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Exhibit 10.22
FORM OF CHANGE OF CONTROL AGREEMENT
ENTERED INTO, OR TO BE ENTERED INTO BETWEEN THE COMPANY
AND EACH EXECUTIVE OFFICER OF THE COMPANY
[Date]
[Name]
[Position]
ENDOSONICS CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear [Name]:
We are pleased to inform you that the Board of Directors of EndoSonics
Corporation (the "Company") has recently authorized and approved a special
severance benefit program for you and other key executives. The purpose of this
letter agreement is to set forth the terms and conditions of your benefit
package and to explain the limitations which will govern the overall value of
your benefits.
Your severance benefits will become payable in the event your employment
terminates within a specified time period following certain changes in ownership
or control of the Company. To understand the full scope of your severance
benefits, you should familiarize yourself with the definitional provisions of
Part One of this letter agreement. The benefits comprising your severance
package are detailed in Part Two, and the dollar limitations on the overall
value of your benefit package are specified in Part Three. Part Four deals with
ancillary matters affecting your severance arrangement.
PART ONE -- DEFINITIONS
For purposes of this letter agreement, the following definitions will be in
effect:
AVERAGE COMPENSATION means the average of your W-2 wages from the Company
for the five (5) calendar years (or such fewer number of calendar years of
employment with the Company) completed immediately prior to the calendar year in
which the Change of Control is effected. Any W-2 wages for a partial year of
employment will be annualized, in accordance with the frequency which such wages
are paid during such partial year, before inclusion in your Average
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Compensation. If any of your compensation from the Company during such five
(5)-year or shorter period was not included in your W-2 wages for U.S. income
tax purposes, either because you were not a U.S. citizen or resident or because
such compensation was excludible from income as foreign earned income under Code
Section 911, then such compensation will nevertheless be included in your
Average Compensation to the same extent as if it were part of your W-2 wages.
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BASE SALARY means the annual rate of base salary in effect for you
immediately prior to the Change in Control or (if greater) the annual rate of
base salary in effect at the time of your Involuntary Termination.
BOARD means the Company's Board of Directors.
CHANGE IN CONTROL means any of the following transaction effecting a change
in ownership or control of the Company:
(i) a merger or consolidation in which the company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Company is incorporated,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in complete liquidation or dissolution of the
Company,
(iii) any reverse merger in which the Company is the surviving entity
but in which securities possessing fifty percent (50%) or more of the total
combined voting power of the Company's outstanding securities are transferred to
person or persons different from the persons holding those securities
immediately prior to such merger, or
(iv) a Hostile Take-Over
CODE means the Internal Revenue Code of 1986, as amended.
COMMON STOCK means the Company's common stock.
FAIR MARKET VALUE means, with respect to any shares of Common Stock subject
to any of your Options, the closing selling price per share of Common Stock on
the date in question, as reported on the Nasdaq National Market. If there is no
reported sale of Common Stock on such date, then the closing selling price on
the Nasdaq National Market on the next preceding day for which there does exists
such quotation will be determinative of Fair Market Value.
HEALTH CARE COVERAGE means the continued health care coverage to which you
and your eligible dependents may become entitled under Part Two of this letter
agreement upon the Involuntary Termination of your employment.
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HOSTILE TAKE-OVER means any of the following transactions:
(i) the successful acquisition by a person or a group of related
persons, other than the Company or a person controlling, controlled by or under
common control with the Company, of beneficial ownership (as determined pursuant
to the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of securities possessing more than twenty-five percent (25%) of the
total combined voting power of the Company's outstanding securities pursuant to
a transaction or series of related transactions which the Board does not at any
time recommend the Company's shareholders to accept or approve, or
(ii) a change in the composition of the Board over a period of
twenty-four (24) consecutive months or less such that a majority of the Board
ceases, by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (I) have been members of the Board
continuously since the beginning of such period or (II) have been elected or
nominated for election as Board members during such period by at least a
two-thirds majority of the Board members described in clause (I) who were still
in office at the time such election or nomination was approved by the Board,
INVOLUNTARY TERMINATION means the termination of your employment with the
Company:
- involuntarily upon your discharge or dismissal (other than a
Termination for Cause), or
- voluntarily upon your resignation following (I) a change in your
position with the Company which reduces your duties or level of
responsibility or which otherwise changes the level of management to which
you report, (II) a reduction in your level of compensation (including base
salary, fringe benefits and target bonus under any incentive performance
plan) or (III) a change in your place of employment which is more than
twenty five (25) miles from your place of employment prior to the Change in
Control, provided and only if such change or reduction is effected without
your written concurrence.
In no event shall an Involuntary Termination be deemed to occur should your
employment terminate by reason of your death or disability.
OPTION means any option granted to you under the Plan which is outstanding
at the time of the Change in Control or upon your subsequent Involuntary
Termination. Your Options will be divided into two (2) separate categories as
follows:
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Acquisition-Accelerated Options: any outstanding Option (or
installment thereof) which automatically accelerates, pursuant to the
acceleration provisions of the agreement evidencing that Option, upon a change
in control or ownership of the Company under certain specified circumstances.
Severance-Accelerated Options: any outstanding Option (or installment
thereof) which accelerates upon your Involuntary Termination pursuant to Part
Two of this letter agreement.
OPTION PARACHUTE PAYMENT means, with respect to any Acquisition-Accelerated
Option or any Severance-Accelerated Option, the portion of that Option deemed to
be a parachute payment under Code Section 280G and the Treasury Regulations
issued thereunder. The portion of such Option which is categorized as an Option
Parachute Payment will be calculated in accordance with the valuation provisions
established under Code Section 280G and the applicable Treasury Regulations and
will include an appropriate dollar adjustment to reflect the lapse of your
obligation to remain in the Company's employ as a condition to the vesting of
the accelerated installment. In no event, however, will the Option Parachute
Payment attributable to any Acquisition-Accelerated Option or
Severance-Accelerated Option (or accelerated installment) exceed the spread (the
excess of the Fair Market Value of the accelerated option shares over the option
exercise price payable for those shares) existing at the time of acceleration.
OTHER PARACHUTE PAYMENT means any payment in the nature of compensation
(other than the benefits to which you become entitled under Part Two of this
letter agreement) which are made to you in connection with the Change in Control
and which accordingly qualify as parachute payments within the meaning of Code
Section 280G(b)(2) and the Treasury Regulations issued thereunder. Your Other
Parachute Payments will include (without limitation) the Present Value, measured
as of the Change in Control, of the aggregate Option Parachute Payment
attributable to your Acquisition-Accelerated Options (if any).
PLAN means (i) the Company's 1988 Stock Option Plan, as amended or restated
from time to time, and (ii) any successor stock incentive plan subsequently
implemented by the Company.
PRESENT VALUE means the value, determined as of the date of the Change in
Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or the subsequent Involuntary
Termination of your employment, including (without limitation) the Option
Parachute Payment attributable to your Severance-Acceleration Options, your
Severance Payments under Part Two of this letter agreement and the Option
Parachute Payment attributable to your Acquisition-Accelerated Options. The
Present Value of each such payment shall be determined in accordance with the
provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one
hundred twenty percent (120%) of the applicable Federal rate in effect at the
time of such determination, compounded semi-annually to the effective
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date of the Change in Control.
SEVERANCE PAYMENTS mean the severance payments to which you may become
entitled under Part Two in the event of your Involuntary Termination following a
Change in Control, subject, however, to the dollar limitations of Part Three.
TERMINATION FOR CAUSE means an Involuntary Termination of your employment
occasion by reason of your having engaged in fraud or in any other intentional
misconduct adversely affecting the business reputation of the Company in a
material manner.
PART TWO -- CHANGE IN CONTROL BENEFITS
Upon the Involuntary Termination of your employment within eighteen (18)
months following a Change in Control, you will become entitled to receive the
special severance benefits provided in this Part Two.
1. SEVERANCE PAYMENTS.
If your Involuntary Termination occurs within the first twelve (12) months
after the Change in Control, then you will be entitled to Severance Payments in
an aggregate amount equal to (i) one and one-half (1.5) times your Base Salary
plus (ii) the bonus you accrue for each fiscal period of the Company within the
twelve (12) month period.
If your Involuntary Termination occurs more than twelve (12) months, but
within eighteen (18) months, after the Change in Control, then you will be
entitled to Severance Payments in an aggregate amount equal to one (1) times
your Base Salary plus (ii) any bonus you accrue for each fiscal period of the
Company within that additional period.
In the absence of a Hostile Take-Over, your Severance Payments will be made
at bi-weekly intervals following your Involuntary Termination. However, these
payments will immediately terminate in the event you cease to remain available
for the consulting services required under Paragraph 4 of this Part Two or in
the event you fail to abide by the restrictive covenants set forth in Paragraph
5 of this Part Two.
Should your Involuntary Termination occur in connection with a Hostile
Take-Over, the Severance Payments will be made to you in a lump sum payment
within thirty (30) days after your Involuntary Termination, and the provisions
of Paragraphs 4 and 5 of this Part Two will not apply.
All Severance Payments will be subject to the Company's collection of
applicable
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federal and state income and employment withholding taxes.
In the event your employment terminates by reason of your death or
disability or your Termination for Cause, you will not be entitled to receive
any Severance Payments or other benefits under this letter agreement.
2. OPTION ACCELERATION.
Each of your outstanding Options will (to the extent not then otherwise
fully exercisable) automatically accelerate so that each such Option will become
fully vested and immediately exercisable for the total number of shares of
Common Stock at the time subject to that Option. Each such accelerated Option,
together with all your other vested Options, will remain exercisable for
fully-vested shares until the earlier of (i) the expiration date of the ten (10)
year option term or (ii) the end of the three (3)-month period measured from the
date of your Involuntary Termination.
3. ADDITIONAL BENEFITS.
(a) HEALTH CARE COVERAGE
The Company will, at its expense, provide you and your eligible dependents
with continued health care coverage under the Company's medical/dental plan
until the earlier of (i) eighteen (18) months after the date of the Change in
Control or (ii) the first date that you are covered under another employer's
health benefit program which provides substantially the same level of benefits
without exclusion for pre-existing medical conditions. The coverage so provided
you and your eligible dependents will be in full and complete satisfaction of
the continued health care coverage to which you or your eligible dependents
would otherwise, at your own expense, be entitled under Code Section 4980B by
reason of your termination of employment, and neither you nor your eligible
dependents will accordingly be entitled to any additional period of health care
coverage under Code Section 4980B as a result of your termination of
employment.
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(b) RELOCATION REIMBURSEMENT
If at the Company's request, you moved during the 1995, 1996 or 1997
calendar year to (i) the Sacramento, California area in connection with the
consolidation of the Company's operations in Rancho ▇▇▇▇▇▇▇ or (ii) Europe in
connection with the Company's acquisition of Cardiometrics, Inc., then the
Company will reimburse you for the relocation expenses you incur in your move
back to the San Francisco Bay Area from the Sacramento area, or from Europe back
to the United States, following your Involuntary Termination, provided such
Involuntary Termination occurs within (i) twenty-four (24) months after your
initial move to the Sacramento area or (ii) within twelve (12) months after a
Change in Control if you are moving back from Europe. However, the maximum
dollar amount of such reimbursement will be limited to thirty-five percent (35%)
of the annual rate of Base Salary in effect for you at the time of your
Involuntary Termination. In no event will you be entitled to reimbursement for
such relocation expenses unless you provide the Company with appropriate
documentation of those expenses.
(c) UNPAID BENEFITS
You will receive an immediate lump sum payment of all unpaid vacation days
which you have accrued through the date of your Involuntary Termination.
4. CONSULTING SERVICES.
Unless your Involuntary Termination occurs in connection with a Hostile
Take-Over, you will make yourself available to render up to ten (10) hours of
consulting services per month during the period of your Severance Payments on
such projects within your area of expertise as may be assigned to you by the
Company's Chief Executive Officer or the Board. You will not be entitled to any
cash compensation for the first ten (10) hours of consulting services you render
each month, but the Company will compensate you for any additional hours you
render at an hourly rate to be negotiated with you at the time. You will also be
reimbursed for all reasonable out-of-pocket expenses incurred in rendering your
consulting services upon your submission of appropriate documentation for those
expenses.
5. RESTRICTIVE COVENANTS.
During the period of your Severance Payments, you will not:
(i) directly or indirectly, whether for your own account or as an
employee, director, consultant or advisor, provide services to any business
enterprise which is at the time in competition with any of the Company's
then-existing or formally planned product lines and which is located
geographically in an area where
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the Company maintains substantial business activities, or
(ii) directly or indirectly encourage or solicit any individual to
leave the Company's employ for any reason or interfere in any other manner
with the employment relationships at the time existing between the Company
and its current or prospective employees, or
(iii) induce or attempt to induce any customer, supplier, distributor,
licensee or other business affiliate of the Company to cease doing business
with the Company or in any way interfere with the existing business
relationship between any such customer, supplier, distributor, licensee or
other business affiliate and the Company.
You acknowledge that monetary damages may not be sufficient to compensate
the Company for any economic loss which may be incurred by reason of your breach
of the foregoing restrictive covenants. Accordingly, in the event of any such
breach, the Company will, in addition to the Company's cessation of the
Severance Payments provided under this letter agreement and any remedies
available to the Company at law, be entitled to obtain equitable relief in the
form of an injunction precluding you from continuing to engage in such breach.
None of the foregoing restrictive covenants will be applicable in the event
your Involuntary Termination occurs in connection with a Hostile Take-Over.
PART THREE -- LIMITATION ON BENEFITS
1. PARACHUTE LIMIT
Except the limited extent (if any) provided under Paragraph 4(a) below, the
aggregate Present Value (measured as of the Change in Control) of the benefits
to which you become entitled under Part Two at the time of your Involuntary
Termination (namely the Severance Payments, the Option Parachute Payment
attributable to your Severance-Accelerated Options and your Health Care
Continuation) will in no event exceed in amount the difference between (i) 2.99
times your Average Compensation and (ii) the Present Value, measured as of the
Change in Control, of all Other Parachute Payments to which you are entitled.
Accordingly, except as otherwise provided under Paragraph 4(a) below, your
Options will not accelerate and no Severance Payments will be made to you
pursuant to this letter agreement, to the extent the Present Value as of the
Change in Control of (I) the aggregate Option Parachute Payment attributable to
your Severance-Accelerated Options plus (II) your Severance Payments plus (III)
your Health Care Continuation would, when added to the Present Value of your
Other Parachute Payments, exceed 2.99 times your Average Compensation (the
"Parachute Limit").
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2. RESOLUTION PROCEDURE
For purposes of the foregoing Parachute Limit, the following provisions
will be in effect:
(a) In the event there is any disagreement between you and the Company as
to whether one or more payments to which you become entitled in connection with
either the Change in Control or your subsequent Involuntary Termination
constitute Option Parachute Payments or Other Parachute Payments or as to the
determination of the Present Value thereof, such dispute will be resolved as
follows:
(i) In the event temporary, proposed or final Treasury Regulations in
effect at the time under Code Section 280G (or applicable judicial
decisions) specifically address the status of any such payment or the
method of valuation therefor, the characterization afforded to such payment
by the Regulations (or such decisions) will, together with the applicable
valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the status of any payment in dispute, the matter
will be submitted for resolution to independent counsel mutually acceptable
to you and the Company ("Independent Counsel"). The resolution reached by
Independent Counsel will be final and controlling; provided, however, that
if in the judgment of Independent Counsel the status of the payment in
dispute can be resolved through the obtainment of a private letter ruling
from the Internal Revenue Service, a formal and proper request for such
ruling will be prepared and submitted by Independent Counsel, and the
determination made by the Internal Revenue Service in the issued ruling
will be controlling. All expenses incurred in connection with the retention
of Independent Counsel and (if applicable) the preparation and submission
of the ruling request will be paid by the Company.
(iii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the appropriate valuation methodology for any
payment in dispute, the Present Value thereof will, at the Independent
Counsel's election, be determined through an independent third-party
appraisal, and the expenses incurred in obtaining such appraisal will be
paid by the Company.
3. STATUS OF BENEFITS
(a) No Severance Payments will be made to you under Part Two of this
letter
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agreement until the Present Value of the Option Parachute Payment attributable
to both your Severance-Accelerated Options and your Acquisition-Accelerated
Options has been determined and the status of any payments in dispute under
Paragraph 2 above has been resolved in accordance therewith. However, you will
be permitted to exercise your Severance-Accelerated Options at any time during
the three (3)-month (or shorter) period immediately following your Involuntary
Termination, provided any and all shares of Common Stock purchased under your
Severance-Accelerated Options will, together with the exercise price paid for
those shares, be held in escrow by the Company. To the extent your purchased
shares are held in escrow, you will have the right to (i) direct the sale of
such shares, provided the sale proceeds are immediately deposited in escrow,
(ii) exercise all voting rights with respect to such shares and (iii) receive
dividends declared on such shares, provided such dividends are immediately
deposited in escrow.
(b) Once the requisite determinations under Paragraph 2 have been made,
then to the extent the aggregate Present Value, measured as of the Change in
Control, of (1) the Option Parachute Payment attributable to your
Severance-Accelerated Options (or installments thereof) plus (2) your Severance
Payments would, when added to the Present Value of all your Other Parachute
Payments (including the Option Parachute Payment attributable to your
Acquisition-Accelerated Options), exceed the Parachute Limit, the following
reductions to the benefits otherwise payable to you hereunder will be made:
First, your Severance Payments will be reduced.
Then, any outstanding Severance-Accelerated Options will immediately
terminate and cease to be exercisable. If there is more than one such
Option outstanding, then the Severance-Accelerated Options with the
lowest option spread will be the first to terminate.
Finally, to the extent one or more of your outstanding
Severance-Accelerated Options (or installments thereof) have been
exercised following your Involuntary Termination, those exercises will
be rescinded (with the Severance-Accelerated Options with the lowest
option spread to be the first rescinded) by refunding to you the
exercise price paid for the purchased shares and returning those
shares (plus any cash dividends paid thereon) to the Company. To the
extent the shares purchased under such accelerated Options (or
accelerated installments thereof) have been sold while held in escrow,
the sale proceeds attributable to those shares will be allocated as
follows: first an amount not to exceed the exercise price you paid for
such shares will be refunded to you, and then the balance of the
proceeds (together with any cash dividends paid on those shares) will
be returned to the Company.
(c) To the extent any shares or cash proceeds remain in the escrow account
under subparagraph (a) above after the reductions specified in subparagraph (b)
have been made,
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those shares or proceeds will be promptly distributed to you.
4. OVERRIDING LIMITATIONS
(a) Notwithstanding any provision to the contrary set forth in the
preceding provisions of this Part Three, the aggregate Present Value of your
Severance Payments and the Option Parachute Payment attributable to your
Severance-Accelerated Options will not be reduced below that amount (if any)
which, when added to the Present Value of all the Other Parachute Payments to
which you are entitled, would nevertheless qualify as reasonable compensation
for past services within the standards established under Code Section
280G(b)(4)(B) or as reasonable compensation under Code Section 280G(b)(4)(A) for
the consulting arrangement and restrictive covenants to be in effect under
Paragraphs 4 and 5 of Part Two following your Involuntary Termination.
(b) The limitations of this Part Three will in all events be interpreted in
such manner as to avoid the imposition of excise taxes under Code Section 4999,
and the disallowance of deductions under Code Section 280G(a), with respect to
any of the benefits paid pursuant to Part Two of this letter agreement.
PART FOUR -- MISCELLANEOUS PROVISIONS
1. TERMINATION FOR CAUSE.
Should your Involuntary Termination constitute a Termination for Cause,
then the Company will only be required to pay you (i) any unpaid compensation
earned for services previously rendered through the date of such termination and
(ii) any accrued but unpaid vacation benefits or sick days, and no benefits will
be payable to you under Part Two of this letter agreement.
2. DEATH.
Should you die before receipt of one or more Severance Payments to which
you become entitled under Part Two of this letter agreement, then those payment
or payments will be made to the executors or administrators of your estate.
Should you die before you exercise all you outstanding Options, then such
Options may be exercised, within twelve (12) months after your death, by the
executors or administrators of your estate or by persons to whom the Options are
transferred pursuant to your will or in accordance within the laws of
inheritance. In no event, however, may any such Option be exercised after the
specified expiration date of the option term.
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3. GENERAL CREDITOR STATUS.
The payments and benefits to which you become entitled hereunder will be
paid, when due, from the general assets of the Company, and no trust fund,
escrow arrangement or other segregated account will be established as a funding
vehicle for such payment. Accordingly, your right (or the right of the personal
representatives or beneficiaries of your estate) to receive any payments or
benefits hereunder will at all times be that of a general creditor of the
Company and will have no priority over the claims of other general creditors.
5. INDEMNIFICATION.
The indemnification provisions for Officers and Directors under the Company
By-Laws will (to the maximum extent permitted by law) be extended to you, during
the period following your Involuntary Termination, with respect to any and all
matters, events or transactions occurring or effected during your employment
with the Company.
6. MISCELLANEOUS.
This letter agreement will be binding upon the Company, its successors and
assigns (including, without limitation, the surviving entity in any Change in
Control) and is to be construed and interpreted under the laws of the State of
California. This letter agreement supersedes all prior agreements between you
and the Company relating to the subject of severance benefits payable upon a
change in control or ownership of the Company and may only be amended by written
instrument signed by you and an authorized officer of the Company. If any
provision of this letter agreement as applied to you or the Company or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision will in no way
affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this letter agreement, or the
enforceability or invalidity of this letter agreement as a whole. Should any
provision of this letter agreement become or be deemed invalid, illegal or
unenforceable in any jurisdiction by reason of the scope, extent or duration of
its coverage, then such provision will be deemed amended to the extent necessary
to conform to applicable law so as to be valid and enforceable or, if such
provision cannot be so amended without materially altering the intention of the
parties, then such provision will be stricken and the remainder of this letter
agreement will continue in full force and effect.
7. NO EMPLOYMENT OR SERVICE CONTRACT.
Nothing in this letter agreement is intended to provide you with any right
to continue in the employ of the Company (or any subsidiary) for any period of
specific duration or interfere with or otherwise restrict in any way your rights
or the rights of the Company (or any subsidiary),
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which rights are hereby expressly reserved by each, to terminate your
employment at any time for any reason whatsoever, with or without cause.
8. ATTORNEY FEES.
In the event legal proceeding should be initiated by you or by the Company
with respect to any controversy, claim or dispute relating to the interpretation
or application of the provisions of this letter agreement or any benefits
payable hereunder, the prevailing party in such proceedings will be entitled to
recover from the losing party reasonable attorney fees and costs incurred in
connection with such proceedings or in the enforcement or collection of any
judgment or award rendered in such proceedings. For purposes of this provision,
the prevailing party means the party determined by the court to have most nearly
prevailed in the proceedings, even if that party does not prevail in all
matters, and does not necessarily mean the party in whose favor the judgment is
actually rendered. If the Company materially breaches any of its obligations
under this letter agreement and fails to cure that breach within thirty (30)
days after written notice from you, you will then be entitled to reimbursement
from the Company for any reasonable expenses and attorney fees you incur in
having the Company subsequently cure that breach, whether or not legal
proceedings are actually commenced in connection with such breach.
Please indicate your acceptance of the foregoing provisions of this
employment agreement by signing the enclosed copy of this agreement and
returning it to the Company.
ENDOSONICS CORPORATION
BY:
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TITLE:
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ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing letter
agreement governing the special benefits to which I may become entitled in
connection with certain changes in control or ownership of ENDOSONICS
CORPORATION.
Signature:
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Dated:
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