Exhibit 10.7
FORM OF CHANGE OF CONTROL
AGREEMENT
Revised December 3,
2008
This Change of Control Severance
Agreement (the “ Agreement ”) is entered into
this day of
, 200 (the “Effective
Date”) between
(“Executive”) and SumTotal Systems, Inc., a Delaware
corporation (the “ Company ”). This Agreement is
intended to provide Executive with the compensation and benefits
described herein upon the occurrence of specific events following a
change of control of the ownership of the Company (defined as
“Change of Control”).
RECITALS
A. As is the case with most, if not all, publicly
traded businesses, it is expected that the Company from time to
time may consider or may be presented with the need to consider the
possibility of an acquisition by another company or other change in
control of the ownership of the Company. The Board of Directors of
the Company (the “Board”) recognizes that such
considerations can be a distraction to Executive and can cause
Executive to consider alternative employment opportunities or to be
influenced by the impact of a possible change in control of the
ownership of the Company on Executive’s personal
circumstances in evaluating such possibilities. The Board has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication and objectivity of Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control of the
Company.
B. The Board believes that it is in the best
interests of the Company and its shareholders to provide Executive
with an incentive to continue his or her employment and to motivate
Executive to maximize the value of the Company upon a Change of
Control for the benefit of its shareholders.
C. The Board believes that it is important to
provide Executive with certain benefits upon Executive’s
termination of employment in certain instances upon or following a
Change of Control that provide Executive with enhanced financial
security and incentive and encouragement to Executive to remain
with the Company notwithstanding the possibility of a Change of
Control.
D. At the same time, the Board expects the Company
to receive certain benefits in exchange for providing Executive
with this measure of financial security and incentive under the
Agreement. Therefore, the Board believes that Executive should
provide various specific commitments which are intended to assure
the Company that Executive will not direct Executive’s
skills, experience and knowledge to the detriment of the Company or
its successor for a period not to exceed the period during which
payments are being made to Executive under this
Agreement.
E. Certain capitalized terms used in this Agreement
are defined in Article VII.
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The Company and Executive hereby
agree as follows:
ARTICLE I.
EMPLOYMENT BY THE
COMPANY
1.1 Executive is currently employed as
of the Company.
1.2 This Agreement shall remain in full force and
effect commencing on the Effective Date so long as Executive is
employed by Company; provided, however, that the rights and
obligations of the parties hereto contained in Articles III through
VIII shall survive any termination for the longer of
(i) twelve (12) months following a Termination Event (as
hereinafter defined) (the “Term”) or (ii) such
longer period provided for in this Agreement.
1.3 The Company and Executive each agree and
acknowledge that Executive is employed by the Company as an
“at-will” employee and that either Executive or the
Company has the right at any time to terminate Executive’s
employment with the Company, with or without cause or advance
notice, for any reason or for no reason. The Company and Executive
wish to set forth the compensation and benefits which Executive
shall be entitled to receive in the event that Executive’s
employment with the Company terminates under the circumstances
described in Article II of this Agreement.
1.4 The duties and obligations of the Company to
Executive under this Agreement shall be in consideration for
Executive’s past services to the Company, Executive’s
continued employment with the Company, Executive’s compliance
with the obligations described in Section 4.2, and
Executive’s execution of the general waiver and release
described in Section 4.3. The Company and Executive agree that
Executive’s compliance with the obligations described in
Section 4.2 and Executive’s execution of the general
waiver and release described in Section 4.3 are preconditions
to Executive’s entitlement to the receipt of benefits under
this Agreement and that these benefits shall not be earned unless
all such conditions have been satisfied through the scheduled date
of payment. The Company hereby declares that it has relied upon
Executive’s commitments under this Agreement to comply with
the requirements of Article IV, and would not have been induced to
enter into this Agreement or to execute this Agreement in the
absence of such commitments.
ARTICLE II.
TERMINATION EVENTS
2.1 Involuntary Termination Upon
or Following Change of Control .
(a) In the event Executive’s
employment with the Company and its subsidiaries is involuntarily
terminated at any time by the Company without Cause either at the
time of or within twelve (12) months following the occurrence
of a Change of Control, such termination of employment will be a
Termination Event and the Company shall pay Executive the
compensation and benefits described in Article III.
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(b) In the event Executive’s
employment with the Company and its subsidiaries is either
involuntarily terminated by the Company with Cause at any time, or
is involuntarily terminated by the Company without Cause at any
time other than either at the time of or within twelve
(12) months following the occurrence of a Change of Control,
then such termination of employment will not be a
Termination Event, Executive will not be entitled to receive
any payments or benefits under the provisions of this
Agreement.
2.2 Voluntary Termination Upon or
Following Change of Control .
(a) Executive may voluntarily
terminate his employment with the Company and its subsidiaries at
any time. In the event Executive voluntarily terminates his
employment within three (3) months of the occurrence of an
event constituting Good Reason and on account of an event
constituting Good Reason, which event occurs either at the time of
or within twelve (12) months following the occurrence of a
Change of Control, then such termination of employment will be a
Termination Event and the Company shall pay Executive the
compensation and benefits described in Article III.
(b) In the event (i) Executive
voluntarily terminates his employment for any reason other than on
account of an event constituting Good Reason under the
circumstances described in Section 2.2(a), or
(ii) Executive’s employment terminates on account of
either death or physical or mental disability, then such
termination of employment will not be a Termination Event,
Executive will not be entitled to receive any payments or
benefits under the provisions of this Agreement.
ARTICLE III.
COMPENSATION AND BENEFITS
PAYABLE
3.1 Right to Benefits
. If a Termination Event occurs,
Executive shall be entitled to receive the benefits described in
this Agreement so long as Executive complies with the restrictions
and limitations set forth in Article IV. If a Termination Event
does not occur, Executive shall not be entitled to receive any
benefits described in this Agreement, except as otherwise
specifically set forth herein.
3.2 Salary
Continuation . Upon the
occurrence of a Termination Event, Executive shall receive twelve
(12) months worth of Executive’s Base Salary, less any
applicable withholding of federal, state or local taxes. Such
salary continuation shall be paid in equal semi-monthly
installments over the one (1) year period following the date
of the Termination Event. Notwithstanding the foregoing, to the
extent required to avoid imposition of any additional tax or income
recognition under Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”), such awards shall be
paid or settled as indicated in Section 4.6 below.
3.3 Target Bonus
. Upon the occurrence of a
Termination Event, Executive shall receive, in one lump sum payment
within five (5) days of the Termination Event, 100% of
Executive’s Target Bonus, as defined in section 7 herein,
less any applicable withholding of federal, state or local taxes.
Notwithstanding the foregoing, to the extent required to avoid
imposition of any additional tax or income recognition under
Section 409A of the Code, such awards shall be paid or settled
as indicated in Section 4.6 below.
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3.4 Health Insurance Coverage
. Following the occurrence of a
Termination Event, to the extent permitted by the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and
by the Company’s group health insurance policies, Executive
and his covered dependents will be eligible to continue their
health insurance benefits at their own expense. If Executive elects
COBRA continuation, the Company shall reimburse Executive and his
covered dependents’ COBRA continuation premiums for twelve
(12) months following the date of the Termination Event,
provided that the Company’s obligation to make such payments
shall cease immediately to the extent that Executive and/or his
covered dependents are no longer entitled to receive COBRA
continuation coverage. Executive agrees to notify a duly authorized
officer of the Company, in writing, immediately upon Executive or a
covered dependent beginning to receive health benefits from another
source, at which point the Company’s obligation to provide
payment for COBRA continuation for that particular newly covered
individual shall cease.
This Section 3.4 provides only
for the Company’s payment of COBRA continuation premiums for
the periods specified above. This Section 3.4 does not affect
the rights of Executive or Executive’s covered dependents
under any applicable law with respect to health insurance
continuation coverage.
3.5 Stock Award
Acceleration .
Executive’s stock options which are outstanding as of the
date of the Termination Event (the “Stock Options”)
shall become fully vested upon the occurrence of the Termination
Event and exercisable so long as Executive complies with the
restrictions and limitations set forth in Article IV. The maximum
period of time during which the Stock Options shall remain
exercisable, and all other terms and conditions of the Stock
Options, shall be as specified in the relevant Stock Option
agreements and relevant stock plans under which the Stock Options
were granted. The term “Stock Options” shall not
include any rights of Executive under the Company’s employee
stock purchase plan.
In the event Company grants
Executive restrictive stock, Executive’s restricted stock
awards that are outstanding as of the date of the Termination Event
(“Restricted Stock”) shall become fully vested and free
from any contractual rights of the Company to repurchase or
otherwise reacquire the Restricted Stock as a result of
Executive’s termination of employment. All shares of
Restricted Stock which have not yet been delivered to Executive or
his designee (whether because subject to joint escrow instructions
or otherwise) shall be promptly delivered to Executive or his
designee upon the occurrence of a Termination Event.
3.6 Mitigation
. Except as otherwise specifically
provided herein in section 3.4, Executive shall not be required to
mitigate damages or the amount of any payment provided under this
Agreement by seeking other employment or otherwise, nor shall the
amount of any payment provided for under this Agreement be reduced
by any compensation earned by Executive as a result of consulting
work for the Company or third party, employment by another employer
or by retirement benefits after the date of the Termination Event,
or otherwise.
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ARTICLE IV.
LIMITATIONS AND CONDITIONS ON
BENEFITS; AMENDMENT OF AGREEMENT
4.1 Reduction in Payments and
Benefits; Withholding Taxes . The benefits provided under this Agreement are
in lieu of any benefit provided under any other severance plan,
program or arrangement of the Company in effect at the time of a
Termination Event. The Company shall withhold appropriate federal,
state or local income, employment and other applicable taxes from
any payments hereunder.
4.2 Obligations of
Executive .
(a) For one (1) year following
the Termination Event, Executive agrees not to, either directly or
indirectly, solicit, attempt to solicit or cause to be solicited
any employee or contractor of the Company to leave his/her
employment, terminate his or her work for the Company, or refrain
from providing services to the Company, or any of its subsidiaries
or affiliates.
(b) Following the occurrence of a
Termination Event, Executive agrees to continue to satisfy his or
her obligations under the terms of the Company’s standard
form of proprietary information agreement previously executed by
Executive (or any comparable agreement subsequently executed by
Executive in substitution or supplement thereto). Executive’s
obligations under this Section 4.2(b) shall not be limited to
the Term.
(c) Executive acknowledges and
recognizes the highly competitive nature of the businesses of the
Company and its affiliates and accordingly agrees that for one
(1) year following the Termination Event, Executive will not,
whether on Executive’s own behalf or on behalf of or in
conjunction with any person, company, business entity or other
organization whatsoever, directly or indirectly, perform the same
or similar services for any Competitor of the Company or any such
entity or person that has a business line that, if a standalone
business, would be considered a Competitor (“Competitive
Business Line”). Nothing in this Agreement shall preclude
Executive from working for a person or entity that has a
Competitive Business Line, so long as (i) the Competitive
Business Line represents less than 10% of the overall business
entity’s current or proposed revenues, and
(ii) Executive does not work, directly or indirectly, in, for,
or with the Competitive Business Line during the one-year period
following the Termination Event. For purposes of this Agreement,
the term “Competitor” means any company, partnership,
sole proprietorship, organization or other entity which is, or
proposes to be, competitive with the Company, or any of the
Company’s lines of business or proposed lines of
business.
Notwithstanding any provision in
this Agreement to the contrary, it shall not be a violation of this
Section 4.2(c) for Executive to own, directly or indirectly,
solely as a passive investment, securities of any person engaged in
a Competitor, which securities are publicly traded on a national or
regional stock exchange or on the over-the-counter market if
Executive (A) is not a controlling person of, or a member of a
group which controls, such person, and (B) does not, directly
or indirectly, own 5% or more of any class of securities of such
person.
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(d) It is expressly understood and
agreed that although Executive and the Company consider the
restrictions contained in this Section 4 to be reasonable, if
a final determination is made that the time or territory or any
other restriction contained in this Agreement is an unenforceable
restriction against Executive, the provisions of this Agreement
shall not be rendered void, but shall be deemed amended to apply as
to such maximum time or territory and to such maximum extent as may
be enforceable. Alternatively, if any restriction contained in this
Agreement is unenforceable, and such restriction cannot be amended
so as to make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained herein.
In the event that the restrictions in Section 4 are determined
to be in conflict with the restrictions set forth in
Executive’s proprietary information agreement, the provisions
of this Agreement shall govern so long as Executive is receiving
compensation and/or other benefits under this Agreement.
(e) Executive acknowledges and
agrees that the Company’s remedies at law for a breach or
threatened breach of any of the provisions of Section 4.2(a),
Section 4.2(b), or Section 4.2(c) would be inadequate
and, in recognition of this fact, Executive agrees that, in the
event of such a breach or threatened breach, in addition to any
remedies at law, the Company, without posting any bond, shall be
entitled to cease making any payments or providing any benefit, and
recover from Executive all payments or the cost of benefits
provided to Executive, required by this Agreement and, with respect
to a breach or threatened breach of Section 4.2(a),
Section 4.2(b) or Section 4.2(c) only, obtain equitable
relief in the form of specific performance, temporary restraining
order, temporary or permanent injunction, or any other equitable
remedy which may then be available.
4.3 Employee Release Prior to
Receipt of Benefits .
(a) Upon the occurrence of a
Termination Event, and prior to the receipt of any benefits under
this Agreement on account of the occurrence of a Termination Event,
Executive shall execute the Company’s then current standard
form of employee release (the “Release”), wherein
Executive shall release the Company of any and all claims, known
and unknown, she or he may have, including without limitation, all
statutory, administrative and tort claims. Such Release shall
specifically relate
