediately become exercisable upon the
occurrence of a Change-in-Control, such Stock Appreciation Right or Option
shall be automatically vested and remain outstanding in accordance with its
terms and be exercisable
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thereafter until the stated expiration date of such Stock Appreciation Right or
Option.
10. MISCELLANEOUS.
(a) This Agreement shall be construed under the laws of the
Commonwealth of Pennsylvania.
(b) This Agreement constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof and may only be
amended or modified by written agreement signed by the parties
hereto.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the
Corporation, by agreement in form and substance satisfactory to
the Executive, to expressly assume and agree to perform this
Agreement in the same manner required of the Corporation and to
perform it as if no such succession had taken place. As used in
this Agreement, "Corporation" shall mean the Corporation as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement
provided for in this subsection (c) or which otherwise becomes
bound by all of the terms and provisions of this Agreement by
operation of law.
(d) This Agreement shall inure to the benefit of and be enforceable by
the Executive and the Corporation and their respective legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there
be no such designee, to his estate.
(e) Any notice or other communication provided for in this Agreement
shall be in writing and, unless otherwise expressly stated herein,
shall be deemed to have been duly given if mailed by United States
registered mail, return receipt requested, postage prepaid,
addressed in the case of the Executive to his office at the
Corporation with a copy to his residence and in the case of the
Corporation to its principal executive offices, attention to the
Chief Executive Officer.
(f) No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed
to in writing signed by the Executive and approved by resolution
of the Board of Directors of the Corporation. No waiver by either
party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
(g) The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or unenforceability of any
other provision of this Agreement, which shall
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remain in full force and effect. If any provision hereof shall be
deemed invalid or unenforceable, either in whole or in part, this
Agreement shall be deemed amended to delete or modify, as
necessary, the offending provision and to alter the bounds thereof
in order to render it valid and enforceable.
(h) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which taken
together will constitute one and the same instrument.
(i) If litigation should be brought to enforce, interpret or challenge
any provision contained herein, the prevailing party shall be
entitled to its reasonable attorney's fees and disbursements and
other costs incurred in such litigation and, if a money judgment
be rendered in favor of the Executive, to interest on any such
money judgment obtained calculated at the prime rate of interest
in effect from time to time at Mellon Bank, N.A., from the date
that the payment should have been made or damages incurred under
this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed on the date first
above written.
ATTEST: TOLLGRADE COMMUNICATIONS, INC.
/s/ Sara M. Antol By: /s/ Christian L. Allison
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WITNESS:
/s/ Sara M. Antol /s/ Timothy O'Brien
- --------------------- ------------------------------
TIMOTHY O'BRIEN
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SCHEDULE TO EXHIBIT 10.1
Change in Control Agreement entered into between the Company and Joe O'Brien
dated July 17, 1997 which was substantially identical to that filed as Exhibit
10.1.
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