Exhibit 10.2
CUBIC CORPORATION
TRANSITION PROTECTION
PLAN
SECTION 1.
INTRODUCTION.
The Cubic Corporation Transition
Protection Plan (the “Plan” ) is hereby
established effective November 29, 2005 (the
“Effective Date” ).
The Company considers it essential
to the best interests of the Company and its shareholders to foster
the continuous employment of the Company’s key management
personnel. The Board of Directors of the Company (the
“Board” ) recognizes that the
possibility of a Change in Control of the Company may occur and the
uncertainty and questions that this possibility may raise among
management could result in the departure of key executives,
the distraction of key executives from the management of the
business, or the inability to hire new key executives, all to the
detriment of the Company and its shareholders.
The Board has carefully considered
the report of the Executive Compensation Committee and its
independent advisors and has evaluated available alternative
courses of action, including that of continuing the status
quo. After discussion, debate and evaluation, the Board has
unanimously decided to adopt the Plan to reinforce and encourage
the continued dedication of key executives to their duties without
the distraction arising from the possibility of a Change in Control
of the Company and to provide such key executives with the benefits
stated herein that ensure that the expectations of the executives
will be satisfied, and that are also competitive with those of
similar companies.
The Plan will provide for the
payment of severance benefits to certain eligible employees of the
Company in the event that such employees are subject to qualifying
employment terminations in connection with a Change in
Control.
This Plan shall supersede any
severance benefit plan, policy or practice previously maintained by
the Company, other than an individually negotiated contract or
agreement with the Company relating to severance or change in
control benefits that is in effect on an employee’s
termination date, in which case such employee’s severance
benefit, if any, shall be governed by the terms of such
individually negotiated employment contract or agreement and shall
be governed by this Plan only to the extent that the reduction
pursuant to Section 7(b) below does not entirely
eliminate benefits under this Plan. Notwithstanding the foregoing,
this Plan shall not supersede, but rather shall supplement the
enhanced severance benefits (but not the Health Care Benefits)
contained in the Company’s Severance Policy in effect as of
the Effective Time. This document also is the Summary Plan
Description for the Plan.
SECTION 2.
DEFINITIONS.
For purposes of the Plan, the
following terms are defined as follows:
(a)
“Affiliate”
means any company controlled by,
controlling or under common control with the Company.
(b)
“Base
Salary” means,
with respect to a Participant, the average of the
Participant’s annual base pay (excluding incentive pay,
premium pay, commissions, overtime, bonuses and other forms of
variable compensation) paid or payable for the five fiscal years
(or such annualized shorter period as the Participant has been
employed by the Company) immediately prior to the Change in Control
or immediately prior to the Participant’s termination of
employment, whichever is greater, without consideration of any
reduction constituting a Constructive Termination.
(c)
“Average
Bonus” means,
with respect to a Participant, an amount equal to the average
of the annual cash and long-term bonuses (excluding Base
Salary and excluding any commissions, expatriate premiums, fringe
benefits (including without limitation car allowances), option
grants, equity awards, employee benefits and other similar items of
compensation) paid or payable by the Company to the Participant for
the five fiscal years (or such annualized shorter period as the
Participant has been employed by the Company) immediately prior to
the Change in Control or immediately prior to the
Participant’s termination of employment, whichever is
greater.
(d)
“Change in
Control” shall
be deemed to occur on the happening of any of the following
events:
(i)
Any acquisition of beneficial
ownership (as defined in the Securities Exchange Act of 1934, as
amended (the “Exchange Act” )) as defined
in Rule 13d-3 of the Exchange Act of such number of shares of
the Company’s equity securities by any individual, entity or
group (within the meaning of Section 13(d)(3) of the
Exchange Act) (a “Person” ) (other
than Walter J. Zable or a trust established for himself, his spouse
or issue) which enables such Person to elect a majority of the
Company’s Board by cumulative voting, assuming 90% of
outstanding shares vote;
(ii)
Any sale of a Substantial Portion of
the Property (as defined herein) of the Company.
(iii)
As to an Participant who is an
employee of a Subsidiary, any sale of a Substantial Portion of the
Property or the sale or issuance of a majority of the stock of such
Subsidiary by the Company to any party other than an Affiliate of
the Company;
(iv)
Approval by the stockholders of the
Company of a complete liquidation or dissolution of the Company;
or
(v)
The consummation by the Company,
directly or indirectly, in one or more steps, of a merger,
consolidation, reorganization, or business combination or any act
or event which results in a majority of the Company’s Board
as existing immediately prior to such acts or events not continuing
to serve as such.
(e)
“Code” means the Internal Revenue Code of 1986, as
amended.
(f)
“Company”
means Cubic Corporation and its
Subsidiaries or, following a Change in Control, the surviving
entity resulting from such transaction.
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(g)
“Constructive
Termination” means a voluntary termination of employment by a
Participant after one of the following is undertaken without the
Participant’s express written consent:
(i)
a substantial reduction in the
nature or scope of the Participant’s authority, duties,
function or responsibilities (and not simply a change in title or
reporting relationships) in effect immediately prior to the
effective date of the Change in Control; provided, however,
that it shall not be a “Constructive Termination” if,
following the effective date of the Change in Control, either
(a) the Company is retained as a separate legal entity or
business unit and the Participant holds the same position in such
legal entity or business unit as the Participant held before such
effective date, or (b) the Participant holds a position with
authority, duties, function or responsibilities comparable (though
not necessarily identical, in view of the relative sizes of the
Company and the entity involved in the Change in Control) to those
of the Participant prior to the effective date of the Change in
Control;
(ii)
a reduction in the
Participant’s base salary (except for salary decreases
generally applicable to the Company’s other
similarly-situated employees);
(iii)
an elimination of the
Participant’s opportunity to achieve bonuses on a basis
comparable to that provided prior to the Change in Control, or, if
the Participant participates in the Company’s Management
Annual Incentive Plan or the Company’s Management 3-Year
Incentive Plan, then an amendment to either such plan that reduces
the percentage of average annual salary used to determine
Participant’s bonus under such plan or plans either: (x) by
more than 50% or (y) by an amendment that is not generally
applicable to the Company’s other similarly-situated
employees;
(iv)
an increase in the
Participant’s one-way driving distance from the
Participant’s principal personal residence to the principal
office or business location at which the Participant is required to
perform services of more than 20 miles, except for required travel
for the Company’s business to an extent substantially
consistent with Participant’s prior business travel
obligations;
(v)
a material breach by the Company of
any provisions of the Plan or any enforceable written agreement
between the Company and the Participant;
or
(vi)
any failure by the Company to obtain
assumption of the Plan by any successor or assign of the
Company.
Notwithstanding the foregoing, a
voluntary termination shall not be deemed a Constructive
Termination unless (x) the Participant provides the Company with
written notice (the “Constructive Termination
Notice” ) that the Participant believes that an event
described in this Section 2(g) has occurred, (y) the
Constructive Termination Notice is given within three
(3) months of the date the event occurred, and (z) the Company
does not rescind or cure the conduct giving rise to the event
described in this Section 2(g) within ten (10) days
of receipt by the Company of the Constructive Termination
Notice.
(h)
“Covered
Termination” means, with respect to a Participant, an
Involuntary Termination Without Cause or a Constructive
Termination, but only if such event occurs at any
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time within three (3) months before or
twenty-four (24) months following the effective date of a Change in
Control. Termination of employment of a Participant due to death or
disability shall not constitute a Covered Termination unless a
voluntary termination of employment by the Participant immediately
prior to the Participant’s death or disability would have
qualified as a Constructive Termination.
(i)
“ERISA” means the Employee Retirement Income Security
Act of 1974, as amended.
(j)
“Involuntary Termination
Without Cause” means, with respect to a Participant, an
involuntary termination of employment by the Company other than for
one of the following reasons:
(i)
the willful and continued failure of
the Participant to perform substantially the Participant’s
duties to the Company as those duties exist on the date of the
Change in Control (or the date of termination, if earlier), other
than any failure resulting from circumstances outside the
Participant’s control, or from incapacity of the Participant
due to physical or mental illness or disability, or following the
Participant’s delivery of a Constructive Termination Notice,
after a written demand for substantial performance is delivered to
the Participant, which demand specifically identifies the manner in
which the Company believes that the Participant has not
substantially performed the Participant’s duties
satisfactorily, and provided that the Company demonstrates that
such failure has a demonstrably harmful impact on the Company or
its reputation, and provided further that the Participant has been
given a period of at least 30 days to cure his failure in
performance. No act or failure to act shall be considered
“willful” unless it is done, or omitted to be done, in
bad faith or without reasonable belief that the action was in the
best interests of the Company or the Subsidiary; or
(ii)
the Participant’s gross
negligence or breach of fiduciary duty to the Company involving
personal profit, personal dishonesty or recklessness, or the
Participant’s material breach of any agreement with the
Company, including a material violation of Company policies and
procedures, provided that such termination of employment
occur within 12 months following the Company’s discovery of
such event;
(iii)
the Participant’s conviction
(which has become final) or entry of a plea of guilty or nolo
contendere regarding an act that would be deemed a felony under
California or Federal criminal statutes (or any comparable criminal
laws of any jurisdiction in which the Participant is permanently
employed by the Company or a Subsidiary) that has a demonstrably
harmful impact on the Company’s business or reputation, as
determined in good faith by the Company’s Executive
Compensation Committee, provided that such termination occur
within 12 months following the Company’s discovery of such
event.
(k)
“Participant”
means an individual who is employed
by the Company as its Executive Chairman of the Board, Chief
Executive Officer, as a senior vice president, or as a vice
president (other than any individual who is a vice president on
sales commission, as determined by the Company in its sole
discretion) and such other key employees as may be recommended by
the Company’s management and selected by the Company’s
Executive Compensation Committee; provided, however , that
if the Company’s Executive Compensation
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Committee shall make an affirmative
determination that an employee serving in any such capacity shall
not be a Participant, then such employee shall not be deemed a
Participant. Any key employee who is selected by the
Company’s Executive Compensation Committee to be a
Participant shall become a Participant immediately following such
action. The determination of whether an employee is a
Participant shall be made by such Committee, in its sole
discretion, and such determination shall be binding and conclusive
on all persons.
(l)
“Participation
Notice” means
the latest notice delivered by the Company to a Participant
informing the employee that the employee is a Participant in the
Plan, substantially in the form of Exhibit A
hereto.
(m)
“Plan
Administrator” means the Board or any committee duly authorized
by the Board to administer the Plan. The Plan Administrator
may, but is not required to be, the Compensation Committee of the
Board. The Board may at any time administer the Plan, in
whole or in part, notwithstanding that the Board has previously
appointed a committee to act as the Plan Administrator.
(n)
“Subsidiary”
or
“Subsidiaries” means Cubic Defense
Applications, Inc., Cubic Transportation Systems, Inc.,
Cubic Simulation Systems, Inc. and Cubic
Applications, Inc. and any other entity that is designated by
the Board.
(o)
“Substantial Portion of
the Property” means the sale of assets for an amount totaling
at least 51% of the aggregate consolidated book value of the assets
of the Company or a Subsidiary as set forth on the consolidated
balance sheet of the Company or on the balance sheet of a
Subsidiary for its most recent year end, as certified by its
regular independent certified public accountants.
SECTION 3.
ELIGIBILITY FOR
BENEFITS.
(a)
General Rules.
Subject to the provisions set
forth in this Section and Section 6, in the event of a
Covered Termination, the Company will provide the severance
benefits described in Section 4 of the Plan to the affected
Participant. Promptly upon an employee becoming a
Participant, the Company shall deliver to the Participant a
Participation Notice.
(b)
Exceptions to Benefit
Entitlement. An
employee, including an employee who otherwise is a Participant,
will not receive benefits under the Plan (or will receive reduced
benefits under the Plan) in the following circumstances, as
determined by the Company in its sole discretion:
(i)
The employee has executed an
individually negotiated employment contract or agreement with the
Company relating to severance or change in control benefits that is
in effect on his or her termination date, in which case such
employee’s severance benefit, if any, shall be governed by
the terms of such individually negotiated employment contract or
agreement and shall be governed by this Plan only to the extent
that the reduction pursuant to Section 6(b) below does
not entirely eliminate benefits under this Plan.
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(ii)
The employee voluntarily terminates
employment with the Company in order to accept employment with
another entity that is controlled (directly or indirectly) by the
Company or is otherwise an affiliate of the Company.
(iii)
The employee is offered immediate
reemployment by a successor to the Company or by a purchaser of its
assets, as the case may be, following a change in ownership of the
Company or a sale of all or substantially all the assets of a
division or business unit of the Company. For purposes of the
foregoing, “immediate reemployment” means that the
employee’s employment with the successor to the Company or
the purchaser of its assets, as the case may be, results in
uninterrupted employment such that the employee does not suffer a
lapse or reduction in pay or benefits (including coverage under
this Plan) as a result of the change in ownership of the Company or
the sale of its assets.
(iv)
The employee does not confirm in
writing that he or she shall be subject to the Company’s
Confidentiality Agreement.
(c)
Termination of
Benefits. A
Participant’s right to receive the payment of benefits under
this Plan shall terminate immediately if, at any time prior to or
during the period for which the Participant is receiving benefits
hereunder, the Participant, without the prior written approval of
the Company:
(i)
willfully breaches a material
provision of the Participant’s proprietary information or
confidentiality agreement with the Company, as referenced in
Section 3(b)(iv);
(ii)
owns, manages, operates, joins,
controls or participates in the ownership, management, operation or
control of, is employed by or connected in any manner with, any
person, enterprise or entity which is engaged in any business
competitive with that of the Company; provided, however,
that such restriction will not apply to any passive investment
representing an interest of less than five percent (5%) of an
outstanding class of publicly-traded securities of any corporation
or other entity or enterprise;
(iii)
encourages or solicits any of the
Company’s then current employees to leave the Company’s
employ for any reason or interferes in any other manner with
employment relationships at the time existing between the Company
and its then current employees; or
(iv)
induces any of the Company’s
then current clients, customers, suppliers, vendors, distributors,
licensors, licensees or other third party to terminate their
existing business relationship with the Company or interferes in
any other manner with any existing business relationship between
the Company and any then current client, customer, supplier,
vendor, distributor, licensor, licensee or other third
party.
If a Participant is in doubt as to
whether a proposed activity may be described in
Section 3(c)(i) – (iv), then such Participant shall
have the right to request an interpretation by the Company.
Such request shall be made by giving notice to the Company.
Unless notice that such activity is described in
Section 3(c)(i)-(iv) is provided to the Participant
within 45 days after the date of such Participant’s notice,
then such activity shall not be deemed to be described in this
Section 3(c)(i)-(iv).
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SECTION 4.
AMOUNT OF
BENEFITS.
(a)
Cash Severance
Benefits. Each
Participant who incurs a Covered Termination shall be entitled to
receive a cash severance benefit equal to the number of months of
Base Salary plus Average Bonus set forth in such
Participant’s Participation Notice. Any cash severance
benefits provided under this Section 4(a) shall be paid
pursuant to the provisions of Section 5.
(b)
Accelerated Stock Award Vesting
and Extended Exercisability of Stock Options.
If a Participant incurs a
Covered Termination, then effective as of the date of the
Participant’s Covered Termination (or, if such Covered
Termination occurs prior to a Change in Control, then effective as
of the date of such Change in Control), (i) the vesting and
exercisability of all outstanding options to purchase the
Company’s common stock that are held by the Participant on
such date shall be accelerated in full, and (ii) any
reacquisition or repurchase rights held by the Company in respect
of common stock issued pursuant to any other stock award granted to
the Participant by the Company shall lapse.
In addition, the post-termination of
employment exercise period of any outstanding option held by the
Participant on the date of his or her Covered Termination shall be
extended, if necessary, such that the post-termination of
employment exercise period shall not terminate prior to the later
of (i) the date twelve (12) months after the effective date of
the Covered Termination (or, if the stock option was held by the
individual at the time he or she first became a Participant in this
Plan and counsel for the Company has not advised the Company that
such acceleration would not cause such option to be treated as
covered by Section 409A of the Code or would not cause the
Participant to become subject to the immediate taxation prior to
the date of exercise, additional tax and interest under
Section 409A of the Code, then the later of the 15
th day of the third month following the date at which,
or December 31 of the calendar year in which, the stock option
would otherwise have expired if the stock option had not been
extended pursuant to this Section 4(b), based on the terms of
the stock option at the original grant date) or (ii) the
post-termination exercise period provided for in such option;
provided, however , that such option shall not be
exercisable after the expiration of its maximum term.
(c)
Continued Medical
Benefits . If a
Participant incurs a Covered Termination and the Participant was
enrolled in a health, dental, or vision plan sponsored by the
Company immediately prior to such Covered Termination, the
Participant may be eligible to continue coverage under such health,
dental, or vision plan (or to convert to an individual policy), at
the time of the Participant’s termination of employment,
under the Consolidated Omnibus Budget Reconciliation Act of 1985 (
“COBRA” ). The Company will notify
the Participant of any such right to continue such coverage at the
time of termination pursuant to COBRA. No provision of this
Plan will affect the continuation coverage rules under COBRA,
except that the Company’s payment, if any, of applicable
insurance premiums will be credited as payment by the Participant
for purposes of the Participant’s payment required under
COBRA. Therefore, the period during which a Participant may
elect to continue the Company’s health, dental, or vision
plan coverage at his or her own expense under COBRA, the length of
time during which COBRA coverage will be made available to the
Participant, and all other rights and obligations of the
Participant under COBRA (except the obligation to pay insurance
premiums that the Company pays, if any) will be applied in the same
manner that such rules would apply in the absence of this
Plan.
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If a Participant timely elects
continued coverage under COBRA, the Company shall pay the full
amount of the Participant’s COBRA premiums on behalf of the
Participant for the Participant’s continued coverage under
the Company’s health plans (including any dental care plans,
but excluding any vision care plans maintained by the Company),
including coverage for the Participant’s eligible dependents,
during the lesser of: (i) the number of months of Base Salary
and Average Bonus in respect of which the amount paid to the
Participant under Section 4(a) was calculated (the
“Severance Period” ), or (ii) 18
months; provided, however, that no such premium payments
shall be made following the Participant’s death or the
effective date of the Participant’s coverage by a health plan
of a subsequent employer, except as necessary to provide coverage
under this Plan to the Participant’s surviving spouse.
Each Participant shall be required to notify the Company
immediately if the Participant becomes covered by a health plan of
a subsequent employer. Upon the conclusion of such period of
insurance premium payments made by the Company, the Participant
will be responsible for the entire payment of premiums required
under COBRA for the duration of the COBRA period.
For purposes of this
Section 4(c), (i) references to COBRA shall be deemed to
refer also to analogous provisions of state law and (ii) any
applicable insurance premiums that are paid by the Company shall
not include any amounts payable by the Participant under an Code
Section 125 health care reimbursement plan, which amounts, if
any, are the sole responsibility of the Participant.
(d)
Other Employee
Benefits. During a
Participant’s Severance Period, the Participant shall not be
entitled to reimbursement for fringe benefits other than as
provided in this Plan, nor shall the Participant be entitled to
receive any payments or other compensation attributable to vacation
periods that would have been earned had Participant’s
employment continued during the Severance Period.
Executive’s participation in all tax-deferred or tax
qualified retirement and cafeteria plans shall cease upon
termination of employment. All other employee benefits
not described in this Section 4 shall terminate as of the
Participant’s termination date (except to the extent that a
conversion privilege may be available thereunder).
(e)
Outplacement Services.
Upon a Covered Termination,
the Company shall pay an appropriate executive out placement
service up to the amount listed in such Participant’s
Participation Notice for its services rendered to the
Participant.
(f)
Moving Expenses.
If within 24 months prior to
the Change in Control a Participant had relocated his personal
residence at the request of the Company, then upon such
Participant’s Covered Termination the Company shall pay all
costs and expenses of relocating the Participant, his or her
household goods and his or her family to a location of the
Participant’s choice, provided that the cost of such
relocation shall not exceed the cost to relocate to the city in
which his or her immediately previous residence was located, and
provided further that such costs and e
