Severance Protection Agreement - Aldila Inc. and Michael J. Rossi
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the 11th day of March, 1999, by and between
Aldila, Inc. (the "Company") and Michael J. Rossi (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists
and that the threat or the occurrence of a Change in Control can result in
significant distraction of the Company's key management personnel because of
the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders, for the Company to retain the
services of the Executive in the event of a threat or occurrence of a Change
in Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company and/or one of its Affiliates (the entity or entities employing the
Executive, the "Employing Affiliate"), particularly in the event of a threat
or the occurrence of a Change in Control, the Company desires to enter into
this Agreement with the Executive to provide the Executive with certain
benefits in the event the Executive's employment is terminated as a result
of, or in connection with, a Change in Control.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of March 11,
1999, and shall continue in effect until March 11, 2002 (the "Term");
PROVIDED, HOWEVER, that on January 1, 2000, and on each January 1 thereafter,
the Term shall automatically be extended for one (1) year unless either the
Executive or the Company shall have given written notice to the other at
least ninety (90) days prior thereto that the Term shall not be so extended;
PROVIDED, FURTHER, HOWEVER, that following the occurrence of a Change in
Control, the Term shall not expire prior to the expiration of thirty-six (36)
months after such occurrence.
2. TERMINATION OF EMPLOYMENT. If, during the Term, the Executive's
employment with the Company or an Employing Affiliate shall be terminated
within thirty-six (36) months following a Change in Control, the Executive
shall be entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company or an Employing
Affiliate shall be terminated (1) by the Company for Cause or Disability, (2)
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by reason of the Executive's death, or (3) by the Executive other than for
Good Reason, the Company shall pay to the Executive his Accrued Compensation.
(b) If the Executive's employment with the Company or an Employing
Affiliate shall be terminated for any reason other than as specified in
Section 2(a), the Executive shall be entitled to the following:
(1) the Company shall pay the Executive all Accrued
Compensation and a Pro Rata Bonus;
(2) the Company shall pay the Executive as severance pay an
amount equal to two (2) times the sum of (A) the Executive's Base Amount and
(B) the Executive's Bonus Amount;
(3) for twenty-four (24) months following the Termination
Date (the "Continuation Period"), the Company shall continue on behalf of the
Executive and his dependents and beneficiaries the life insurance,
disability, medical, dental, prescription drug and hospitalization coverages
and benefits provided to the Executive immediately prior to the Change in
Control or, if greater, the coverages and benefits provided at any time
thereafter. The coverages and benefits (including deductibles and costs to
the Executive) provided in this Section 2(b)(3) during the Continuation
Period shall be no less favorable to the Executive and his dependents and
beneficiaries than the most favorable of such coverages and benefits referred
to above. The Company's obligation hereunder with respect to the foregoing
coverages and benefits shall be reduced to the extent that the Executive
obtains any such coverages and benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce any of the coverages or
benefits it is required to provide the Executive hereunder so long as the
aggregate coverages and benefits (including deductibles and costs to the
Executive) of the combined benefit plans is no less favorable to the
Executive than the coverages and benefits required to be provided hereunder.
This Section 2(b)(3) shall not be interpreted so as to limit any benefits to
which the Executive, his dependents or beneficiaries may be entitled under
any of the Company's employee benefit plans, programs or practices following
the Executive's termination of employment, including but not limited to
retiree medical and life insurance benefits;
(4) the Company shall pay the Executive a lump sum in cash
equal to the present value (determined using a discount rate equal to one
hundred twenty percent (120%) of the applicable mid-term Federal rate
determined pursuant to Section 1274(d) of the Code, compounded semiannually)
of twenty-four (24) monthly payments, each of which payments is equal to the
monthly automobile allowance (including automobile financing, insurance and
maintenance costs paid directly by the Company) payable by the Company in
respect of the Executive immediately prior to the
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Termination Date. If the Company leases an automobile on behalf of the
Executive (or acts as guarantor on lease obligations for an automobile leased
by the Executive), (i) the amount owing under this clause (4) shall be
computed based on the greater of twenty-four (24) months and the remaining
term of such lease, (ii) the Company shall continue to be a party to such
lease through its expiration, and (iii) the Executive shall make all lease
payments under such lease included in the calculation of the lump sum payment
under this clause (4).
(c) The amounts provided for in Sections 2(a) and 2(b)(1), (2),
(4) and (5) shall be paid in a single lump sum cash payment within ten (10)
days after the Executive's Termination Date (or earlier, if required by
applicable law).
(d) The severance pay and benefits provided for in this Section 2
shall be in lieu of any other severance pay to which the Executive may be
entitled under any severance or employment agreement with the Company or any
other plan, agreement or arrangement of the Company or any other Affiliate of
the Company. The Executive's entitlement to any compensation or benefits
other than as provided herein shall be determined in accordance with the
employee benefit plans of the Company and any of its Affiliates and other
applicable agreements, programs and practices as in effect from time to time.
(e) If the Executive's employment is terminated by the Company or
an Employing Affiliate without Cause prior to the date of a Change in Control
but the Executive reasonably demonstrates that such termination (1) was at
the request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control (a "Third Party") and who
effectuates a Change in Control or (2) otherwise arose in connection with, or
in anticipation of, a Change in Control which has been threatened or proposed
and which actually occurs, such termination shall be deemed to have occurred
after a Change in Control, it being agreed that any such action taken
following stockholder approval of a transaction which if consummated would
constitute a Change in Control, shall be deemed to be in anticipation of a
Change in Control provided such transaction is actually consummated.
3. EFFECT OF SECTION 280G OF THE INTERNAL REVENUE CODE.
(a) Except as provided in Section 3(b), notwithstanding any other
provision of this Agreement to the contrary, to the extent that the payments
and benefits provided under this Agreement and benefits provided to, or for
the benefit of, the Executive under any other Company plan or agreement (such
payments or benefits are collectively referred to as the "Payments") would be
subject to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the Payments
shall be reduced (but not below zero) if and to the
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extent necessary so that no Payment to be made or benefit to be provided to
the Executive shall be subject to the Excise Tax. Unless the Executive shall
have given prior written notice specifying a different order to the Company
to effectuate the foregoing, the Company shall reduce or eliminate the
Payments, by first reducing or eliminating the portion of the Payments which
are not payable in cash and then by reducing or eliminating cash payments, in
each case in reverse order beginning with payments or benefits which are to
be paid the farthest in time from the "Determination" (as defined below).
Any notice given by the Executive pursuant to the preceding sentence shall
take precedence over the provisions of any other plan, arrangement or
agreement governing the Executive's rights and entitlements to any benefits
or compensation.
(b) If the reduction of the Payments as provided in Section 3(a)
would exceed 5% of the amount owing under Section 2(b)(2), Section 3(a) shall
not apply and the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments.
(c) The determination of whether the Payments shall be reduced
pursuant to this Agreement and the amount of such reduction, and the
determination of whether a Gross-Up Payment is payable, shall be made at the
Company's expense, by an accounting firm selected by the Company which is one
of the five (5) largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that
any of the Payments may be subject to the Excise Tax), and if the Accounting
Firm determines that no Excise Tax is payable by the Executive with respect
to the Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect
to any such Payments. The Determination shall be binding, final and
conclusive upon the Company and the Executive.
(d) If a Gross-Up Payment is determined to be payable, it shall be
paid to the Executive within twenty (20) days after the Determination (and
all accompanying calculations and other material supporting the
Determination) is delivered to the Company by the Accounting Firm. Any
determination by the Accounting Firm shall be binding upon the Company and
the Executive, absent manifest error. As a result of uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
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Gross-Up Payments not made by the Company should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the
Company which should not have been made ("Overpayments"). In either such
event, the Accounting Firm shall determine the amount of the Underpayment or
Overpayment that has occurred. In the case of an Underpayment, the amount of
such Underpayment (including any applicable interest and penalties) shall be
promptly paid by the Company to or for the benefit of the Executive. In the
case of an Overpayment, the Executive shall, at the direction and expense of
the Company, take such steps as are reasonably necessary (including the
filing of returns and claims for refund), follow reasonable instructions
from, and procedures established by, the Company, and otherwise reasonably
cooperate with the Company to correct such Overpayment, PROVIDED, HOWEVER,
that (i) the Executive shall not in any event be obligated to return to the
Company an amount greater than the net after-tax portion of the Overpayment
that he has retained or has recovered as a refund from the applicable taxing
authorities and (ii) if a Gross-Up Payment is determined to be payable, this
provision shall be interpreted in a manner consistent with an intent to make
the Executive whole, on an after-tax basis, from the application of the
Excise Tax, it being understood that the correction of an Overpayment may
result in the Executive repaying to the Company an amount which is less than
the Overpayment. The cost of all such determinations made pursuant to this
Section 3 shall be paid by the Company.
4. NOTICE OF TERMINATION. Following a Change in Control, any intended
termination of the Executive's employment by the Company or an Employing
Affiliate shall be communicated by a Notice of Termination from the Company
to the Executive, and any intended termination of the Executive's employment
by the Executive for Good Reason shall be communicated by a Notice of
Termination from the Executive to the Company.
5. FEES AND EXPENSES. The Company shall pay, as incurred, all legal
fees and related expenses (including the costs of experts, evidence and
counsel) that the Executive may incur following a Change in Control as a
result of or in connection with (a) the Executive's contesting, defending or
disputing the basis for the termination of the Executive's employment, (b)
the Executive's hearing before the Board of Directors of the Company as
contemplated in Section 16.5 of this Agreement or (c) the Executive seeking
to obtain or enforce any right or benefit provided by this Agreement or by
any other plan or arrangement maintained by the Company or one of its
Affiliates under which the Executive is or may be entitled to receive
benefits.
6. UNAUTHORIZED DISCLOSURE.
(a) The Executive agrees and understands that during the
Executive's position with the Company or an Employing Affiliate, the
Executive has
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been and will be exposed to and receive information relating to the affairs
of the Company considered by the Company to be confidential and in the nature
of trade secrets (including but not limited to procedures, memoranda, notes,
records and customer lists, whether such information has been or is made,
developed or compiled by the Executive or otherwise has been or is made
available to him) (any and all such information, the "Confidential
Information"). The Executive agrees that, during the Term and thereafter, he
shall keep such Confidential Information confidential and will not disclose
such Confidential Information, either directly or indirectly, to any third
person or entity without the prior written consent of the Company; PROVIDED,
HOWEVER, that (i) the Executive shall have no such obligation to the extent
such Confidential Information is or becomes publicly known other than as a
result of the Executive's breach of his obligations hereunder or is received
by the Executive following the Termination Date and (ii) the Executive may,
after giving prior notice to the Company to the extent practicable under the
circumstances, disclose such Confidential Information to the extent required
by applicable laws or governmental regulations or judicial or regulatory
process.
(b) The Executive agrees that all Confidential Information is and
will remain the property of the Company. The Executive further agrees that,
during the Term and thereafter, he shall hold in the strictest confidence all
Confidential Information, and shall not, directly or indirectly, duplicate,
sell, use, lease, commercialize, disclose or otherwise divulge to any person
or entity any portion of the Confidential Information or use any Confidential
Information for his own benefit or profit or allow any person or entity,
other than the Company and its authorized employees, to use or otherwise gain
access to any Confidential Information.
(c) All memoranda, notes, records, customer lists and other
documents made or compiled by the Executive or otherwise made available to
him concerning the business of the Company or its subsidiaries or Affiliates
shall be the Company's property and shall be delivered to the Company upon
the termination of the Executive's employment with the Company or an
Employing Affiliate or at any other time upon request by the Company, and the
Executive shall retain no copies of those documents. The Executive shall
never at any time have or claim any right, title or interest in any material,
invention or matter of any sort created, prepared or used in connection with
the business of the Company or its subsidiaries or Affiliates.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Executive if to the
Company or by a duly authorized officer of the Company if to the Executive,
and shall be deemed to have been duly given when personally delivered or sent
by certified mail, return receipt requested, postage prepaid, addressed to
the respective addresses last given by each party to the
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other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All
notices and communications shall be deemed to have been received on the date
of delivery thereof or on the third business day after the mailing thereof
(whichever is earlier), except that notice of change of address shall be
effective only upon receipt.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any
other Affiliate of the Company and for which the Executive may qualify, nor
shall anything herein limit or reduce such rights as the Executive may have
under any other agreements with the Company or any other Affiliate of the
Company, except as explicitly modified by this Agreement. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plan or program of the Company or any other Affiliate of the Company
shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement. In particular, without limiting the
foregoing, nothing in this Agreement shall limit or restrict the Executive's
rights following a Change in Control under any outstanding stock options
granted under the Company's 1994 Stock Incentive Plan, as amended and
restated.
9. (a) FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including
but not limited to any set-off, counterclaim, defense, recoupment, or other
claim, right or action which the Company may have against the Executive or
others.
(b) NO MITIGATION. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced
by the amount of any compensation or benefits provided to the Executive in
any subsequent employment except as provided in Section 2(b)(3).
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are
not expressly set forth in this Agreement.
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11. TRUST FUNDING. Immediately upon the occurrence of a Change in
Control, the Company shall contribute to a grantor trust (the "Trust") to be
established by the Company for the benefit of the Executive, an amount equal
to the aggregate amounts which may be payable to the Executive following his
Termination Date (whether payable pursuant to this Agreement or otherwise,
including but not limited to pursuant to Sections 2(b)(1), (2), (4) and 3(b)
of this Agreement), determined as if the date of the Change in Control was
also the Executive's Termination Date. If the amounts so payable are not
determinable immediately upon the occurrence of the Change in Control, the
Company shall make a reasonable good faith estimate of the amount to be
contributed to the Trust. The amounts contributed to the Trust pursuant to
this Section shall be held pursuant to the terms of the Trust, but shall in
no event revert to the Company or any of its Affiliates until all obligations
to the Executive pursuant to this Agreement have been satisfied (including
the expiration of thirty-six (36) months after a Change in Control without
any termination of employment subject to the provisions of Section 2(b)).
12. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company and its Successors and Assigns. The Company shall
require its Successors and Assigns, by agreement in form and substance
reasonably satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment
had taken place.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal personal representative.
13. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California without
giving effect to the conflict of laws principles thereof. Any action brought
by any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in San Diego County, California.
14. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes all prior agreements, if any,
understandings
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and arrangements, oral or written, between the parties hereto, with respect
to the subject matter hereof.
16. DEFINITIONS.
16.1. ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued
Compensation" shall mean all amounts of compensation for services rendered to
the Company or an Employing Affiliate that have been earned or accrued
through the Termination Date but that have not been paid as of the
Termination Date including (a) base salary, (b) reimbursement for reasonable
and necessary business expenses incurred by the Executive on behalf of the
Company or an Employing Affiliate during the period ending on the Termination
Date and (c) vacation pay; PROVIDED, HOWEVER, that Accrued Compensation shall
not include any amounts described in clause (a) that have been deferred
pursuant to any salary reduction or deferred compensation elections made by
the Executive.
16.2. AFFILIATE. For purposes of this Agreement, "Affiliate" means,
with respect to any Person, any entity, directly or indirectly, controlled
by, controlling or under common control with the Person.
16.3. BASE AMOUNT. For purposes of this Agreement, "Base Amount" shall
mean the Executive's annual base salary at the rate in effect as of the date
of a Change in Control or, if greater, at any time thereafter, determined
without regard to any salary reduction or deferred compensation elections
made by the Executive.
16.4. BONUS AMOUNT. For purposes of this Agreement, "Bonus Amount"
shall mean the average annual bonus paid or payable, as reflected under the
heading "Bonus" in the Company's Summary Compensation Table in its Proxy
Statement relating to its Annual Meeting of Stockholders in respect of the
two (2) full fiscal years ended prior to the Termination Date or, if greater,
the two (2) full fiscal years ended prior to the Change in Control (or if not
required to distribute an annual meeting proxy statement complying with
Schedule 14A adopted under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") including such disclosure for any such year, the amount
that would have been required to be so disclosed under Schedule 14A);
PROVIDED, HOWEVER, if, as of the date of the Change in Control, the Executive
has not been employed by the Company or an Employing Affiliate for a full
fiscal year, the Bonus Amount shall not be less than the target annual bonus
payable to the Executive under the Incentive Plan in respect of the fiscal
year during which the Change in Control occurs.
16.5. CAUSE. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive
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(a) has been convicted of a felony (including a plea of guilty or
nolo contendere);
(b) intentionally and continually failed substantially to perform
his reasonably assigned duties with the Company or an Employing Affiliate
(other than a failure resulting from the Executive's incapacity due to
physical or mental illness or from the assignment to the Executive of duties
that would constitute Good Reason) which failure continued for a period of at
least thirty (30) days after a written notice of demand for substantial
performance, signed by a duly authorized officer of the Company, has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform; or
(c) intentionally engaged in illegal conduct or willful misconduct
which is demonstrably and materially injurious to the Company or an Employing
Affiliate.
For purposes of this Agreement, no act, nor failure to act, on the
Executive's part, shall be considered "intentional" unless the Executive has
acted, or failed to act, with a lack of good faith and with a lack of
reasonable belief that the Executive's action or failure to act was in the
best interest of the Company or an Employing Affiliate. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by
the Board or upon the instructions of the Company's Chairman of the Board,
Chief Executive Officer or a senior officer of the Company or based upon the
advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by the Executive in good faith and in the best
interests of the Company or an Employing Affiliate. The termination of
employment of the Executive shall not be deemed to be for Cause pursuant to
subparagraph (b) or (c) above 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 three-fourths of the entire membership of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in subparagraph (b) or (c) above, and specifying the
particulars thereof in detail. Notwithstanding anything contained in this
Agreement to the contrary, no failure to perform by the Executive after a
Notice of Termination is given to the Company by the Executive shall
constitute Cause for purposes of this Agreement.
16.6. CHANGE IN CONTROL. A "Change in Control" shall mean the
occurrence during the Term of:
(a) An acquisition (other than directly from the Company) of any
common stock of the Company ("Common Stock") or other voting securities of
the
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Company entitled to vote generally for the election of directors (the "Voting
Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Exchange Act), immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of forty percent (40%) or more of the
then outstanding shares of Common Stock or the combined voting power of the
Company's then outstanding Voting Securities; PROVIDED, HOWEVER, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee
benefit plan (or a trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in connection with a Non-Control
Transaction (as hereinafter defined);
(b) The individuals who, as of February 28, 1999, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at
two-thirds of the members of the Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the Company's common stockholders, of
any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER,
that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or
(c) The consummation of:
(1) A merger, consolidation, or reorganization with or into
the Company or in which securities of the Company are issued, unless
such merger, consolidation, reorganization or other business
combination is a "Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger, consolidation, reorganization or
other business combination with or into the Company or in which
securities of the Company are issued where:
(A) the stockholders of the Company, immediately
before such merger, consolidation, or reorganization own directly
or indirectly immediately
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following such merger, consolidation, or reorganization, at
least sixty percent (60%) of the combined voting power of the
outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion
as their ownership of the Voting Securities immediately before
such merger, consolidation, or reorganization,
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation, reorganization or other
business combination constitute at least two-thirds (2/3) of the
members of the board of directors of the Surviving Corporation,
and
(C) no Person other than (i) the Company, (ii) any
Subsidiary, (iii) any employee benefit plan (or any trust forming
a part thereof) that, immediately prior to such merger,
consolidation, or reorganization was maintained by the Company or
any Subsidiary, or (iv) any Person who, immediately prior to such
merger, consolidation, reorganization or other business
combination had Beneficial Ownership of forty percent (40%) or
more of the then outstanding Voting Securities or common stock of
the Company, has Beneficial Ownership of forty percent (40%) or
more of the combined voting power of the Surviving Corporation's
then outstanding voting securities or its common stock.
(2) A complete liquidation or dissolution of the Company;
or
(3) The sale or other disposition of all or substantially
all of the assets of the Company to any Person (other than a transfer
to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding Common Stock or Voting
Securities as a result of the acquisition of Common Stock or Voting Securities
by the Company which, by reducing the number of shares of Common Stock or Voting
Securities then
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outstanding, increases the proportional number of shares Beneficially Owned
by the Subject Person, provided that if a Change in Control would occur (but
for the operation of this sentence) as a result of the acquisition of shares
of Common Stock or Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner
of any additional shares of Common Stock or Voting Securities which increase
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
16.7. COMPANY. For purposes of this Agreement, all references to the
Company shall include its Successors and Assigns.
16.8. DISABILITY. For purposes of this Agreement, "Disability" shall
mean a physical or mental infirmity which impairs the Executive's ability to
substantially perform his duties with the Company or an Employing Affiliate
for six (6) consecutive months, and within the time period set forth in a
Notice of Termination given to the Executive (which time period shall not be
less than thirty (30) days), the Executive shall not have returned to
full-time performance of his duties; PROVIDED, HOWEVER, that if the Company's
Long Term Disability Plan, or any successor plan (the "Disability Plan"), is
then in effect, the Executive shall not be deemed disabled for purposes of
this Agreement unless the Executive is also eligible for long-term disability
benefits under the Disability Plan (or similar benefits in the event of a
successor plan).
16.9. GOOD REASON. (a) For purposes of this Agreement, "Good Reason"
shall mean the occurrence after a Change in Control of any of the following
events or conditions:
(1) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents a materially adverse change from
his status, title, position or responsibilities as in effect immediately
prior thereto (it being understood that a change that necessarily results
from the fact that the Company is no longer an independent publicly traded
company will not, without more, be deemed to be material); the assignment to
the Executive of any duties or responsibilities which, in the Executive's
reasonable judgment, are inconsistent with his status, title or position; or
any removal of the Executive from or failure to reappoint or reelect him to
any of such offices or positions, except in connection with the termination
of his employment for Disability, Cause, as a result of his death or by the
Executive other than for Good Reason;
(2) a reduction in the Executive's annual base salary below the
Base Amount;
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(3) the relocation of the offices of the Company or an Employing
Affiliate at which the Executive is principally employed to a location more
than twenty-five (25) miles from the location of such offices immediately
prior to the Change in Control, or the requirement that the Executive be
based anywhere other than such offices, except to the extent the Executive
was not previously assigned to a principal location and except for required
travel on the business of the Company or an Employing Affiliate to an extent
substantially consistent with the Executive's business travel obligations at
the time of the Change in Control;
(4) the failure by the Company or an Employing Affiliate to pay to
the Executive any portion of the Executive's current compensation or to pay
to the Executive any portion of an installment of deferred compensation under
any deferred compensation program of the Company or an Employing Affiliate in
which the Executive participated, within seven (7) days of the date such
compensation is due;
(5) the failure by the Company or any Affiliate of the Company to
(A) continue in effect (without reduction in benefit level and/or reward
opportunities which with respect to the Incentive Plan shall include a
reduction in the potential bonus entitlement for comparable corporate
performance by the Company and its subsidiaries) any material compensation or
employee benefit plan in which the Executive was participating immediately
prior to the Change in Control (excluding the 1994 Stock Incentive Plan, so
long as the Executive is permitted to participate in any comparable
equity-based plans maintained by any Person then controlling directly or
indirectly the Company for the benefit of the employees of such Person and
its Affiliates to a substantially comparable extent as other similarly
situated employees of such Person and its Affiliates), including but not
limited to any of the plans listed in Appendix A hereto, unless a substitute
or replacement plan has been implemented which provides substantially
identical compensation or benefits to the Executive or (B) provide the
Executive with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to those provided
for under each other compensation, employee benefit or fringe benefit plan,
program or practice in which the Executive was participating immediately
prior to the Change in Control;
(6) the failure of the Company to obtain from its Successors or
Assigns the express assumption and agreement required under Section 12
hereof; or
(7) any purported termination of the Executive's employment by the
Company or an Employing Affiliate which is not effected pursuant to a Notice
of Termination satisfying the terms set forth in the definition of Notice of
Termination (and, if applicable, the terms set forth in the definition of
Cause).
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(b) Any event or condition described in Section 16.9(a)(1) through
(7) which occurs prior to a Change in Control but which the Executive
reasonably demonstrates (1) was at the request of a Third Party who
effectuates a Change in Control or (2) otherwise arose in connection with, or
in anticipation of a Change in Control which has been threatened or proposed
and which actually occurs, shall constitute Good Reason for purposes of this
Agreement notwithstanding that it occurred prior to a Change in Control, it
being agreed that any such action taken following stockholder approval of a
transaction which if consummated would constitute a Change in Control, shall
be deemed to be in anticipation of a Change in Control provided such
transaction is actually consummated.
16.10. INCENTIVE PLAN. For purposes of this Agreement, "Incentive
Plan" shall mean the Company's Executive Bonus Plan.
16.11. NOTICE OF TERMINATION. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination of the Executive's employment, signed by the Executive
if to the Company or by a duly authorized officer of the Company if to the
Executive, which indicates the specific termination provision in this
Agreement, if any, relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. The failure by the
Executive or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason, Disability or
Cause shall not serve to waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
16.12. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata
Bonus" shall mean an amount equal to the Bonus Amount multiplied by a
fraction the numerator of which is the number of days in the fiscal year in
which the Executive's Termination Date occurs that have elapsed through the
Termination Date and the denominator of which is 365.
16.13. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean, with respect to the Company, a
corporation or other entity acquiring directly or indirectly all or
substantially all the assets and business of the Company, as the case may be,
whether by operation of law or otherwise.
16.14. TERMINATION DATE. For purposes of this Agreement, "Termination
Date" shall mean (a) in the case of the Executive's death, his date of death,
(b) if the Executive's employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall
not have returned to the
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performance of his duties on a full-time basis during such thirty (30) day
period) and (c) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in the case
of a termination for Cause shall not be less than thirty (30) days, and in
the case of a termination for Good Reason shall not be more than sixty (60)
days, from the date such Notice of Termination is given); PROVIDED, HOWEVER,
that if within thirty (30) days after any Notice of Termination is given the
party receiving such Notice of Termination in good faith notifies the other
party that a dispute exists concerning the basis for the termination, the
Termination Date shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, or by the
final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been taken).
Notwithstanding the pendency of any such dispute, the Company or an Employing
Affiliate shall continue to pay the Executive his Base Amount and continue
the Executive as a participant (at or above the level provided prior to the
date of such dispute) in all compensation, incentive, bonus, pension, profit
sharing, medical, hospitalization, prescription drug, dental, life insurance
and disability benefit plans in which he was participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved
whether or not the dispute is resolved in favor of the Company, and the
Executive shall not be obligated to repay to the Company or an Employing
Affiliate any amounts paid or benefits provided pursuant to this sentence.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officers and the Executive has executed this Agreement
as of the day and year first above written.
ALDILA, INC.
/s/ Gary T. Barbera
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By: Gary T. Barbera
--------------------------------
Its: President
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EXECUTIVE
/s/ Michael J. Rossi
-----------------------------------
Michael J. Rossi
ATTEST
/s/ Sylvia Castle
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By: Sylvia Castle
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