EXHIBIT 10.19
ENCAD, INC.
FORM OF SEVERANCE LETTER AGREEMENTS BETWEEN
THE COMPANY AND EACH OF ITS OFFICERS
[EXEC V.P. FORM]
ENCAD, INC.
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________________, 199__
Dear _______________:
The purpose of this letter agreement is to document the terms and
conditions of the severance package to which you shall be entitled should
your employment with ENCAD, Inc. (the "Company") terminate under certain
specified circumstances.
Part One of this letter agreement sets forth certain definitional
provisions to be in effect for purposes of determining your benefit
entitlements. Part Two hereof specifies the terms and conditions upon which
you may become entitled to receive severance benefits in the event your
employment with the Company were to be involuntarily terminated. Part Three
hereof specifies the terms and conditions upon which you may become entitled
to additional severance benefits should your employment with the Company be
involuntarily terminated in connection with certain changes in control of the
Company. Part Four hereof concludes this letter agreement with a series of
general terms and conditions applicable to your severance benefits.
PART ONE -- DEFINITIONS
For purposes of this letter agreement, the following definitions shall
be in effect:
1. "BASE SALARY" means the annual rate of base salary in effect for
you immediately prior to your Termination Without Cause or Resignation for
Good Cause.
2. "BOARD" means the Company's Board of Directors.
3. "CHANGE IN CONTROL" means any of the following transactions
effecting a change in ownership or control of the Company:
(a) 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,
(b) the sale, transfer or other disposition of all or
substantially all of the assets of the Company other than in the ordinary
course,
(c) any reverse merger in which the Company ceases to exist as an
independent corporation and becomes the subsidiary of another corporation,
(d) any Hostile Take-Over,
(e) the acquisition by any person (or related group of persons),
whether by tender or exchange offer made directly to the Company's
shareholders, private purchases from one or more of the Company's
shareholders, open market purchases or any other transaction, of beneficial
ownership of securities possessing more than twenty-five percent (25%) of the
total combined voting power of the Company's outstanding securities,
(f) the acquisition by any person (or related group of persons),
whether by tender or exchange offer made directly to the Company's
shareholders, private purchases from one or more of the Company's
shareholders, open market purchases or any other transaction, of additional
securities of the Company which increase the total holdings of such person
(or group) to a level of securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding securities, or
(g) the acquisition by any person (or related group of persons),
whether by tender or exchange offer made directly to the Company's
shareholders, private purchases from one or more of the Company's
shareholders, open market purchases or any other transaction, of securities
of the Company possessing sufficient voting power in the aggregate to elect
an absolute majority of the members of the Board (rounded up to the nearest
whole number).
4. "CIC SEVERANCE PAYMENTS" mean the severance payments to which you
may become entitled under Part Three hereof in the event of your Termination
Without Cause or Resignation for Good Cause.
5. "CODE" means the Internal Revenue Code of 1986, as amended.
6. "COMMON STOCK" means the Company's common stock.
7. "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 shall be determinative of Fair
Market Value).
8. "GENERAL RELEASE" means that form of general release attached
hereto as EXHIBIT A, that must be executed by you within three (3) days of
your Termination Without Cause or Resignation for Good Cause, as the case may
be, for you to receive any of the severance benefits set forth in either Part
Two or Part Three hereof, as the case may be.
9. "HOSTILE TAKE-OVER" means any of the following transactions:
(a) 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
(b) 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,
10. "OPTION" means any option granted to you under the Plan which is
outstanding at the time of the Change in Control or upon your Termination
Without Cause or Resignation for Good Reason. "Acquisition-Accelerated
Options" means any outstanding Option (or installment thereof) which
automatically accelerates, pursuant to the Plan or 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" means any outstanding Option (or installment
thereof) which accelerates upon your Termination Without Cause or Resignation
for Good Reason pursuant to Part Three of this letter agreement. Except for
the circumstances described above in this Paragraph, the terms and conditions
contained in the Options shall remain unchanged.
11. "OPTION PARACHUTE PAYMENT" means, with respect to any
Acquisition-Accelerated Option or any Severance-Accelerated Option, the
portion of that Option which is treated as a payment described in Code
Section 280G(b)(2)(A)(i) and the Treasury Regulations issued thereunder. The
portion of such Option which is categorized as an Option Parachute Payment
shall be calculated in accordance with the valuation provisions established
under Code Section 280G and the applicable Treasury Regulations and shall
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, shall 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.
12. "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 are payments described in Code Section
280G(b)(2)(A)(i) and the Treasury Regulations issued thereunder. Your Other
Parachute Payments shall 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).
13. "PLAN" means (i) the Company's 1993 Stock Option/Stock Issuance
Plan, as amended or restated from time to time, and (ii) any successor stock
incentive plan subsequently implemented by the Company.
14. "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 your subsequent
Termination Without Cause or Resignation for Good Cause of your employment,
including (without limitation) the Option Parachute Payment attributable to
your Severance-Acceleration Options, your CIC Severance Payments under Part
Three of this letter agreement and the Option Parachute Payment attributable
to your Acquisition-Accelerated Options (if any). 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 date of the Change in Control.
15. "RESIGNATION FOR GOOD CAUSE" means your voluntary resignation
subsequent to a Change in Control following (a) a change in your position
with the Company which materially reduces your duties or level of
responsibility, (b) a reduction in your level of compensation (including base
salary, fringe benefits and participation in non-discretionary bonus programs
under which awards are payable pursuant to objective financial or performance
standards) by an amount in excess of fifteen percent (15%) or (c) 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 the event of a Hostile Take-Over, any subsequent percentage
reduction in the level of your compensation shall constitute grounds for a
clause (b) triggering Resignation for Good Cause of your employment under
this letter agreement.
In no event shall Resignation for Good Cause be deemed to occur
should your employment terminate by reason of your death or disability.
16. "REVOCATION PERIOD" means the seven (7) day period following your
execution of a General Release in which you may revoke such General Release.
17. "STANDARD SEVERANCE PAYMENTS" mean the severance payments to which
you may become entitled under Part Two hereof in the event of your
Termination Without Cause.
18. "TERMINATION FOR CAUSE" means the termination of your employment by
the Company upon your:
(a) dishonesty resulting, or intending to result, directly or
indirectly, in gain or personal enrichment at the expense of the Company; or
(b) gross misconduct, including, without limitation, fraud, sexual
harassment or misappropriation of Company property or confidential
information; or
(c) conviction for a felony under the laws of the United States or
any state thereof; or
(d) willful and continued failure substantially to perform your
duties with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness), which is not remedied within a
reasonable period after a written demand for substantial performance is
delivered to you which specifically identifies the manner in which it is
believed that you have not substantially performed your duties.
19. "TERMINATION WITHOUT CAUSE" means the Company's termination of your
employment with the Company other than a Termination for Cause.
20. "TOTAL COMPENSATION" means the aggregate of (a) Base Salary, (b)
the average cash bonuses paid to you by the Company for services rendered
during the two (2) Company fiscal years immediately preceding the fiscal year
of your Termination Without Cause or Resignation for Good Cause, as the case
may be, and (c) the total costs to the Company of any other benefits made
available to
you by the Company in the Company fiscal year immediately preceding the year
of your Termination Without Cause or Resignation for Good Reason, as the case
may be. In the event that you were not employed during the entire two (2)
Company fiscal years, any of the bonuses or benefits described in (b) and (c)
above for a partial year of employment shall be annualized, in accordance
with the frequency which such compensation is paid during such partial year.
PART TWO -- GENERAL SEVERANCE BENEFITS
Upon the Termination Without Cause of your employment after a period of
at least nine (9) months after the start of your employment with the Company
and seven (7) days after your execution of a General Release (provided that
such General Release is not revoked by you prior to the end of the Revocation
Period) to the Company within three (3) days of such Termination Without
Cause, you shall become entitled to receive the special severance benefits
provided in this Part Two. However, in order to continue to receive these
severance benefits, you must abide by the restrictive covenants set forth in
Paragraph 3 of this Part Two.
1. STANDARD SEVERANCE PAYMENTS. You shall be entitled to Standard
Severance Payments in an aggregate amount equal to (a) your Base Salary plus
(b) the average of the bonuses paid to you for services rendered in the two
(2) fiscal years immediately preceding the fiscal year of your Termination
Without Cause.
The aggregate Standard Severance Payments shall be paid to you in
equal installments over the one-year period following your Termination
Without Cause in accordance with the Company's normal payroll practices and
subject to all applicable withholding taxes. However, these payments shall
immediately terminate in the event you fail to abide by the restrictive
covenants set forth in Paragraph 3 of this Part Two.
In the event your employment terminates by reason of your death or
disability or your Termination for Cause, you shall not be entitled to
receive any Standard Severance Payments or other benefits under this letter
agreement.
2. ADDITIONAL BENEFITS. You shall receive an immediate lump sum
payment of all unpaid paid time off that you have accrued through the date of
your Termination Without Cause.
3. RESTRICTIVE COVENANTS. During the period of your Standard
Severance Payments, you shall not:
(a) 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 the Company maintains substantial business
activities, or
(b) 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
(c) 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 shall, in addition to the Company's
cessation of the Standard 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.
PART THREE -- CHANGE IN CONTROL BENEFITS
Upon your Termination Without Cause or Resignation for Good Reason
within twelve (12) months following a Change in Control and seven (7) days
after your execution of a General Release (provided that such General Release
is not revoked by you prior to the end of the Revocation Period) on behalf of
the Company within three (3) days of such Termination Without Cause or
Resignation for Good Reason, as the case may be, you shall become entitled to
receive the special severance benefits provided in this Part Three in
substitution of those benefits set forth in Part Two hereof. However, in the
absence of a Hostile Take-Over, the severance benefits set forth in this Part
Three shall continue to be paid to you only for so long as you abide by the
restrictive covenants set forth in Paragraph 4 of this Part Three.
1. CIC SEVERANCE PAYMENTS. You shall be entitled to CIC Severance
Payments in an aggregate amount equal to your Total Compensation determined
as of the date of your Termination Without Cause or Resignation for Good
Reason.
In the absence of a Hostile Take-Over, your CIC Severance Payments
shall be paid to you in equal installments over the one-year period following
your Termination Without Cause or Resignation for Good Cause in accordance
with the Company's normal payroll practices and subject to all applicable
withholding taxes. However, these payments shall immediately terminate in
the event you fail to abide by the restrictive covenants set forth in
Paragraph 4 of this Part Three.
Should your Termination Without Cause or Resignation for Good Cause
occur in connection with a Hostile Take-Over, the CIC Severance Payments
shall be made to you in a lump sum payment (subject to all applicable
withholding taxes) within thirty (30) days after your Termination Without
Cause or Resignation for Good Cause, and the provisions of Paragraph 4 of
this Part Three shall not apply.
In the event your employment terminates by reason of your death or
disability or your Termination for Cause, you shall not be entitled to
receive any CIC Severance Payments or other benefits under this letter
agreement.
2. OPTION ACCELERATION. Each of your outstanding Options shall (to
the extent not then otherwise fully exercisable) automatically accelerate so
that each such Option shall 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 of your other vested
Options, shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration date of the option term or (ii) the end of the three
(3)-month period measured from the date of your Termination Without Cause or
Resignation for Good Cause.
3. ADDITIONAL BENEFITS. You shall receive an immediate lump sum
payment of all unpaid paid time off that you have accrued through the date of
your Termination Without Cause or Resignation for Good Cause.
4. RESTRICTIVE COVENANTS. During the period of your CIC Severance
Payments, you shall not:
(a) 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 the Company maintains substantial business
activities, or
(b) 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
(c) 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 shall, in addition to the Company's
cessation of the CIC 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 shall be applicable in
the event your Termination Without Cause or Resignation for Good Cause occurs
in connection with a Hostile Take-Over.
5. BENEFIT REDUCTION. In the event of a Change in Control, the
following limitations shall become applicable:
(a) BENEFIT REDUCTION. If the Change in Control does not
constitute a Hostile Take-Over, first the dollar amount of your severance
payment under Paragraph 1 shall be reduced to the extent necessary to assure
that the present value of those benefits shall not, when added to the present
value of your Option Parachute Payment and your Other Parachute Payments,
exceed the maximum amount which may be paid hereunder without such amounts
being treated as an excess parachute payment under Code Section 280(G). In
the event of a Hostile Take-Over, no reduction shall be made to your
severance payment (or any other benefit to which you become entitled
hereunder), unless necessary to provide you with the maximum after-tax
benefit available, after taking into account any parachute excise tax which
might otherwise be payable by you under Code Section 4999 and any analogous
State income tax provision.
(b) RESOLUTION OF DISPUTES. In the event there is any
disagreement between you and the Company as to whether one or more benefits
to which you become entitled (whether under this letter agreement or
otherwise) in connection with a Change in Control constitute Option Parachute
Payments
or Other Parachute Payments or would result in an excess parachute payment
within the meaning of Code Section 280G, such dispute is to be resolved as
follows:
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G specifically
address the status of such benefits or the method for their valuation, the
characterization afforded to such benefits by the Regulations, together with
the methods prescribed for their valuation, shall be controlling.
(ii) In the event such Regulations do not address the status
of the benefits in dispute, the matter shall be submitted for resolution to
independent counsel mutually acceptable to you and the Company ("Independent
Counsel"). The resolution reached by Independent Counsel shall be final and
controlling. However, should the Independent Counsel determine that the
status of the benefits 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 shall be prepared and submitted by Independent
Counsel, and the determination made by the Internal Revenue Service in the
issued ruling shall be controlling. All expenses incurred in connection with
the retention of Independent Counsel and (if applicable) the preparation and
submission of the ruling request shall be paid by the Company.
The full amount of your severance benefit under Paragraph 1
shall not be paid to you until any amounts in dispute under this Paragraph
5(b) have been resolved in accordance herewith. However, any portion of such
severance payment which would not otherwise exceed the benefit limitation of
Paragraph 5(a) even if all amounts in dispute under this Paragraph 5(b) were
to be resolved against you shall be paid to you in accordance with the
applicable provisions of this letter agreement.
(c) OVERRIDING LIMITATION. You shall in all events be entitled to
receive the full amount of your severance payment under Paragraph 1 of this
Part Three, to the extent those benefits, when added to the present value of
your Option Parachute Payment and your Other Parachute Payments (excluding
such severance payment), shall nevertheless qualify as reasonable
compensation within the standards established under Code Section 280G(b)(4).
(d) INTERPRETATION. The provisions of this Paragraph 5 shall in
all events be interpreted in such manner as shall avoid the imposition of
excise taxes under Code Section 4999, and the disallowance of deductions
under Code Section 280G(a), with respect to your severance benefits under
this letter agreement.
PART FOUR -- MISCELLANEOUS PROVISIONS
1. TERMINATION FOR CAUSE. Should your termination constitute
Termination for Cause, then the Company shall 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 other benefits shall be payable to you under either Parts
Two or Three of this letter agreement.
2. DEATH. Should you die after your Termination Without Cause or
Resignation for Good Cause, as the case may be, but before receipt of one or
more of either the Standard Severance Payments or the CIC Severance Payments
to which you become entitled under Parts Two or Three hereof, respectively,
of this letter agreement, then those payment(s) shall be made to the
executors or administrators of your estate. Should you die before you
exercise all your 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 with the laws of
inheritance. In no event, however, may any such Option be exercised after the
specified expiration date of the option term.
3. GENERAL CREDITOR STATUS. The payments and benefits to which you
become entitled hereunder shall be paid, when due, from the general assets of
the Company, and no trust fund, escrow arrangement or other segregated
account shall 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
shall at all times be that of a general creditor of the Company and shall
have no priority over the claims of other general creditors.
4. INDEMNIFICATION. If applicable, the indemnification provisions for
Officers and Directors under the Company Bylaws shall (to the maximum extent
permitted by law) be extended to you, during the period following your
Termination Without Cause or Resignation for Good Cause, with respect to any
and all matters, events or transactions occurring or effected during your
employment with the Company.
5. MISCELLANEOUS. This letter agreement shall 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 applicable to
agreements executed and to be wholly performed within the State of
California. This letter agreement supersedes all prior agreements between
you and the Company relating to the subject of severance benefits payable to
you upon the cessation of your employment with 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 shall 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 shall
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
shall be stricken and the remainder of this letter agreement shall continue
in full force and effect.
6. REMEDIES. All rights and remedies provided pursuant to this letter
agreement or by law will be cumulative, and no such right or remedy will be
exclusive of any other. A party may pursue any one or more rights or
remedies hereunder or may seek damages or specific performance in the event
of another party's breach hereunder or may pursue any other remedy by law or
equity, whether or not stated in this letter agreement.
7. ARBITRATION. Any controversy which may arise between you and the
Company with respect to the construction, interpretation or application of
any of the terms, provisions or conditions of this agreement or any monetary
claim arising from or relating to this agreement will be submitted to final
and binding arbitration in San Diego, California in accordance with the rules
of the American Arbitration Association then in effect.
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8. 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), which rights are hereby expressly reserved
by each, to terminate your employment at any time for any reason whatsoever,
with or without cause.
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.
ENCAD, INC.
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 the cessation of my employment under certain
specified conditions with ENCAD, Inc.
Signature:
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Dated: , 199__
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