ARTICLE II
Definitions

 

Whenever used herein, the following terms shall have their respective meanings set forth below.

 

2.1.           “ Base Salary ” means the annual base salary in effect for the Executive immediately prior to a Change in Control, as such salary may be increased from time to time during the Term (in which case such increased amount shall be the Base Salary for purposes hereof), but without giving effect to any reduction thereto.

 

2.2.           “ Board ” means the Board of Directors of the Company.

 

2.3.           “ Cause ” for termination by the Company of the Executive’s employment means:

 

(a)            the Executive’s conviction of a felony (except for a motor vehicle violation) or entering into a guilty plea or plea of nolo contendere with respect to such crime;

 

(b)            the Executive’s willful and continued failure to substantially perform the duties and responsibilities of the Executive’s position with the Company after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed such duties or responsibilities;

 

(c)            the Executive’s engaging in fraud or dishonesty relating to Executive’s employment, or other willful misconduct or gross negligence of the Executive, which conduct is materially injurious to the Company or its reputation, monetarily or otherwise; or

 

(d)            the Executive’s willful violation of Company policies, which conduct is materially injurious to the Company or its reputation, monetarily or otherwise.

 

2.4.           “ Change in Control ” means and shall be deemed to have occurred as of the date of the first to occur of the following events:

 

(a)            any Person or Group (each term as defined below) acquires stock of the Company that, together with stock held by such Person or Group, constitutes more than 50% of the total Fair Market Value (as defined below) or total voting power of the stock of the Company.  However, if any Person or Group is considered to own more than 50% of the total Fair Market Value or total voting power of the stock of the Company, the acquisition of additional stock by the same Person or Group is not considered to cause a Change in Control of the Company.  An increase in the percentage of stock owned by any Person or Group as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this subsection.  This subsection applies only when there is a transfer of stock of the

 

 

Company (or issuance of stock of the Company) and stock in the Company remains outstanding after the transaction;

 

(b)            any Person or Group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Group) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company;

 

(c)            a majority of members of the Company’s Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board prior to the date of the appointment or election; or

 

(d)            any Person or Group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Group) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.  For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.   However, no Change in Control shall be deemed to occur under this subsection (d) as a result of a transfer to:

 

(i)             A stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;

 

(ii)            An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

 

(iii)           A Person or Group that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or

 

(iv)           An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in clause (iii) above.

 

For these purposes, the term “ Person ” shall mean an individual, company, association, joint-stock company, business trust or other similar organization, partnership, limited liability company, joint venture, trust, unincorporated organization or government or agency, instrumentality or political subdivision thereof.  The term “ Group ” shall have the meaning set forth in Rule13d-5 of the Securities and Exchange Commission (“SEC”), modified to the extent necessary to comply with Treasury Regulation Section 1.409A-3(i)(5), or any successor thereto in effect at the time a determination of whether a Change in Control has occurred is being made.  If any one Person, or Persons acting as a Group, is considered to effectively control the Company as described in subsections (b) or (c) above, the acquisition of additional control by the same Person or Persons is not considered to cause a Change in Control.

 

2.5.           “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

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2.6.           “ Company ” means Stanley, Inc. and all of its wholly-owned subsidiaries.  Except as provided in the following sentences, the term “Company” shall include (a) Stanley, Inc. or any wholly-owned subsidiary of Stanley, Inc. which may become employer of the Executive, and (b) any successor to the business or assets of Stanley, Inc., Stanley Associates, Inc. or any wholly-owned subsidiary of Stanley, Inc., which employs the Executive and agrees in writing or by operation of law to be bound by this Agreement.  Notwithstanding the foregoing, in determining whether a Change in Control has occurred, the term “Company” shall mean Stanley, Inc. (without regard to whether a successor is bound by this Agreement).  Stanley, Inc. shall be jointly and severally liable with Stanley Associates, Inc. or any wholly-owned subsidiary of Stanley, Inc. which may become employer of the Executive for any amounts that become payable to this Executive under this Agreement.

 

2.7.           “ Date of Termination ” has the meaning set forth in Section 3.2.

 

2.8.           “ Disability ” means total and permanent disability of the Executive as a result of bodily injury, disease or mental disorder which results in the Executive’s entitlement to long-term disability benefits under the Company’s long-term disability plan.

 

2.9.           “ Executive ” means the individual named in the first paragraph of this Agreement.

 

2.10.         “ Fair Market Value ”. means the arithmetic mean of the highest and lowest sales prices of the stock as reported on the consolidated tape for securities listed on the New York Stock Exchange (“NYSE”) on a particular date.  In the event that there are no stock transactions on such date, the Fair Market Value shall be determined by utilization of the above formula as of the immediately preceding date on which there were stock transactions.

 

2.11.         “ Good Reason ” for termination by the Executive of his employment means the occurrence (without the Executive’s express written consent) after a Change in Control or during a Potential Change in Control Period of any one of the following events, unless such event is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

 

(a)            a material diminution in the Executive’s Base Salary;

 

(b)            a material diminution in the Executive’s authority, duties or responsibilities;

 

(c)            a material diminution in the authority, duties or responsibilities of the supervisor to whom the Executive is required to report, including a requirement that the Executive report to a corporate officer or employee instead of directly to the Board (if the Executive previously reported directly to the Board);

 

(d)            a material diminution in the budget over which the Executive retains authority;

 

(e)            the Company requiring the Executive to be based at an office that is both more than 50 miles from where the Executive’s office is located immediately prior to the Change in Control and also more than 50 miles from the Executive’s then-current

 

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principal place of residence, except for required travel on the Company’s business to an extent substantially consistent with the business travel obligations which the Executive undertook on behalf of the Company prior to the Change in Control; or

 

(f)             any other action or inaction that constitutes a material breach by the Company of any written agreement between the Company and the Executive pursuant to which the Executive provides services.

 

In order for the Executive’s termination to be deemed to be for Good Reason, the Executive must deliver Notice of Termination to the Company describing the event(s) alleged to constitute Good Reason within 90 days of the occurrence of such event(s).  Such Notice of Termination shall specify the Executive’s Date of Termination, which date shall not be earlier than 30 days nor more than 60 days after the date of the Notice of Termination.  The Company may fully correct the event(s) constituting Good Reason within a reasonable period of time (not less than 30 days) specified in the Notice of Termination, in which case the Executive’s Notice of Termination for Good Reason shall automatically be withdrawn and of no effect; provided, however, that no opportunity to correct shall be available for any Good Reason event which recurs after a prior correction by the Company.  The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder prior to 90 days after such action or failure to act.

 

2.12.         “ Notice of Termination ” has the meaning set forth in Section 3.2.

 

2.13.         “ Potential Change in Control ” shall be deemed to have occurred if any of the following events shall have occurred:

 

(a)            the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

 

(b)            the Company publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

 

(c)            any Person becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company’s then outstanding securities; or

 

(d)            the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

 

2.14.         “ Potential Change in Control Period ” shall commence upon the occurrence of a Potential Change in Control and shall lapse upon the occurrence of a Change in Control or, if earlier (a) with respect to a Potential Change in Control occurring pursuant to Section 2.13(a); immediately upon the abandonment or termination of the applicable agreement; (b) with respect to a Potential Change in Control occurring pursuant to Section 2.13(b), immediately upon a public announcement by the Company that it has abandoned its intention to take or consider taking actions which, if consummated, would result in a Change in Control; or (iii) with respect to a Potential Change in Control occurring pursuant to Section 2.13(c) or (d), upon the one year

 

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anniversary of the occurrence of a Potential Change in Control (or, in the case of a Potential Change in Control occurring pursuant to Section 2.13(d), such earlier date as may be determined by the Board).  In addition to the foregoing, any termination of an Executive by the Company at the request of a third party in contemplation of a Change in Control or Potential Change in Control shall be deemed to have occurred within a Potential Change in Control Period.

 

2.15.         “ Release Agreement ” means the agreement required to be signed by the Executive and returned to the Company, as set forth in Exhibit A hereto, as a condition for receiving certain of the payments and benefits under this Agreement.  The form of Release Agreement may be amended by the Company at any time and from time to time to reflect changes in the law or to reflect such terms of this Agreement or any other agreement between the parties which survive the Executive’s termination of employment.

 

2.16.         “ Term ” means the period of time described in Article I (including any extension, continuation or termination described therein).

 

ARTICLE III
Termination of Employment

 

3.1.           Qualifying Terminations .  If, during the Term of this Agreement and either within 24 months after a Change in Control or within a Potential Change in Control Period, (1) the Executive’s employment is terminated by the Company or any successor to the Company for any reason other than Cause, or (2) the Executive terminates his employment due to Good Reason, then the Executive will be entitled to receive the severance payments and benefits set forth in Article IV below; provided, however, that no severance payments shall be made, or continuing benefits provided, under this Agreement, if any of the following apply:

 

(a)            The Executive voluntarily resigns or retires from employment other than timely resignation for Good Reason;

 

(b)            The Executive is terminated for Cause;

 

(c)            The Executive’s employment terminates as a result of death or Disability; or

 

(d)            The Executive declines to sign and return the Release Agreement set forth in Exhibit A hereto, or revokes such Release Agreement within the time provided therein.

 

3.2.           Notice of Termination .  After a Change in Control or Potential Change in Control, any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party in accordance with Section 7.4.  For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail any facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.  The “Date of Termination,” with respect to any purported termination of the Executive’s employment under this Agreement shall mean the date specified in the Notice of

 

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Termination for termination (which, in the case of a termination by the Company other than for Cause, shall not be less than 30 days and, in the case of a termination by the Executive, shall not be less than 30 days nor more than 60 days, respectively, from the date such Notice of Termination is given).

 

3.3.           Exclusive Source of Severance Compensation and Benefits .  If the Executive becomes entitled to severance compensation and benefits under this Agreement, he or she shall not be entitled to receive any severance compensation or benefits under any other employment agreement to which the Company is a party, or under any severance program or policy of the Company.

 

3.4.           Other Terminations .  This Agreement does not apply to terminations of employment that occur prior to a Change in Control or after the expiration of 24 months after a Change in Control and also outside of a Potential Change in Control Period.

 

ARTICLE IV
Severance Benefits

 

4.1.           Severance Benefits .  If, during the term of this Agreement, the Executive incurs a qualifying termination as described in Section 3.1 above, then, subject to the Executive timely executing and delivering the Release Agreement to the Company (except in the case of payments under (a) below), which Release Agreement has not been revoked in accordance with the terms thereof, the Executive shall be entitled to the following compensation and benefits, subject to applicable income and employment tax withholding:

 

(a)            Accrued Compensation .  An amount equal to the following amounts earned or accrued through the Termination Date, but not paid as of the Termination Date:  (i) Base Salary, (ii) reimbursement for reasonable and necessary, properly-receipted expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date, and (iii) accrued but unused vacation pay.

 

(b)            Annual Bonus Compensation .  An amount equal to the highest annual bonus payment paid to the Executive for the prior three years multiplied by a fraction, the numerator of which is the number of days in the one year performance measurement period through the Date of Termination and the denominator of which is 365.

 

(c)            Cash Severance .  An amount equal to two multiplied by the sum of the following amounts:

 

(i)             The Executive’s Base Salary; plus

 

(ii)            The highest annual bonus payment paid to the Executive for the prior three years.

 

(d)            Continuation of Welfare Benefits .  Continuation of medical and dental insurance coverage in which the Executive (or his dependents) was participating as of the

 

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Date of Termination (subject to such modifications as shall be established for all employees of the Company) until the earliest of:

 

(i)             the second anniversary of the Date of Termination;

 

(ii)            the date the Executive first breaches the Release Agreement or any restrictive covenant hereunder or in any employment or other agreement with the Company which survives termination of the Executive’s employment; or

 

(iii)           the date the Executive becomes eligible under a similar welfare benefit plan of a successor employer.

 

If such coverage cannot be provided on a tax-advantaged basis under the Company’s program, the Company will make a supplemental payment to the Executive such that his after-tax cost of coverage will be no greater than the cost for such coverage to a similarly-situated employee under the program.  Any increase in premium cost resulting from a change in the Executive’s cov