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EXHIBIT 10.54
[DATE]
[NAME AND ADDRESS OF EMPLOYEE]
Dear [EMPLOYEE NAME]:
The Board of Directors of McLeod, Inc. (together with its subsidiaries,
the "Company") considers excellent management to be essential to protecting and
enhancing the best interests of the Company and its stockholders. Although no
change of control of the Company is currently contemplated, the Board of
Directors recognizes that the possibility of such a change of control may be
unsettling to you and other officers of the Company and may result in the
departure or distraction of management personnel to the detriment of the
Company and its stockholders. Accordingly, the Board of Directors of the
Company has determined that appropriate steps should be taken (1) to reinforce
and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
financial or employment concerns arising from the possibility of such event,
and (2) to enable such key employees to consider only the best interests of all
stockholders and employees in negotiating with respect to such a change of
control.
This letter agreement sets forth the severance benefits that the
Company agrees will be provided to you in the event your employment with the
Company is terminated after a "change in control of the Company" (as defined in
SECTION 1) under the circumstances described below. This letter supersedes and
replaces any prior agreement between you and the Company relating to the
matters addressed herein.
1. CHANGE OF CONTROL
No benefits shall be payable hereunder unless there is a "Change of
Control" of the Company, as set forth below, and your employment by the Company
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terminates in accordance with SECTION 2. For purposes of this Agreement, a
"Change of Control" of the Company means:
(a) execution by the Company of an agreement for the merger of the
Company into or with another Company, the result of which would
be that the stockholders of the Company at the time of execution
of such agreement would own less than 50% of the total equity of
the company surviving the merger; or
(b) the sale of assets of the Company having an aggregate book value
of 40% or more of the total book value of all assets of the
Company as shown on the then most recent annual audited financial
statement of the Company; or
(c) a change of control of a nature that would be required to be
reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), provided that, without limitation,
such a change of control shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% of the
Company's then outstanding securities; and provided further that
no such change of control shall be deemed to have occurred as a
result of the execution in April 1996 of an Investor Agreement
among the Company, IES Investments Inc., Midwest Capital Group,
Inc., MWR Investments, Inc., Clark and Mary McLeod, and certain
other stockholders.
2. TERMINATION FOLLOWING CHANGE OF CONTROL
If any of the events described in SECTION 1 constituting a Change of
Control of the Company occurs, you will be entitled to the benefits provided in
SECTION 3 upon (1) the subsequent voluntary termination of your employment
within six months following the Change of Control; (2) the subsequent
involuntary termination of your employment within 24 months following the
Change of Control unless the termination is for Disability or Cause or because
of your death or
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Retirement, as these terms are defined below; or (3) the subsequent voluntary
termination of your employment within 24 months following the Change of Control
if your voluntary termination follows a Material Reduction in your
responsibilities or compensation, as defined below.
2.1. DISABILITY
Termination by the Company of your employment based on
"Disability" means termination because of your absence from your duties with
the Company on a full-time basis for 180 consecutive business days as a result
of your incapacity due to physical or mental illness.
2.2. RETIREMENT
Termination by the Company of your employment based on
"Retirement" means termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees.
2.3. CAUSE
Termination by the Company of your employment for "Cause"
means termination following (i) your engaging in a criminal act involving the
Company, or (ii) your engaging in willful misconduct that is materially
injurious to the Company, monetarily or otherwise. For purposes of this
paragraph, no act, or failure to act, on your part shall be considered
"willful" unless done, or omitted to be done, by you in bad faith and without
reasonable belief that your action or omission was in the best interest of the
Company. In any event, you will not be deemed to have been terminated for
Cause unless and until (1) you have been given reasonable written notice of the
reasons for the termination, which notice sets a date and time for you to be
heard by the Board of Directors of the Company as to the allegations against
you; (2) you have been given the opportunity to appear before the Board of
Directors, with your counsel, for the purpose of answering the allegations
against you, at which time you or your counsel will have an opportunity to
present evidence and to confront and cross-examine witnesses against you; (3)
you have received a verbatim transcript of the proceedings before the Board of
Directors; and (4) there shall have been delivered to you a copy of a Notice of
Termination from the Chief Executive Officer or the Board of Directors of the
Company, finding (after any hearing described in clause (2) above) that in the
good faith opinion of the Board you were guilty of conduct referred to above in
clauses (i) or (ii) of the first sentence
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of this paragraph and specifying the particulars thereof in detail. You will
not be required to move from the location at which you are principally employed
at the time of the Change of Control, and any refusal by you to so move will
not be construed as misconduct.
2.4. MATERIAL REDUCTION IN RESPONSIBILITIES OR COMPENSATION
Voluntary termination of your employment following a "Material
Reduction" in responsibilities or compensation means your voluntary termination
following (i) a reduction in your position so that you no longer occupy the
position you held immediately before the Change of Control or a substantially
similar position with an appropriate title, or (ii) a material reduction in
your authority, duties, responsibilities or compensation.
2.5. NOTICE OF TERMINATION
Any purported termination of your employment by the Company
will be communicated by written Notice of Termination to you. Any purported
termination of your employment by you following a Material Reduction must be
communicated by written Notice of Termination to the Company. For purposes of
this Agreement, a "Notice of Termination" means a notice that indicates the
specific reason(s) for the termination and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of your
employment.
2.6. DATE OF TERMINATION
"Date of Termination" means:
(i) if your employment is terminated for Cause, the date
specified in the Notice of Termination, which shall be not less than five
business days after the date on which the Notice of Termination is given, or
(ii) if your employment is terminated for any other
reason, five business days after the date on which the Notice of Termination is
given.
3. CERTAIN BENEFITS UPON TERMINATION
You will be entitled pursuant to SECTION 2 to the benefits
described below if your employment is terminated as specified in SECTION 2.
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3.1. COMPENSATION THROUGH DATE OF TERMINATION
The Company will pay you your "Full Compensation" through the
Date of Termination. Full Compensation for the purpose of this subsection
means your base salary at the rate in effect at the time Notice of Termination
is given, plus credit for any vacation earned but not taken, plus any
additional direct compensation or bonus payable to you with respect to any
period ending on or before the Date of Termination, plus the pro rata portion
of any quarterly and/or annual bonus that would have accrued with respect to
any period during which the Date of Termination occurs if the Date of
Termination had occurred after the end of such period and the Company's
performance had entitled you to 100% of such bonus amount, prorated to the
actual Date of Termination, less any payments thereto previously made.
3.2. LUMP SUM PAYMENT
On the Date of Termination, the Company will pay to you a lump
sum amount equal to the product of 24 times the "Average Monthly Compensation"
that was in effect during the 12 months immediately preceding the Change of
Control or the Date of Termination, whichever is higher. Average Monthly
Compensation for the purpose of this subsection means your base salary plus any
additional direct compensation or bonus payable to you. If your compensation
generally includes a bonus award but such bonus award has not yet been decided
at the Date of Termination, then the bonus to be included to determine average
monthly compensation shall be equal to the bonus paid to you for the previous
12-month period.
3.3. OPTIONS VEST
All outstanding options to purchase stock of the Company
previously granted to you on or before the Change of Control will become
immediately exercisable in full upon the giving of the Notice of Termination,
irrespective of whether or not such options otherwise were exercisable on such
date. Notwithstanding the provisions of any plan or agreement pursuant to
which such options have been granted, you may direct the Company to apply some
portion or all of the lump sum amount otherwise payable to you pursuant to
SECTION 3.2 toward partial or full payment of any exercise price payable to the
Company with respect to your exercise of stock options.
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3.4. "COBRA" BENEFITS
In connection with a Termination, the Company agrees that you
may elect to continue coverage under the Company's group health plan pursuant
to Section 4980B of the Internal Revenue Code of 1986, as amended; if you do so
the Company agrees to continue to pay the employer portion of the premiums for
that coverage for the longer of (i) the period of your eligibility for benefits
pursuant to Section 4980B from the Date of Termination, or (ii) 24 months from
the Date of Termination.
3.5. CERTAIN LIMITATIONS
Notwithstanding any other provision of this Agreement or of
any other agreement, contract, or understanding heretofore or hereafter entered
into by you with the Company, except an agreement, contract, or understanding
hereafter entered into that expressly modifies or excludes application of this
paragraph (an "Other Agreement"), and notwithstanding any formal or informal
plan or other arrangement for the direct or indirect provision of compensation
to you (including groups or classes of participants or beneficiaries of which
you are a member), whether or not such compensation is deferred, is in cash, or
is in the form of a benefit to or for you (a "Benefit Arrangement"), if you are
a "disqualified individual," as defined in Section 280G(c) of the Internal
Revenue Code, as amended, any right to receive any payment or other benefit
under this Agreement shall not become exercisable or vested to the extent that:
(i) such right to exercise, vesting, payment, or benefit,
taking into account all other rights, vesting, payments, or
benefits to or for you under this Agreement, all Other
Agreements, and all Benefit Arrangements, would cause (as
determined by you in your reasonable discretion) any rights,
vesting, payments or benefits to you under this Agreement to
be considered a "parachute payment" within the meaning of
Section 280G(b)(2) of the Internal Revenue Code as then in
effect (a "Parachute Payment"); and
(ii) if, as a result of receiving a Parachute Payment, the
aggregate after-tax amounts received by you from the Company
under this Agreement, all Other Agreements, and all Benefit
Arrangements would be less than the maximum after-tax amount
that could be
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received by you without causing any such right, vesting,
payment or benefit to be considered a Parachute Payment.
In the event that the receipt of any such right to exercise, vesting, payment,
or benefit under this Agreement, in conjunction with all other rights, vesting,
payments, or benefits to or for you under any Other Agreement or any Benefit
Arrangement would cause you to be considered to have received a Parachute
Payment under this Agreement that would have the effect of decreasing the
after-tax amount received by you as described in clause (ii) of the preceding
sentence, then you shall have the right, in your sole discretion, to designate
those rights, vesting, payments, or benefits under this Agreement, any Other
Agreements, and any Benefit Arrangements that should be reduced or eliminated
so as to avoid having the rights, vesting, payments or benefits to you under
this Agreement be deemed to be a Parachute Payment.
4. RESTRICTIVE COVENANT
You will be subject to the restrictive covenant described
below if your employment is terminated as specified in SECTION 2 and the
benefits specified in SECTION 3 are paid to you.
4.1. COVENANT
For a two-year period following a Termination, you shall not,
directly or indirectly, engage in or become an owner of, render any service to,
enter the employment of, or represent or solicit for any business that (a)
competes with any activity of the Company conducted at any time during the two
years prior to the Termination, or conducted during the six-month period
following the Termination as a result of plans initiated prior to such
termination, and (b) is located and/or conducts business within any of the
states in which the Company conducted any business during the two years prior
to the Termination or during the six-month period following the Termination as
a result of plans initiated prior to such Termination. Further, during the
restrictive period of this Agreement following any Termination, you shall not
employ or associate with your own activities, directly or indirectly, any
individual then employed in a management position by the Company.
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4.2. ENFORCEABILITY OF COVENANT
You expressly agree that the duration and geographical area
set forth in this SECTION 4 are reasonable, that the covenant shall be
construed as an agreement independent of any other provision herein, and that
the existence of any claim or cause of action by you against the Company,
regardless of how arising, shall not constitute a defense to the enforcement by
the Company of this SECTION 4. If any portion of the covenant is held by a
court of law to be unenforceable with respect either to its duration or
geographical area, for whatever reason, it shall be considered divisible both
as to time and geographical area, so that each month of the specified period
shall be deemed a separate period of time and each county within a particular
state a separate geographical area, resulting in an intended requirement that
the longest lesser period of time or largest lesser geographical area found by
such court to be a reasonable restriction shall remain an effective restrictive
covenant, specifically enforceable against you.
4.3. PERMITTED EQUITY OWNERSHIP
Notwithstanding any statement contained in this Agreement to
the contrary, legal or beneficial ownership by you of an equity interest that
constitutes less than five percent of the outstanding voting power in a
competitive corporation, at least one class of capital stock of that is
publicly traded on a national or regional stock exchange or by means of an
electronic interdealer quotation system, shall not be deemed to constitute a
breach by you of the terms hereof.
4.4. REMEDIES FOR BREACH OF YOUR OBLIGATIONS
You agree that your services are of a personal, specific,
unique and extraordinary character and cannot be readily replaced by the
Company. You further agree that in the course of performing your services, you
will have access to various types of proprietary information of the Company,
that, if released to others or used by you other than for the benefit of the
Company, in either case without the Company's consent, could cause the Company
to suffer irreparable injury. Therefore, your obligations established under
this Agreement shall be enforceable both at law and in equity, by injunction,
specific performance, damages or other remedy; and the right of the Company to
obtain any such remedy shall be cumulative and not alternative and shall not be
exhausted by any one or more uses thereof.
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5. TERM OF AGREEMENT
This Agreement will terminate at midnight on December 31, 2006
unless a Change of Control occurs during the six months preceding such date, in
which case this Agreement will terminate on December 31, 2007; provided,
however, that the restrictive covenant contained in SECTION 4 shall survive the
termination of this Agreement.
6. SUCCESSORS; BINDING AGREEMENT
The Company 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 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. As used in this Agreement, the term "Company" refers to the
Company as defined above and any successor to its business and/or assets that
assumes and agrees to perform this Agreement or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law. In any
event, the rights and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon any of the Company's successors or
assigns. This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees. If you die while any amount
hereunder remains to be paid to you, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there be no such designee, to
your estate.
7. NOTICES
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement must be in writing and will be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company should be directed to the attention of the
Board of Directors of the Company with a copy to the Secretary of the Company,
or to such other address as
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either party may have furnished to the other in writing in accordance herewith
(and any notice of change of address will be effective only upon receipt).
8. MISCELLANEOUS
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by you and such officer as may be specifically designated by the
Board of Directors of the Company. 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 that are not expressly set forth in this
Agreement; provided, however, that this Agreement does not supersede or in any
way limit the rights, duties or obligations you may have under any other
written agreement with the Company. References herein to Sections are to
Sections of this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware (excluding the choice of law provisions thereof).
9. VALIDITY
The invalidity or unenforceability of and provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the enclosed copy
of this letters which will then constitute our agreement on this subject.
Yours truly,
McLEOD, INC.
By:
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Agreed to as of
(Date)
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[EMPLOYEE NAME]