CHANGE IN CONTROL SEVERANCE
AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this
“Agreement”), dated as of October 1, 2008, is made
and entered into by and between USG Corporation, a Delaware
corporation (the “Company”), and
(the “Executive”).
I. The Executive is a senior executive of
the Company or a Subsidiary and has made and is expected to
continue to make major contributions to the growth and financial
strength of the Company;
II. The Company recognizes that the
possibility of a Change in Control (as defined below) exists and
that such possibility, and the uncertainty it may create among
management, may result in the distraction or departure of
management personnel, to the detriment of the Company and its
stockholders;
III. The Company desires to assure itself of the
continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives, including
the Executive, applicable in the event of a Change in
Control;
IV. The Company wishes to ensure that its
senior executives are not unduly distracted by the circumstances
attendant to the possibility of a Change in Control and to
encourage the continued attention and dedication of such
executives, including the Executive, to their assigned duties with
the Company; and
V. The Company desires to provide
additional inducement for the Executive to continue to remain in
the employ of the Company.
NOW, THEREFORE, the Company and the Executive
agree as follows:
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1.
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Certain Defined Terms
. In addition to terms
defined elsewhere herein, the following terms have the following
meanings when used in this Agreement with initial capital
letters:
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(a)
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“Base Pay” means the
Executive’s annual base salary rate as in effect from time to
time.
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(b)
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“Board” means the Board
of Directors of the Company.
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(c)
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“Cause” means that,
prior to any termination pursuant to Section 3(b), the
Executive shall have:
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(i)
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been convicted of a criminal
violation involving fraud, embezzlement or theft in connection with
the Executive’s duties or in the course of the
Executive’s employment with the Company or any
Subsidiary;
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(ii)
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committed intentional wrongful
damage to tangible or intangible property of the Company or any
Subsidiary; or
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(iii)
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committed intentional wrongful
disclosure of secret processes or confidential information of the
Company or any Subsidiary.
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For purposes of
this Agreement, no act or failure to act on the part of the
Executive will be deemed “intentional” if it was due
primarily to an error in judgment or negligence, but will be deemed
“intentional” only if done or omitted to be done by the
Executive not in good faith and without reasonable belief that the
Executive’s action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive will not
be deemed to have been terminated for “Cause” hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not
less than a majority of the Board then in office (excluding the
Executive if the Executive is then a member of the Board) at a
meeting of the Board called and held for such purpose, after
reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive’s counsel (if the
Executive chooses to have counsel present at such meeting), to be
heard before the Board, finding that, in the good faith opinion of
the Board, the Executive had committed an act constituting
“Cause” as herein defined and specifying the
particulars thereof in reasonable detail. Nothing herein will limit
the right of the Executive or the Executive’s beneficiaries
to contest the validity or propriety of any such
determination.
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(d)
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“Change in Control”
means the occurrence during the Term of any of the following
events:
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(i)
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any
individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
“Person”) is or becomes the beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of the combined voting power of the then-outstanding
Voting Stock of the Company; provided , however ,
that:
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(1)
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for
purposes of this Section 1(d), the following acquisitions
shall not constitute a Change in Control: (A) any acquisition
of Voting Stock of the Company directly from the Company that is
approved by a majority of the Incumbent Directors, (B) any
acquisition of Voting Stock of the Company by the Company or any
Subsidiary, (C) any acquisition of Voting Stock of the Company
by the trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any Subsidiary, and (D) any acquisition of
Voting Stock of the Company by any Person pursuant to a Business
Transaction that complies with clauses (A), (B) and
(C) of Section 1(d)(iii) below;
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(2)
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if
any Person is or becomes the beneficial owner of 20% or more of
combined voting power of the then-outstanding Voting Stock of the
Company as a result of a transaction described in clause
(A) of Section 1(d)(i)(1) above and such Person
thereafter becomes the beneficial owner of any additional shares of
Voting Stock of the Company representing 1% or more of the
then-outstanding Voting Stock of the Company, other than in an
acquisition directly from the Company that is approved by a
majority of the Incumbent Directors or other than as a result of a
stock dividend, stock split or similar transaction effected by the
Company in which all holders of Voting Stock are treated equally,
such subsequent acquisition shall be treated as a Change in
Control;
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(3)
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a
Change in Control will not be deemed to have occurred if a Person
is or becomes the beneficial owner of 20% or more of the Voting
Stock of the Company as a result of a reduction in the number of
shares of Voting Stock of the Company outstanding pursuant to a
transaction or series of transactions that is approved by a
majority of the Incumbent Directors unless and until such Person
thereafter becomes the beneficial owner of any additional shares of
Voting Stock of the Company representing 1% or more of the
then-outstanding Voting Stock of the Company, other than as a
result of a stock dividend, stock split or similar transaction
effected by the Company in which all holders of Voting Stock are
treated equally; and
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(4)
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if
at least a majority of the Incumbent Directors determine in good
faith that a Person has acquired beneficial ownership of 20% or
more of the Voting Stock of the Company inadvertently, and such
Person divests as promptly as practicable but no later than the
date, if any, set by the Incumbent Board a sufficient number of
shares so that such Person beneficially owns less than 20% of the
Voting Stock of the Company, then no Change in Control shall have
occurred as a result of such Person’s acquisition;
or
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(ii)
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a
majority of the Board ceases to be comprised of Incumbent
Directors; or
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(iii)
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the
consummation of a reorganization, merger or consolidation, or sale
or other disposition of all or substantially all of the assets of
the Company or the acquisition of the stock or assets of another
corporation, or other transaction (each, a “Business
Transaction”), unless, in each case, immediately following
such Business Transaction (A) the Voting Stock of the Company
outstanding immediately prior to such Business Transaction
continues to represent (either by remaining outstanding or by being
converted into Voting Stock of the surviving entity or any parent
thereof), more than 60% of the combined voting power of the then
outstanding shares of Voting Stock of the entity resulting from
such Business Transaction (including, without limitation, an
entity
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which as a result of such
transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more
subsidiaries), (B) no Person (other than the Company, such entity
resulting from such Business Transaction, or any employee benefit
plan (or related trust) sponsored or maintained by the Company, any
Subsidiary or such entity resulting from such Business Transaction)
beneficially owns, directly or indirectly, 20% or more of the
combined voting power of the then outstanding shares of Voting
Stock of the entity resulting from such Business Transaction, and
(C) at least a majority of the members of the Board of
Directors of the entity resulting from such Business Transaction
were Incumbent Directors at the time of the execution of the
initial agreement or of the action of the Board providing for such
Business Transaction; or
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(iv)
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approval by the stockholders of the
Company of a complete liquidation or dissolution of the Company,
except pursuant to a Business Transaction that complies with
clauses (A), (B) and (C) of
Section 1(d)(iii).
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Notwithstanding
anything in this Agreement to the contrary, a Change in Control
shall not be deemed to have occurred as a result of an acquisition
or the holding of Voting Stock of the Company permitted by Section
2(a) of the Shareholder’s Agreement entered into as of
January 30, 2006, by and between the Company and Berkshire
Hathaway, Inc.
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(e)
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“Code” means the
Internal Revenue Code of 1986, as amended.
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(f)
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“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
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(g)
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“Good Reason” means the
failure of the Company to remedy any of the following within 10
calendar days after receipt by the Company of written notice
thereof from the Executive:
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(i)
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a
material diminution in the Executive’s normal duties and
responsibilities, including, but not limited to, the assignment
without the Executive’s written consent of any diminished
duties and responsibilities which are inconsistent with the
Executive’s positions, duties and responsibilities with the
Company immediately prior to a Change in Control, or a materially
adverse change in the Executive’s reporting responsibilities
or titles as in effect immediately prior to the Change in Control,
whether or not resulting from an act of the Company or otherwise,
or any removal of the Executive from or any failure to re-elect the
Executive to any of such positions, except in connection with the
termination of the Executive’s employment for disability,
retirement, or Cause or as a result of the Executive’s death
or by the Executive other than for Good Reason;
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(ii)
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a
reduction by the Company in the Executive’s Base Pay as in
effect on the date hereof or as the same may be increased from time
to time;
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(iii)
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a
change in the Executive’s Target Direct Annual Compensation
that results in an aggregate decrease in such Target Direct Annual
Compensation in excess of ten percent (10%);
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(iv)
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the
Company’s requiring the Executive, without the
Executive’s written consent, to be based anywhere other than
within fifty (50) miles of the Executive’s office
location immediately prior to the Change in Control, except for
required travel on the Company’s business to an extent
substantially consistent with business travel obligations
immediately prior to the Change in Control;
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(v)
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the
failure by the Company to continue in effect any investment plan,
retirement plan, savings plan, supplemental retirement plan,
deferred compensation plan, supplemental investment plan, life
insurance plan, health and accident plan, disability plan or other
welfare benefit plan in which the Executive was participating at
the time of the Change in Control (or plans providing the Executive
with substantially similar benefits), the taking of any action by
the Company which would adversely affect the Executive’s
participation or materially reduce the Executive’s benefits
or value under any of such plans or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of the
Change in Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the
Executive was then entitled in accordance with the Company’s
normal vacation policy in effect on the date of the Change in
Control; or
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(vi)
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the
failure by the Company to obtain the assumption of the obligation
to perform this Agreement by any successor as contemplated in
Section 11 hereof.
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(h)
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“Incumbent Directors”
means the individuals who, as of the date of this Agreement, are
Directors of the Company and any individual becoming a Director
subsequent to the date of this Agreement whose election, nomination
for election by the Company’s stockholders, or appointment,
was approved by a vote of at least two-thirds of the then Incumbent
Directors (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 objection to such nomination);
provided , however , that an individual shall not be
an Incumbent Director if such individual’s election or
appointment to the Board occurs as a result of an actual or
threatened election contest (as described in Rule 14a-12(c) of
the Exchange Act) with respect to the election or removal of
Directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board.
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(i)
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“Release Agreement”
means an agreement, in substantially the form customarily used by
the Company for similarly situated executives of the Company in
similar instances, pursuant to which the Executive releases, to the
extent permitted by law, all current or future claims, known or
unknown, arising on or before the date of the release against the
Company, its subsidiaries and its officers.
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(j)
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“Severance Period” means
the period of time commencing on the date of the first occurrence
of a Change in Control and continuing until the earlier of
(i) the second anniversary of the occurrence of the Change in
Control, or (ii) the Executive’s death.
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(k)
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“Subsidiary” means a
corporation, company or other entity (i) at least 50 percent
of whose outstanding shares or securities (representing the right
to vote for the election of directors or other managing authority)
are, or (ii) which does not have outstanding shares or
securities (as may be the case in a partnership, joint venture or
unincorporated association), but at least 50 percent of whose
ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or
controlled, directly or indirectly, by the Company.
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(l)
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“Target Annual Direct
Compensation” means the sum of the Executive’s Base
Pay, target annual incentive opportunity, and the annualized value
of the most recent long-term incentive award approved by the
Compensation and Organization Committee of the Board. For purposes
of measuring annualized long-term incentives, the awards shall be
measured on their date of grant using reasonable assumptions,
including, but not limited to, fair value principles such as those
identified in Statement of Financial Accounting Standards
No. 123, Share-Based Payment; the value of such awards shall
be annualized over the frequency of their grant.
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(m)
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“Term” means the period
commencing as of the date hereof and expiring on January 1,
2011, with automatic one-year renewals thereafter unless either
party notifies the other at least 120 days before the
scheduled expiration date that the Term is not to renew;
provided , however , that (i) if a Change in
Control occurs during the Term, the Term will expire on, and no
sooner than, the last day of the Severance Period; and
(ii) subject to Section 3(c), if, prior to a Change in
Control, the Executive ceases for any reason to be an officer of
the Company or an employee of the Company or any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(m), the
Executive shall not be deemed to have ceased to be an employee of
the Company and any Subsidiary by reason of the transfer of the
Executive’s employment between the Company and any
Subsidiary, or among Subsidiaries.
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(n)
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“Termination Date” means
(i) the date on which the Executive’s employment is
terminated by the Company or any Subsidiary or (ii) the date
on which the Executive terminates his or her employment pursuant to
Section 3(b).
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(o)
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“Voting Stock” means at
any time, the then-outstanding securities entitled to vote
generally in the election of directors of the Company.
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2.
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Operation of Agreement
. This Agreement will be
effective and binding immediately upon its execution, but, anything
in this Agreement to the contrary notwithstanding, except as
provided in Section 3(c), the payments and benefits provided
under this Agreement will not be payable unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement
will become immediately operative.
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3.
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Termination Following a Change in
Control .
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(a)
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If
a Change in Control occurs and the Executive’s employment is
terminated by the Company or a Subsidiary during the Severance
Period (or pursuant to Section 3(c)), the Executive will be
entitled to the benefits provided by Section 4 unless such
termination is the result of the occurrence of one or more of the
following events:
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(i)
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The
Executive’s death;
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(ii)
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The
Executive’s having become unable (as determined by the Board
in good faith), with or without reasonable accommodations, to
regularly perform the Executive’s duties by reason of illness
or incapacity; or
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(iii)
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Cause.
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(b)
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In
the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company and any Subsidiary during
the Severance Period for Good Reason with the right to severance
compensation as provided in Section 4 regardless of whether
any other reason, other than Cause, for such termination exists or
has occurred, including without limitation other
employment.
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(c)
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Anything in this Agreement to the
contrary notwithstanding, if a Change in Control occurs and not
more than 120 days prior to the date on which the Change in
Control occurs, the Executive’s employment with the Company
is terminated by the Company other than as described in
Section 3(a)(i), 3(a)(ii) or 3(a)(iii), such termination of
employment will be deemed to be a termination of employment after a
Change in Control for purposes of this Agreement and, in addition,
the Company will be required to pay to the Executive in a lump sum
in cash within ten (10) business days after such Change in
Control (subject to Section 4(b)), the sum of: (1) the
difference between the fair market value of a common share of the
Company and the exercise price of each outstanding stock option
held by the Executive that was forfeited as a result of the
Executive’s termination of employment multiplied by the
number of shares underlying each stock option held by the Executive
that was forfeited as a result of the Executive’s termination
of employment and (2) the fair market value of a common share
of the Company multiplied by the number of shares underlying each
share of restricted stock and each performance share and other
equity award held by the Executive that was forfeited as a result
of the Executive’s termination of employment. For this
purpose, the “fair market value of a common share of the
Company” shall be deemed to be the price per share paid in
connection with the Change in Control.
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(d)
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A
termination of employment pursuant to Section 3(a), 3(b) or
3(c) will not affect any rights that the Executive may have
pursuant to any agreement, policy, plan, program or arrangement of
the Company or any Subsidiary providing employee benefits, which
rights will be governed by the terms thereof; provided ,
however , that if upon termination of employment, the
Executive is entitled to severance compensation or benefits under
this Agreement and pursuant to any employment or severance
agreement or employee plan (an “Employment Agreement”),
the Executive will be entitled to severance benefits under either
this Agreement or such Employment Agreement, whichever agreement
provides for greater benefits, but will not be entitled to benefits
under both agreements.
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4.
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Severance Compensation
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(a)
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If,
following the occurrence of a Change in Control, the Company or a
Subsidiary of the Company terminates the Executive’s
employment during the Severance Period other than as described in
Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or because the
Executive terminates the Executive’s employment pursuant to
Section 3(b), subject to Section 4(b), the Company will
be obligated to make the following payments and provide the
following benefits to the Executive; provided that if
payment to the Executive of any amount pursuant to this Section
4(a) would constitute a “deferral of compensation”
under Section 409A of the Code and if the Executive’s
termination does not constitute a “separation from
service” with the Company and its Subsidiaries within the
meaning of Section 409A(a)(2)(A)(i) of the Code, then payment
of such amount shall be made, to the extent necessary to comply
with Section 409A of the Code and subject to
Section 4(b), to the Executive on the later of (i) the
payment date identified below in the applicable paragraph of this
Section 4(a) or (ii) on the earlier of (A) the
Executive’s “separation from service” with the
Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code, (B) the
Executive’s disability (within the meaning of
Section 409A of the Code), (C) a change in control of the
Company within the meaning of Section 409A of the Code or
(D) the Executive’s death.
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(i)
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The
Executive will be entitled to receive: (i) on the sixty-first
(61 st ) day after the Termination Date
(subject to Sections 4(a) and 4(b)), any Base Pay which has accrued
but is unpaid, any reimbursable expenses which have been incurred
but are unpaid, and payment for any unexpired vacation days which
have accrued under the Company’s or a Subsidiary’s
vacation policy but are unused, as of the date of termination of
the Executive’s employment, (ii) any plan benefits which
by their terms extend beyond termination of the Executive’s
employment (but only to the extent provided in any such benefit
plan in which the Executive has participated as an employee of the
Company or a Subsidiary and excluding, except as hereinafter
provided in this Section 4, any severance pay program or
policy of the Company or a Subsidiary), and (iii) subject to
Section 4(a)(ii) below, payments or benefits payable pursuant to
the terms of any annual and/or long-term incentive plan of the
Company or a Subsidiary in accordance with the terms thereof. In
addition, the Executive shall be entitled to the additional
benefits and amounts described in the succeeding subsections of
this Section 4, in the circumstances described in such
subsections.
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(ii)
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On
the sixty-first (61 st ) day after the Termination Date
(subject to Sections 4(a) and 4(b)), the Executive will be entitled
to receive a lump sum cash payment in an amount equal to the
greater of (A) the Executive’s target or par annual
bonus for the fiscal year in which the Termination Date occurs or
(B) the Executive’s target or par annual bonus for the
fiscal year in which the Change in Control occurs, pro-rated for
the number of full months that the Executive was employed during
such fiscal year ( i.e. , the annual bonus shall be
multiplied by a fraction, the numerator of which is the number of
full months during which the Executive was actively employed by the
Company in the relevant fiscal year and the denominator of which is
12).
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(iii)
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On
the sixty-first (61 st ) day after the Termination Date
(subject to Sections 4(a) and 4(b)), the Executive will be entitled
to receive a lump sum cash payment in an amount equal to two
(2) times the sum of (A) Base Pay (at the highest rate in
effect for any period within three years prior to the Termination
Date), plus (B) annual bonus (in an amount equal to
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