E xhibit 10.2
CHANGE IN CONTROL SEVERANCE
AGREEMENT
(NON-CEO OFFICER
VERSION)
This CHANGE IN
CONTROL SEVERANCE AGREEMENT (this “ Agreement ”)
is entered into as of the
day of
,
2007 (the “ Effective Date ”), by and between
DJO Incorporated, a Delaware corporation (the “
Company ”), and
(“ Executive ”).
W I T N E S S E T
H
WHEREAS, the
Company considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the
best interests of the Company and its stockholders; and
WHEREAS, the
Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may arise and
that such possibility may result in the departure or distraction of
management personnel to the detriment of the Company and its
stockholders; and
WHEREAS, the Board
of Directors of the Company (the “ Board ”) has
determined that it is in the best interests of the Company and its
stockholders to secure Executive’s continued services and to
ensure Executive’s continued dedication to his duties in the
event of any threat or occurrence of a Change in Control (as
defined in Section 1) of the Company.
NOW, THEREFORE,
for and in consideration of the premises and the mutual covenants
and agreements herein contained, the Company and Executive hereby
agree as follows:
1.
Definitions . As used in this Agreement, the following
terms shall have the respective meanings set forth below:
(a)
“ Bonus Amount ” means Executive’s
aggregate annual target bonus for the fiscal year of the Company in
which Executive’s Date of Termination occurs.
(b)
“ Cause ” means (i) the conviction of Executive
of, or plea of guilty or nolo contendere by Executive
to, or an indictment of Executive alleging, a felony or misdemeanor
involving moral turpitude, (ii) the indictment of Executive for
violation of the federal securities laws, (iii) the willful
misconduct or gross negligence by Executive resulting in material
harm to the Company, (iv) the willful breach by Executive of
Executive’s duties or responsibilities under this Agreement,
(v) fraud, embezzlement, theft or dishonesty by Executive against
the Company or any Subsidiary, or (vi) willful violation by
Executive of a policy or procedure of the Company or any Subsidiary
resulting in material harm to the Company or any Subsidiary.
For purpose of this paragraph 1(b), no act or failure to act
by Executive shall be considered “willful” unless done
or omitted to be done by Executive in bad faith and without
reasonable belief that Executive’s action or omission was in
the best interests of the Company or its affiliates. Any act,
or failure to
act, based upon specific authority given
pursuant to a resolution duly adopted by the Board shall be
conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in the best interests of the
Company. Nothing herein shall prohibit the Company from
retroactively determining that Executive’s employment was
terminated for Cause.
(c)
“ Change in Control ” means the occurrence of
any one of the following events:
(i)
individuals who, on the Effective Date constitute the Board (the
“ Incumbent Directors ”) cease for any reason
within any twenty-four (24) month period to constitute at least a
majority of the Board (or the board of directors of any
successor to the Company), provided that any person becoming a
director subsequent to such date whose election or nomination for
election was approved by a vote of at least two-thirds of the
Incumbent Directors then on the Board (either by a specific vote or
by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written
objection to such nomination) shall be an Incumbent Director;
provided , however , that no individual initially
elected or nominated as a director of the Company as a result of an
actual or threatened election contest with respect to directors or
as a result of any other actual or threatened solicitation of
proxies by or on behalf of any person other than the Board
(including by reason of any agreement intended to avoid or settle
such election contest or solicitation of proxies) shall be deemed
to be an Incumbent Director until twenty-four (24) months after
such election;
(ii)
any “person” (as such term is defined in
Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the “ Exchange Act ”) and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or
becomes a “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or
more of the combined voting power of the Company’s then
outstanding securities eligible to vote for the election of the
Board (the “ Company Voting Securities ”);
provided , however , that the event described in this
paragraph (ii) shall not be deemed to be a Change in Control
by virtue of any of the following
acquisitions: (A) by the Company or any Subsidiary,
(B) by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (C) by any underwriter
temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction, as
defined in paragraph (iii), or (E) by any person of Company Voting
Securities from the Company, if a majority of the Incumbent
Directors approve in advance the acquisition of beneficial
ownership of thirty-five percent (35%) or more of Company Voting
Securities by such person;
(iii)
the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the
Company or any of its Subsidiaries that requires the approval of
the Company’s stockholders, whether for such transaction or
the issuance of securities in the transaction (a “
Business Combination ”), unless immediately following
such Business Combination: (A) more than fifty percent
(50%) of the total voting power of (x) the corporation
resulting from such Business Combination (the “ Surviving
Corporation ”), or (y) if applicable, the ultimate
parent corporation that directly or indirectly has beneficial
ownership of at least ninety percent
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(90%) of the voting securities eligible to
elect directors of the Surviving Corporation (the “
Parent Corporation ”), is represented by Company
Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares
into which such Company Voting Securities were converted pursuant
to such Business Combination), and such voting power among the
holders thereof is in substantially the same proportion as the
voting power of such Company Voting Securities among the holders
thereof immediately prior to the Business Combination, (B) no
person (other than any employee benefit plan (or related trust)
sponsored or maintained by the Surviving Corporation or the Parent
Corporation), is or becomes the beneficial owner, directly or
indirectly, of thirty-five percent (35%) or more of the total
voting power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination
were Incumbent Directors at the time of the Board’s approval
of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all
of the criteria specified in (A), (B) and (C) above shall be deemed
to be a “ Non - Qualifying Transaction
”);
(iv)
the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or the consummation of a
sale of all or substantially all of the Company’s
assets.
Notwithstanding
the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial
ownership of more than thirty-five percent (35%) of the Company
Voting Securities as a result of the acquisition of Company Voting
Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided , that if
after such acquisition by the Company such person becomes the
beneficial owner of additional Company Voting Securities that
increases the percentage of outstanding Company Voting Securities
beneficially owned by such person, a Change in Control of the
Company shall then occur.
(d)
“ Code ” means the Internal Revenue Code of
1986, as amended.
(e)
“ Date of Termination ” means (i) the effective
date on which Executive’s employment by the Company
terminates as specified in a prior written notice by the Company or
Executive, as the case may be, to the other, delivered pursuant to
Section 11 or (ii) if Executive’s employment by the Company
terminates by reason of death, the date of death of Executive.
(f)
“ Disability ” means termination of
Executive’s employment by the Company due to
Executive’s inability to substantially perform
Executive’s duties and responsibilities, with or without
reasonable accommodation, for a period of one hundred eighty (180)
days out of any three-hundred and sixty-five (365) consecutive day
period as a result of Executive’s physical or mental
incapacity.
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(g)
“ Good Reason ” means, without Executive’s
express written consent, the occurrence of any of the following
events:
(i)
a material diminution in Executive’s authority, duties or
responsibilities; provided , however , that Good
Reason shall not be deemed to occur upon a change in authority,
duties or responsibilities that is solely and directly a result of
the Company no longer being a publicly traded entity and does not
involve any other event set forth in this paragraph;
(ii)
a material diminution in Executive’s base compensation, other
than any reduction that applies to substantially all executives of
the Company on a proportional basis;
(iii)
a material change in the geographic location at which Executive
must perform his duties, except for reasonably required travel on
the Company’s or any successor’s or affiliate’s
business that is not materially greater than such travel
requirements prior to the date of this Agreement; or
(iv)
any other action or inaction that constitutes a material breach by
the Company or any successor of its obligations to Executive under
this Agreement.
Executive must
provide written notice to the Company of the occurrence of any of
the foregoing events or conditions without Executive’s
written consent within ninety (90) days of the occurrence of such
event. The Company or any successor shall have a period of
thirty (30) days to cure such event or condition after receipt of
written notice of such event from Executive. Any voluntary
termination of Executive’s employment for “Good
Reason” following such thirty (30) day cure period must occur
no later than the date that is six (6) months following the initial
occurrence of one of the foregoing events or conditions without
Executive’s written consent and such voluntary termination of
Executive’s employment shall be treated as an involuntary
termination of employment.
(h) “
Qualifying Termination ” means a termination of
Executive’s employment (i) by the Company other than for
Cause or (ii) by Executive for Good Reason. Termination of
Executive’s employment on account of death or Disability
shall not be treated as a Qualifying Termination.
(i)
“ Subsidiary ” means any corporation or other
entity in which the Company has a direct or indirect ownership
interest of fifty percent (50%) or more of the total combined
voting power of the then outstanding securities or interests of
such corporation or other entity entitled to vote generally in the
election of directors or in which the Company has the right to
receive fifty percent (50%) or more of the distribution of profits
or fifty percent (50%) of the assets or liquidation or
dissolution.
(j)
“ Termination Period ” means the period of time
beginning with three (3) months prior to a Change in Control and
ending two (2) years following such Change in Control.
2.
Obligation of Executive . In the event of a tender or
exchange offer, proxy contest, or the execution of any agreement
which, if consummated, would constitute a Change in Control,
Executive agrees not to voluntarily leave the employ of the
Company, other than as a
4
result of an event which would constitute Good
Reason if a Change in Control had occurred, until the Change in
Control occurs or, if earlier, such tender or exchange offer, proxy
contest, or agreement is terminated or abandoned.
3.
Term of Agreement . This Agreement shall be effective
on the date hereof and shall continue in effect until the Company
shall have given written notice of cancellation or amendment at
least one (1) year in advance; provided , that,
notwithstanding the delivery of any such notice, this Agreement
shall continue in effect for a period of two (2) years after a
Change in Control, if such Change in Control shall have occurred
during the term of this Agreement. Notwithstanding anything
in this Section to the contrary, this Agreement shall terminate on
the date that is three (3) months following the date Executive or
the Company terminates Executive’s employment if a Change in
Control has not occurred.
4.
Payments Upon Termination of Employment .
(a)
Qualifying Termination . If during the Termination
Period the employment of Executive shall terminate pursuant to a
Qualifying Termination, then the Company shall provide to
Executive, as consideration for the Release described in Section
4(g) below, the payments and benefits set forth in paragraphs
(b)(i), (b)(ii), (c), (d) and (e) of this Section.
(b)
Qualifying Termination - Cash Payments . The Company
shall make a lump sum cash payment to Executive in the event of a
Qualifying Termination during the Termination Period of the
following:
(i)
Within three (3) business days following the Date of Termination,
an amount equal to the sum of (A) Executive’s base salary
through the Date of Termination, (B) any bonus amounts which have
become payable, to the extent not theretofore paid, and (C)
unreimbursed business expenses incurred in accordance with Company
policy and any accrued vacation pay; and
(ii)
Within fifteen (15) days following Executive’s satisfaction
of the conditions of Section 4(g) below, but in no event later than
the date that is two and one-half (2 ½) months following the
end of the calendar year in which the date of Executive’s
termination of employment (or, if such termination occurs within
three (3) months prior to the date of a Change in Control, the date
of the Change in Control) occurs, the Company shall make a lump sum
cash payment to Executive of the sum of the following:
(A)
An amount equal to one and one-half (1.5) times the
Executive’s highest annual rate of base salary during the
12-month period immediately prior to Executive’s Date of
Termination; plus
(B)
An amount equal to Executive’s Bonus Amount; plus
(C)
An amount equal to a pro rata portion of
Executive’s Bonus Amount, determined by multiplying such
Bonus Amount by a fraction, the numerator of which is the number of
days in the fiscal year in which the Date of Termination occurs
through the Date of Termination and the denominator of
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which is three hundred sixty-five (365),
reduced by any amounts paid to Executive from the Company’s
annual incentive plan for the fiscal year in which
Executive’s Date of Termination occurs.
(c)
Qualifying Termination - Benefits . If during the
Termination Period the employment of Executive shall terminate
pursuant to a Qualifying Termination, then the Company shall make a
lump sum cash payment to Executive within fifteen (15) days
following Executive’s satisfaction of the conditions of
Section 4(g) below, but in no event later than the date that is two
and one-half (2 ½) months following the end of the calendar
year in which the date of Executive’s termination of
employment (or, if such termination occurs within three (3) months
prior to the date of a Change in Control, the date of the Change in
Control) occurs, of an amount equal to (i) eighteen (18),
multiplied by (ii) the amount by which the monthly premium
Executive would be required to pay for continuation coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended (“ COBRA ”), for Executive and
his or her eligible dependents who were covered under the
Company’s health plans as of the date of Executive’s
termination of employment (calculated by reference to the premium
as of the date of Executive’s termination of employment)
exceeds the contributions required by Executive immediately prior
to his or her date of termination; provided that Executive
shall be solely responsible for all matters relating to
continuation of coverage pursuant to COBRA, including, without
limitation, election of such coverage and timely payment of
premiums.
(d)
Qualifying Termination – Life and Accidental Death and
Dismemberment Insurance . If during the Termination
Period the employment of Executive shall terminate pursuant to a
Qualifying Termination, then the Company shall make a lump sum cash
payment to Executive within fifteen (15) days following
Executive’s satisfaction of the conditions of Section 4(g)
below, but in no event later than the date that is two and one-half
(2 ½) months following the end of the calendar year in which
the date of Executive’s termination of employment (or, if
such termination occurs within three (3) months prior to the date
of a Change in Control, the date of the Change in Control) occurs,
of an amount equal to (i) eighteen (18), multiplied by (ii) the
amount by which the total monthly premium paid by Executive or on
behalf of Executive by the Company for accidental death and
dismemberment and life insurance coverage as of the date of
Executive’s Termination of Employment (calculated by
reference to the premiums for such coverage under the
Company’s plans as of the date of Executive’s
Termination of Employment) exceeds the contributions required by
Executive immediately prior to his or her Date of Termination.
(e)
Accelerated Vesting and/or Exercisability of Stock Options and
Other Equity Awards . If Executive’s employment is
terminated during the Termination Period pursuant to a Qualifying
Termination, all outstanding awards of stock options, stock
appreciation rights (“ SARs ”) and restricted
stock (each, an “ Equity Award ”) granted to
Executive prior to the applicable Change in Control which are
outstanding immediately prior to the Date of Termination shall
become immediately fully vested and/or exercisable and free of all
restrictions, limitations and conditions on the later of (i) the
Date of Termination or (ii) immediately prior to the Change in
Control. In addition, with respect to any Equity Awards that
are stock options or SARs granted to Executive on or after the date
of this Agreement, but prior to the applicable Change in Control,
each such Equity Award may be exercised for a period of no less
than twelve (12) months following such Qualifying Termination, but
not later than the expiration of the stated term of such Equity
Award.
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(f)
Non-Qualifying Termination . If during the Termination
Period the employment of Executive shall terminate other than by
reason of a Qualifying Termination, then the Company shall pay to
Executive within three (3) business days following the Date of
Termination, a lump-sum cash amount equal to the sum of
(i) Executive’s base salary through the Date of
Termination and any bonus amounts which have become payable, to the
extent not theretofore paid or deferred, and (ii) unreimbursed
business expenses incurred in accordance with Company policy and
any accrued vacation pay. The Company may make such
additional payments, and provide such additional benefits, to
Executive as the Company and Executive may agree in writing.
(g)
Condition Precedent . Upon the occurrence of a
Qualifying Termination, and prior to the receipt of any payments or
benefits provided by paragraphs (b)(ii), (b)(iii), (c), (d) and (e)
of this Section on account of the occurrence of such Qualifying
Termination, Executive shall execute a Release (the “
Release ”) in the form attached hereto as Appendix A
or Appendix B, as appropriate. Such Release shall
specifically relate to all of Executive’s rights and claims
in existence at the time of such execution and shall confirm
Executive’s obligations under the Company’s standard
form of proprietary information agreement. It is understood
that, in the event that Executive is at least forty (40) years old
on the date of the Qualifying Termination, Executive has a certain
period to consider whether to execute such Release, and Executive
may revoke such Release within seven (7) business days after
execution. In the event Executive does not execute and not
revoke such Release within the sixty (60) day period following the
later of (i) the date of ExecutiveR
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