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Exhibit 10.5
PANGEA SYSTEMS, INC
CHANGE OF CONTROL AND RETENTION PLAN
ARTICLE 1.
PURPOSE, ESTABLISHMENT AND APPLICABILITY OF PLAN
(a) PURPOSES. It is expected that Pangea Systems, Inc. (the "Company"),
from time to time, will consider the possibility of a Change of Control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee or Executive and can cause
the Employee or Executive to consider alternative employment opportunities. The
Board believes that it is in the best interests of the Company and its
shareholders to provide the Employee or Executive with an incentive to continue
his employment and to maximize the value of the Company upon a Change of Control
for the benefit of its shareholders. Further, the Board believes that it is in
the best interests of the Company and its shareholders to provide an attractive
compensation package to attract and retain key personal. In order to provide the
Employee or Executive with enhanced financial security and sufficient
encouragement to remain with the Company notwithstanding the possibility of a
Change of Control, the Board believes that it is imperative to provide the
Employee or Executive with certain benefits upon a Change of Control and certain
severance benefits upon the Employee's or Executive's termination of employment
following a Change of Control.
(b) ESTABLISHMENT OF PLAN. As of the Effective Date, the Company
hereby establishes this Plan, as set forth in this document.
(c) APPLICABILITY OF PLAN. Subject to the terms of this Plan, the
benefit provided by this Plan shall be available to all Employees and
Executives of the Company.
(d) CONTRACTUAL RIGHT TO BENEFITS. This Plan establishes and vests in
each Employee and Executive a contractual right to the benefits to which he
or she is entitled pursuant to the terms thereof, enforceable by the Employee
and Executive against the Company.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
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(a) CAUSE. "Cause" shall mean (i) any act of personal dishonesty taken by
the Employee or Executive in connection with his responsibilities as an employee
which is intended to result in substantial personal enrichment of the Employee
or Executive, (ii) Employee's or Executive's conviction of a felony which the
Board reasonably believes has had or will have a material detrimental effect on
the Company's reputation or business, (iii) a willful act by the Employee or
Executive which constitutes misconduct and is injurious to the Company, and (iv)
continued willful violations by the Employee or Executive of the Employee's or
Executive's obligations to the Company after there has been delivered to the
Employee or Executive a written demand for performance from the Company which
describes the basis for the Company's belief that the Employee or Executive has
not substantially performed his duties.
(b) CHANGE OF CONTROL. "Change of Control" shall mean the occurrence of any
of the following events:
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
(ii) any approval by the shareholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company -of all or substantially all of the Company's assets; or
(iii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) becoming the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities.
(c) EMPLOYEE. "Employee" shall mean an employee of the Company who is not
an Executive.
(d) EXECUTIVE. "Executive" shall mean an officer of the Company of the
vice-presidential level or above, any non-employee director and those persons
designated by the Board as listed on Exhibit A, which may be amended from time
to time.
(e) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean (i)
without the Employee's or Executive's express written consent, a significant
reduction of the Employee's or Executive's duties, position or responsibilities
relative to the Employee's or Executive's duties, position or responsibilities
in effect immediately prior to the
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Change of Control, or the removal of the Employee or Executive from such
position, duties and responsibilities, unless the Employee or Executive is
provided with comparable duties, position and responsibilities; provided,
however, that a reduction in duties, position or responsibilities solely by
virtue of the Company being acquired and made part of a larger entity (as, for
example, when the Chief Financial Officer of the Company remains as such
following a Change of Control but is not made the Chief Financial Officer of the
acquiring corporation) shall not constitute an "Involuntary Termination; (ii)
without the Employee's or Executive's express written consent, a substantial
reduction of the facilities and perquisites (including office space and
location) available to the Employee or Executive immediately prior to the Change
of control; (iii) a reduction by the Company of the Employee's or Executive's
base salary as in effect immediately prior to the Change of Control; (iv) a
material reduction by the Company in the kind or level of employee benefits to
which the Employee or Executive is entitled immediately prior to the Change of
Control with the result that the Employee's or Executive's overall benefits
package is significantly reduced; (v) without the Employee's or Executive's
express written consent, the relocation of the Employee or Executive to a
facility or a location more than thirty-five (35) miles from his current
location; (vi) any purported termination of the Employee or Executive by the
Company which is not effected for Cause for which the grounds relied upon are
not valid; or (vii) the failure of the Company to obtain the assumption of this
Plan, by any successors contemplated in Section 5 below.
(f) OPTION. "Option" shall mean an option granted by the Board pursuant to
the Company's 1996 Equity Incentive Plan.
(g) PLAN. "Plan" shall mean this Change of Control and Retention Plan.
(h) TERMINATION DATE. "Termination Date" shall mean the effective date of
any notice of termination delivered by one party to the other hereunder.
ARTICLE 3.
TERM OF PLAN
TERM OF PLAN. This Plan shall terminate upon the date that all
obligations of the parties hereto under this Plan have been satisfied.
ARTICLE 4.
CHANGE OF CONTROL AND SEVERANCE BENEFITS
(a) OPTION ACCELERATION UPON A CHANGE OF CONTROL FOR EMPLOYEES AND
EXECUTIVES. In the event of a Change of Control, each Option granted to an
Employee or Executive shall be assumed or an equivalent option substituted by
the successor
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corporation or a parent or subsidiary of the successor corporation. In the
event that the successor corporation or its parent or subsidiary refuses to
assume or substitute for the Option, the Employee or Executive shall fully
vest in and have the right to exercise the Option, including shares as to
which it would not otherwise be vested or exercisable. If an Option becomes
fully vested and exercisable in lieu of assumption or substitution in the
event of a Change of Control, the Company shall notify the Employee or
Executive in writing at least fifteen (15) days prior to the Change of
Control that the Option shall be fully exercisable (contingent upon the
Change of Control) for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed
if, following the merger or sale of assets, the Option confers the right to
purchase or receive, for each share subject to the Option immediately prior
to the Change of Control, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders
of Common Stock for each share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares);
provided, however, that if such consideration received in the merger or sale
of assets is not solely common stock of the successor corporation or its
parent, the Company may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each share subject to the Option, to be solely common stock of the
successor corporation or its parent equal in fair market value to the per
share consideration received by holders of common stock in the merger or sale
of assets. Notwithstanding the above, if it is determined by the Company's
independent public accountants (the "Accountants") that such acceleration
would preclude accounting for the Change of Control as a pooling of interests
for financial accounting purposes, and it is a condition to the closing of
the Change of Control that the transaction be accounted for as a pooling of
interests, then the vesting and exercisability of the Options shall not
accelerate pursuant to this Section 4(a).
(b) OPTION ACCELERATION UPON A CHANGE OF CONTROL FOR EXECUTIVE'S. Upon a
Change of Control, the vesting and exercisability of each Option granted to an
Executive by the Company (the "Options") shall be automatically accelerated as
to 50% of the shares subject thereto at the time of the Change of Control, but
which are not vested at such time; provided, however, that if it is determined
by the Company's Accountants that such acceleration would preclude accounting
for the Change of Control as a pooling of interests for financial accounting
purposes, and it is a condition to the closing of the Change of Control that the
transaction be accounted for as a pooling of interests, then the vesting and
exercisability of the Options shall not accelerate pursuant to this Section
4(b).
(c) TERMINATION OF EXECUTIVES FOLLOWING A CHANGE OF CONTROL. If the
Executive's employment with the Company terminates as a result of an Involuntary
Termination within twelve (12) months of a Change in Control, the vesting and
exercisability of each Option granted to an Executive by the Company shall be
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automatically accelerated as to 50% of the shares subject thereto at the
Termination Date, but which are not vested at such time; provided, however, that
if it is determined by the Company's Accountants that such acceleration would
preclude accounting for the Change of Control as a pooling of interests for
financial accounting purposes, and it is a condition to the closing of the
Change of Control that the transaction be accounted for as a pooling of
interests, then the vesting and exercisability of the Options shall not
accelerate pursuant to this Section 4(c).
(d) TERMINATION OF EMPLOYEES FOR CAUSE. If an Employee's or Executive's
employment with the Company is terminated for Cause, the Employee or Executive
shall be permitted to exercise the Option for those shares underlying the Option
that have vested prior to the Termination Date; provided, however, that the
Employee or Executive exercises the option within 30 days of the Termination
Date. Notwithstanding the forgoing, if it is determined by the Company's
Accountants that the Section 4(d) would preclude accounting for the Change of
Control as a pooling of interests for financial accounting purposes, and it is a
condition to the closing of the Change of Control that the transaction be
accounted for as a pooling of interests, then this Section 4(d) shall be of no
effect.
ARTICLE 5.
SUCCESSORS
COMPANY'S SUCCESSORS. Any successor to the Company (whether direct
or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's
business and/or assets shall assume the Company's obligations under this Plan
and agree expressly to perform the Company's obligations under this Plan in
the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes
under this Plan, the term "Company" shall include any successor to the
Company's business and/or assets which executes and delivers the assumption
agreement described in this Article or which becomes bound by the terms of
this Plan by operation of law.
ARTICLE 6.
GOLDEN PARACHUTE EXCISE TAX
AND NON-DEDUCTIBILITY LIMITATIONS
(a) BENEFITS CAP. In the event that the benefits under this Plan, when
aggregated with any other payments or benefits received by an Employee or
Executive, or to be received by an Employee or Executive, would (i) constitute
"parachute payments" within the meaning of Section 280G of the Code, and (ii)
but for this provision, would be subject to the excise tax imposed by Section
4999 of the Code or any similar or successor provision, then the Employee's or
Executive's Plan benefits shall be
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reduced to such lesser amount or degree as would result in no portion of such
benefits being subject to the excise tax under Section 4999 of the Code.
(b) DETERMINATION. Unless the Company and the Employee or Executive
otherwise agree in writing, any determination required under this Article shall
be made in writing by the Accountants, whose determination shall be conclusive
and binding upon the Employee or Executive and the Company for all purposes. For
purposes of making the calculations required by this Article, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretation concerning the application
of Sections 280G and 4999 of the Code. The Company and the Employee or Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Article. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Article.
ARTICLE 7.
NOTICES
(a) GENERAL. Notices and all other communications contemplated by this Plan
shall be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by U.S. registered or certified mail, return receipt
requested and postage prepaid. In the case of the Employee or Executive, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) NOTICE OF TERMINATION. Any termination by the Company for Cause or by
the Employee or Executive as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with this Section. Such notice shall
indicate the specific termination provision in this Plan relied upon, shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
Termination Date (which shall be not more than 30 days after the giving of such
notice). The failure by the Employee or Executive to include in the notice any
fact or circumstance which contributes to a showing of Involuntary Termination
shall not waive any right of the Employee or Executive hereunder or preclude the
Employee or Executive from asserting such fact or circumstance in enforcing his
rights hereunder.
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ARTICLE 8.
ARBITRATION
(a) Any dispute or controversy arising out of, relating to, or in
connection with this Plan, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be settled by binding
arbitration to be held in Alameda County, California, in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to conflicts of law rules. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. By signing and delivering to the
Company the Notice of Participation, the Employee or Executive consents to the
personal jurisdiction of the state and federal courts located in California for
any action or proceeding arising from or relating to this Plan or relating to
any arbitration in which the parties are participants.
(c) The Company and Employee or Executive shall each pay one-half of the
costs and expenses of such arbitration, and each shall separately pay its
counsel fees and expenses.
(d) Nothing in this Section modifies Employee's or Executive's at-will
employment status. Either Employee or Executive, or the Company can terminate
the employment relationship at any time, with or without cause.
(e) SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS PLAN, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF
EMPLOYEE'S OR EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF
ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/ EMPLOYEE OR EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF
CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND
FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
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MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL
STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF
1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF
1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT,
THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, ET
SEQ.;
(iii) ANY AND ALL CLAIM ARISING OUT OF ANY OTHER LAWS AND REGULATIONS
RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
ARTICLE 9.
MISCELLANEOUS PROVISIONS
(a) AT-WILL EMPLOYMENT. The Company and the Employee or Executive
acknowledge that the Employee's or Executive's employment is and shall continue
to be at-will, as defined under applicable law. If the Employee's or Executive's
employment terminates for any reason, the Employee or Executive shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Plan, or as may otherwise be established under the Company's
then existing employee benefit plans or policies at the time of termination.
(b) NO DUPLICATIVE BENEFITS. To the extent that the terms of an Employee's
or Executive's Offer Letter provide for acceleration of options under terms
substantially similar to those in Sections 4(b) and (c) hereof, no duplicative
benefits shall be conferred upon such Employee or Executive.
(c) NO DUTY TO MITIGATE. The Employee or Executive shall not be required to
mitigate the amount of any payment contemplated by this Plan, nor shall any such
payment be reduced by any earnings that the Employee or Executive may receive
from any other source.
(d) WAIVER. No provision of this Plan may be modified, waived or discharged
unless the modification, waiver or discharge is agreed to by the Board. No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Plan by the other party shall be considered a waiver of any
other condition or provision or of the same condition or provision at another
time,
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(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Plan shall be governed by the internal substantive laws, but
not the conflicts of law rules, of the State of California.
(f) SEVERABILITY. The invalidity or unenforceability of any provision or
provisions of this Plan shall not affect the validity or enforceability of any
other provision hereof, which shall remain in full force and effect.
(g) EMPLOYMENT TAXES. All payments made pursuant to this Plan shall be
subject to withholding of applicable income and employment taxes.
(h) COUNTERPARTS. This Plan may be executed in counterparts, each of which
shall be deemed an original, but all of which together will constitute one and
the same instrument.
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EXHIBIT A
Peter Karp
