CHANGE IN CONTROL
AGREEMENT
AGREEMENT between
Penford Corporation, a Washington corporation (the “
Corporation ”), and ___ (the “ Executive
”), dated as of ___ (the “ Effective Date
”).
A. The
Executive is an executive officer or key employee of the
Corporation and an integral part of its management.
B. The
Corporation wishes to assure both itself and the Executive of
continuity of management in the event of any actual or threatened
change in control of the Corporation.
C. This
Agreement is not intended to alter the compensation and benefits
that the Executive could reasonably expect in the absence of the
occurrence of a Change in Control, as defined in this Agreement;
consequently, this Agreement will be operative only upon the
Executive’s termination during the term of this Agreement
after the occurrence of a Change in Control.
NOW, THEREFORE, it
is hereby agreed as follows;
1. Definitions . For purposes of this Agreement, the
following terms shall have the meanings set forth below.
“
Average Target Attainment Bonus ” shall mean the
product of the Executive’s Target Bonus in the year of the
Executive’s termination of employment multiplied by the
average of the percentages of Target Bonuses attained by the
Executive for the three fiscal years preceding the year of the
Executive’s termination of employment in which the Executive
was a participant in the Corporation’s bonus plan
administered for executive officers and key employees for a full
fiscal year, or such fewer number of fiscal years in which the
Executive was a participant in such bonus plan for a full fiscal
year, or the Target Bonus for the year of termination if the
Executive has not previously been a participant for a full fiscal
year in such bonus plan. The percentages of Target Bonuses attained
shall be computed by including all bonuses paid with respect to a
fiscal year regardless of whether a bonus is paid pursuant to a
plan or awarded on a discretionary basis, but shall not include any
bonus paid in the year of the Executive’s termination of
employment or any discretionary bonus paid which are directly
attributable to a Change in Control. For example, assume the
Executive has a Target Bonus in the year of the Executive’s
termination of 50% of Base Salary and with respect to the preceding
three fiscal years was awarded bonuses which represented 80%, 120%
and 70%, respectively, of the Executive’s then applicable
Target Bonuses of 35%, 40% and 40%, then the Average Target
Attainment Bonus would be 90% times 50% or 45% of Base Salary.
Management shall maintain a record of the Average Target Attainment
Bonuses and such record shall be reviewed and concurred to by the
compensation committee of the Corporation.
“
Base Salary ” shall mean an amount equal to the
greater of (i) the Executive’s annual base salary at the
rate in effect on the date of a Change in Control, or (ii) the
Executive’s annual base salary at the rate in effect on the
date of the Executive’s termination of employment, either
without regard to any reduction made in connection with an event
constituting Good Reason hereunder. In either case Base Salary
shall be determined prior to any deductions actually taken from
salary including without limitation (1) for salary reductions
or deferrals under any plan of the Corporation, (2) for
payments of employee benefits under any plan of the Corporation
which were charged to the Executive, and (3) for the purchase
of stock under any plan of the Corporation.
“
Cause ” means a finding by the Board of Directors in
good faith that (i) the Executive’s employment has been
terminated for gross misconduct in connection with the
Executive’s position as an officer of the Corporation that
results in demonstrably material injury to the Corporation, or
(ii) the Executive has breached a covenant of the Executive
set forth in this Agreement (if, after written notice by the
Corporation to the Executive and a thirty (30) day opportunity
by the Executive to cure during which the Executive does not cure
the condition). For this purpose, bad judgment, negligence and
policy disagreements with the Board of Directors shall not
constitute gross misconduct, nor shall any act or omission of the
Executive that was reasonably believed by the Executive to have
been in, and not opposed to, the interests of the
Corporation.
“
Change in Control ” shall mean any of the following
events:
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(i)
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The
Corporation is merged, consolidated or reorganized
(“Reorganization”) with another entity and as a result
of which less than 50% of the outstanding voting interests or
securities of the surviving or resulting entity immediately after
the Reorganization are owned in the aggregate by the former
shareholders of the Corporation, as the same shall have existed
immediately prior to such Reorganization, in substantially the same
proportions as their ownership before such
Reorganization;
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(ii)
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The
Corporation sells all or “ Substantially All ”
of its assets to another entity that is not a wholly-owned
subsidiary or affiliate of the Corporation, provided that a sale
shall constitute Substantially All of the Corporation’s
assets only if the fair market value of the consideration received
for such assets exceeds 50% of the fair market value of the
Corporation’s average total market capitalization during the
twenty (20) trading days ending twenty (20) trading days prior
to the first public announcement of such sale; provided further
that the fair market value of the consideration received and the
total market capitalization of the Corporation shall be as
reasonably determined by the Board of Directors in good faith and
that both the Corporation’s stock and any publicly traded
consideration received in a sale shall be valued using the closing
price for such security (y) for the period referenced above in
the case of the Corporation’s stock and
(z) the
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average closing prices for the first
twenty (20) trading days after the Closing of any sale or
other transaction in which any publicly traded consideration is
received;
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(iii)
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Any
person, within the meaning of Sections 3(a)(9), 13(d) or 14(d) (as
in effect on the date hereof) of the Securities and Exchange Act of
1934 (“ Exchange Act ”) (“Person”),
other than any employee benefit plan then maintained by the
Corporation, acquires more than 40% of the outstanding voting
securities of the Corporation (whether, directly, indirectly,
beneficially or of record). For purposes hereof, ownership of
voting securities shall take into account and shall include
ownership as determined by applying the provisions of
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant
to the Exchange Act; or
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(iv)
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During any 24 month period,
individuals who constitute the Board of Directors of the
Corporation at the beginning of such period cease for any reason to
constitute at least a majority thereof, unless the election, or
nomination for election by the Corporation’s shareholders, of
each new director was approved by the vote of at least two-thirds
of the directors then still in office who were directors of the
Corporation at the beginning of such period; provided that no
individual shall be considered so approved if such individual
initially assumed office as a result of or in connection with an
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors of the
Corporation.
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“
CIC Amount ” shall have the meaning set forth in Annex
B.
“
Compensation Period ” shall have the meaning set forth
in Annex B.
“
Disability ” shall mean, to the extent such term is
not defined in an Employment Agreement, if any, a physical or
mental condition as a result of which the Executive has been
approved for benefits under a Corporation-sponsored long-term
disability plan, policy or arrangement in which the Executive
participates.
“
Employment Agreement ” shall mean a written offer
letter or employment between the Executive and the Corporation, if
any, covering the terms and conditions of employment with the
Corporation.
“
Good Reason ” shall exist under any of the following
conditions (if, after written notice by the Executive to the
Corporation and a thirty (30)day opportunity by the Corporation to
cure during which the Corporation does not cure the
condition):
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(i)
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The
Executive’s most significant duties, responsibilities or
authority held, prior to the date of the Change in Control or at
any time after the date of the Change in Control are reduced
or
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diminished in
other than an immaterial manner without the Executive’s
written consent;
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(ii)
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Either (A) the
Executive’s Base Salary or Target Bonus are reduced by the
Corporation from the levels in effect immediately prior to a Change
in Control without the Executive’s written consent, or
(B) the Executive’s health, welfare and other benefits
referred to in Paragraph 6 are denied or modified in a manner
different than changes applicable to other executive officers of
the Corporation or any controlling entity without the
Executive’s written consent, and (C) the aggregate
effect of all such reductions, denials and modifications (including
any increases in compensation, bonuses, or benefits) represents
more than an immaterial reduction to the Executive’s overall
compensation package in existence prior to the Change in
Control;
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(iii)
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The
Corporation violates the material terms of this Agreement, or the
Executive’s Employment Agreement, if any;
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(iv)
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The
Executive is required to relocate his or her principal place of
employment to a location which is more than 50 miles from both his
principal place of employment and his principal residence prior to
the announcement of an agreement or transaction that results in a
Change in Control (for avoidance of doubt the principal place or
employment and principal residence for the Executive shall be set
forth on Annex B hereto and shall be updated from time to time,
provided that the failure to so update shall not preclude this
provision from being applicable); or
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(v)
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There is a liquidation, dissolution,
consolidation or merger of the Corporation or transfer or sale of
all or a Substantially All (as defined above) of its assets, unless
a successor (by merger, consolidation or otherwise) to which all or
Substantially All of its assets have been transferred or sold has
assumed (either by operation of law or otherwise) all duties and
obligations of the Corporation under this Agreement and any
Employment Agreement, if any.
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“
Outplacement Period” shall have the meaning set forth
in Annex B.
“
Target Bonus ” shall mean an amount equal to the
target bonus payable to the Executive under the Corporation’s
annual incentive bonus plan in effect for the fiscal year of the
Executive’s termination of employment, or other fiscal years
specifically referenced in this Agreement, without regard, to any
reduction made in connection with an event constituting Good Reason
hereunder.
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“
Termination of the Executive’s Employment ”
shall (a) mean (i) termination by the Corporation of the
employment of the Executive for any reason other than Cause, death,
or Disability; or (ii) termination by the Executive of his or her
employment for Good Reason in the absence of circumstances that
constitute Cause; and (b) shall be interpreted in a manner
consistent with the term “separation from service”
under Section 409A(a)(2)(i) of the Internal Revenue Code of
1986, as amended (“Code”).
“
Waiver and Release Agreement ” shall mean the written
waiver and release agreement attached hereto as Annex A, which the
Executive must execute on or within forty-five (45) days after
his last day of employment in favor of the Corporation, and not
thereafter revoke, in order to be entitled to receive any payments
or benefits under paragraphs 4, 5, 6 and 7 of this
Agreement.
2. Term
of Agreement . This Agreement shall remain in effect until
terminated by the Corporation in accordance with this paragraph or,
if a Change in Control occurs prior to such termination by the
Corporation, until the obligations of the Corporation pursuant to
this Agreement have been fulfilled. This Agreement shall terminate
one year after the date the Corporation gives the Executive written
notice of the termination of this Agreement; except that if a
Change in Control occurs prior to the termination date, this
Agreement shall remain in effect with respect to all rights
accruing as a result of the occurrence of the Change in
Control.
3. Termination of Employment . If, during the term of
this Agreement, there is a Termination of the Executive’s
Employment within twenty-four (24) months after a Change in
Control, then the Executive shall receive the compensation and
benefits described in paragraphs 4, 6 and 7. Section 5 shall apply
upon a Change in Control with or without a Termination of the
Executive’s Employment. Notwithstanding the foregoing, a
termination shall not have occurred under this Agreement if, in
connection with a Change in Control, the Executive terminates
employment with the Corporation and becomes an employee of the
acquiring or controlling entity or one of its affiliates which
succeeds to the business of the Corporation under terms and
conditions that would not give rise to Good Reason had employment
with the Corporation continued.
4. Compensation . Subject to the provisions of
paragraphs 3, 10 and 13, the Executive shall have the right to
receive the CIC Amount (as defined in Annex B)) during the
Compensation Period (as defined in Annex B). Fifty percent (50%) of
the CIC Amount shall be payable within thirty (30) days after
Termination of the Executive’s Employment and the remaining
fifty percent (50%) of the CIC Amount shall be paid in equal
monthly installments over the Compensation Period. In addition, the
Executive shall be paid his or her prorated Target Bonus for the
fiscal year in which the Executive was terminated within thirty
(30) days after Termination of the Executive’s
Employment. The prorated Target Bonus shall be determined by
multiplying the Target Bonus by a fraction the numerator of which
shall be the number of full or partial months that the Executive
was employed during the fiscal year in which the Termination of the
Executive’s Employment occurred. To the extent a bonus for
the fiscal year prior to the year in which the Termination of the
Executive’s Employment occurs has not been paid at the time
of the Termination of the Executive’s Employment, such bonus
as determined in good faith and consistently with prior practice
shall be paid to the Executive not later than the time such bonuses
were generally paid in the prior year. Notwithstanding the
foregoing, if necessary to
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meet the
requirements of subparagraphs (2)(A)(i) and (B)(i) of Code
Section 409A(a)(2), the compensation that would normally be
paid during the first six (6) months after the Termination of
the Executive’s Employment shall not be paid to an Executive
who is a specified employee (as defined in Code
Section 409A(a)(2)(B)(i)) until the six-month anniversary of
the Termination of the Executive’s Employment (or, if
earlier, the date of his or her death). If such a delay is
required, the aggregate compensation for the first six months after
the Termination of the Executive’s Employment shall be paid
in a single lump sum on (or as soon as practicable after) the
six-month anniversary, after which time the compensation shall be
paid at the same time and in the same manner as it was paid
immediately prior to the Executive’s termination until the
end of the Compensation Period.
5. Equity . All stock options, restricted stock,
restricted stock units and other equity based rights and interests
outstanding immediately prior to the Change in Control shall become
vested immediately prior to the Change in Control and shall be
exercisable, transferable, payable or otherwise available in
accordance with the plan, grant, agreement or other instrument
setting forth the Executive’s rights.
6. Benefits . Subject to the provisions in Paragraphs
3, 10, and 13, accrued vacation through the date of Termination of
the Executive’s Employment shall be paid within thirty
(30) days of the effective date of the Waiver and Release
Agreement. The Executive, his or her dependents, beneficiaries
and/or estate shall continue during the Compensation Period to be
entitled to all benefits under medical, dental, life insurance and
similar plans (except for any disability plan) that are in effect
on the Executive’s termination date. If by reason of a plan
provision, adverse tax consequences to the Corporation or the
Executive, law or government regulation or third-party contractual
restriction the Executive, his or her dependents, beneficiaries
and/or estate cannot receive or participate in a benefit, then the
Corporation shall, to the extent necessary, pay or provide for
payment of such benefit or a reasonably equivalent benefit to the
Executive, his or her dependents, beneficiaries and/or estate in
the same amount and manner as they would have been provided by the
relevant plan provided by the Corporation prior to the
Executive’s termination date (e.g., through the payment by
the Corporation of a portion of COBRA premiums). Notwithstanding
the foregoing, if the Executive is employed by another employer,
the Corporation shall not provide any medical, dental, life
insurance or similar benefit to the extent a comparable benefit is
provided by the other employer. The participation of the Executive
in the Penford Corporation Retirement Plan, the Penford Corporation
401(k) Plan or any other plan described in Code Section 401(a)
shall terminate after the Executive’s termination date in
accordance with the terms of such plans and the Corporation shall
not be obligated to provide equivalent benefits. Notwithstanding
the foregoing, to the extent necessary to meet the requirements of
subparagraphs (2)(A)(i) and (B)(i) of Code Section 409A(a)(2),
the benefits that would normally be provided under this paragraph 6
(including treatment of the Executive as having not terminated
employment for purposes of continued health and welfare benefits or
cash payments in lieu thereof) during the first six (6) months
of the Compensation Period shall not be provided to an Executive
who is a specified employee (as defined in Code
Section 409A(a)(2)(B)(i)) until the six-month anniversary of
such Executive’s Termination of Employment (or, if earlier,
the date of his or her death). If such a delay is required, the
Executive will not be treated as having continued employment during
the first six months of the Compensation Period until the six-month
anniversary of the Executive’s Termination of Employment.
Also on such six-month anniversary, the Executive will receive a
lump sum cash
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payment equal
to the value of any health and welfare benefits that could not be
provided during such six months. After the six-month anniversary,
these benefits under this paragraph 6 will continue through the end
of the Compensation Period.
7. Outplacement Services . Subject to compliance with
Paragraphs 3, 10 and 13, the Corporation shall pay for the cost of
senior executive-level outplacement services for the Executive for
the Outplacement Period (defined in Annex B). Outplacement services
shall be provided by such executive outplacement firm selected by
the Executive and reasonably approved by the Corporation. The
Executive shall commence utilization of such senior executive-level
outplacement services within ninety (90) days following his or
her termination date.
8. Effect
of Death . In the event of death of the Executive during the
Compensation Period, the compensation that would otherwise have
been paid to the Executive under this Agreement shall be paid to
the Executive’s estate. Coverage of any dependents under any
plan described in paragraph 6 shall continue for the Compensation
Period as though the Executive had remained alive. Nothing in this
paragraph shall affect any other payments by the Corporation due in
respect of the Executive’s death.
9. Section 280G Tax Payment .
(a)
Impact of Section 280G . Except as otherwise provided
in Annex B and notwithstanding any other provisions of this
Agreement, if the aggregate “ present value ”
(as defined in Section 280G(d)(4) of the Code) of all “
parachute paym
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