EXHIBIT 10.26
December 13, 2006
Dan Tarantine
3601 E. University Dr.
Phoenix, AZ 85034
     Change in Control Agreement
Dear Dan:
     The Board of Directors believes that it is in the best interests of White
Electronic Design (“WED”) to take appropriate steps to allay any concerns you
may have about your future employment opportunities with WED and its
subsidiaries (WED and its subsidiaries are collectively referred to as the
“Company”). As a result, the Board has decided to offer to you the benefits
described below.
     Please bear in mind that these benefits are being offered only to a few,
selected employees and we accordingly ask that you refrain from discussing this
program with others. Also, please note that the benefits described below will
only be effective if you sign the extra copy of this Change in Control Agreement
(the “Agreement”) which is enclosed and return it to me. This Agreement was
drafted to comply with the requirements of Section 409A of the Internal Revenue
Code of 1986, as amended (“Code) and the proposed regulations issued thereunder.
If the final regulations issued under Code Section 409A provide for more
liberalized rules than those under this Agreement, and if the Company decides to
amend the change in control agreements for other Company executives to reflect
any such change, this Agreement will be amended in a manner consistent with the
amendments made to those other change in control agreements.
     1. TERM OF AGREEMENT.
     This Agreement is effective immediately and will continue in effect as long
as you are actively employed by the Company, unless you and the Company agree in
writing to its termination.
     2. SEVERANCE PAYMENT AND STOCK OPTION ACCELERATION.
     If your employment with the Company is terminated without “Cause” (as
defined in Section 5) at any time within twelve (12) months following a “Change
in Control” (as defined in Section 4), you will receive the “Severance Payment”
described below.
     The Severance Payment shall be an amount equal to the greater of your
annual base salary and annual bonus of the two years immediately prior to the
Change in Control.

 

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     The Severance Payment will be paid in one lump sum within five business
days following your termination of employment.
     You are not entitled to receive the Severance Payment if your employment is
terminated for Cause if you voluntarily terminate your employment for any
reason, or if your employment is terminated by reason of your “Disability” (as
defined below) or your death. In addition, you are not entitled to receive the
Severance Payment if your employment is terminated by you or the Company for any
or no reason before a Change in Control occurs or more than twelve (12) months
after a Change in Control has occurred. For purposes of this agreement,
“Disability” shall mean an incapacity due to physical or mental illness that
results in you being medically unable to fulfill your duties of employment for
one hundred eighty (180) calendar days in the aggregate in any twelve
(12) months period.
     In order to receive the Severance Payment, you must execute any release
reasonably requested by the Company.
     The Severance Payment will be paid to you without regard to whether you
look for or obtain alternative employment following your termination of
employment with the Company.
     Notwithstanding anything in this Agreement or in any option agreement to
the contrary, upon a Change in Control, any stock option granted to you shall
accelerate and become vested without further action. The exercise of the options
will be based on the Company’s policy.
     3. BENEFITS CONTINUATION.
     If you are entitled to severance under Section 2, and you elect to continue
your COBRA coverage benefits, the Company will pay your COBRA coverage premiums
for a period of twelve (12) months following your termination of employment,
provided that the Company payment shall cease if your COBRA coverage terminates
in accordance with applicable rules.
     The Company does not intend to provide duplicative benefits. As a result,
benefits otherwise receivable pursuant to this Section 3 shall be reduced or
eliminated if and to the extent that you receive such benefits pursuant to any
employment agreement you may have with the Company.
     Benefits otherwise receivable pursuant to this Section 3 also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer); provided, however, you
shall have no obligation to seek, solicit or accept employment from another
employer in order to receive the benefits provided by this Agreement.

 

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     4. CHANGE IN CONTROL DEFINED.
     For purposes of this Agreement, the term Change in Control shall mean and
include the following transactions or situations:
          (a) Any sale of all or substantially all of the assets of the Company;
          (b) A merger or consolidation involving the Company, unless the
stockholders of the Company receive in the transaction, with respect to their
stock in the Company, stock or other securities representing a majority in
voting interest of the acquiring entity’s equity securities;
          (c) Any sale of a majority voting interest of the outstanding stock of
the Company by the holders thereof in a single transaction or series of related
transactions;
          (d) Notice of termination or a material change in the nature or scope
of Executive’s responsibilities, title and authority immediately prior to the
Change in Control;
          (e) decrease in the total annual compensation or benefits payable to
Executive other than as a result of a decrease in incentive-based compensation
payable to the Executive and to all other executive officers of Company on the
basis of Company’s financial performance;
          (f) requirement imposed by Company that Executive relocate to an
office that is more than fifty (50) miles distant from the office at which he is
employed or the borne at which he resides immediately prior to the Change in
Control.
     5. CAUSE DEFINED.
     For purposes of this Agreement, the term “Cause” shall mean discharge
resulting from a determination by the Company that you have: (i) been convicted
of a criminal offense involving dishonesty, fraud, theft, embezzlement, breach
of trust or moral turpitude; (ii) performed an act or failed to act which, if
you were prosecuted and convicted, would constitute a crime or offense involving
money or property of the Company; or (iii) willfully refused to perform the
duties reasonably assigned to you and consistent with your status as Executive
Officer of the Company.
     6. CEILING ON BENEFITS.
     The Code places significant tax burdens on you and the Company if the total
payments made to you due to a Change in Control exceed prescribed limits. For
example, if your limit is $749,999 (because your “Base Period Income” (as
defined below) is $250,000) and the “Total Payments” (as defined below) exceed
the limit by even $1.00, you are subject to an excise tax under Section 4999 of
the Code of 20% of all amounts paid to you in excess of $250,000. If

 

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your limit is $749,999, you will not be subject to an excise tax if you receive
exactly $749,999. If you receive $750,000, you will be subject to an excise tax
of $100,000 (20% of $500,000).
     In order to avoid this excise tax and the related adverse tax consequences
for the Company, by signing this Agreement, you agree that the present value of
your Total Payments will not exceed an amount equal to 2.99 times your Base
Period Income. This is the maximum amount which you may receive without becoming
subject to the excise tax imposed by Section 4999 of the Code or which the
Company may pay without loss of deduction under Section 280G of the Code.
     “Base Period Income” is an amount equal to your “annualized includible
compensation” for the “base period” as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations adopted thereunder. Generally, your “annualized
includible compensation” is the average of your annual taxable income from the
Company for the “base period,” which is the five calendar years prior to the
year in which the Change in Control occurs (or the number of years worked if
less than five). For example, if a Change in Control occurs in 2009, your base
period compensation would be the average of the compensation includible in your
income for years 2006, 2007, 2008 and because you were first employed in 2005,
your annualized compensation for that partial year. Any compensation includible
in your income for 2009 is disregarded for these purposes. These concepts are
complicated and technical and all of the rules set forth in the applicable
regulations apply for purposes of this Agreement.
     Your “Total Payments” include the sum of the Severance Payment and any
other “payments in the nature of compensation” (as defined in Section 280G of
the Code and the regulations adopted thereunder).
     If WED believes that these rules will result in a reduction of the payments
to which you are entitled under this Agreement, it will so notify you within
60 days following delivery of the “Notice of Termination” described in
Section 7. You and WED will then, at WED’s expense, retain legal counsel,
certified public accountants, and/or a firm of recognized executive compensation
consultants to provide an opinion or opinions concerning whether your Total
Payments exceed the limit discussed above.
     WED will select the legal counsel, certified public accountants and
executive compensation consultants. If you do not accept one or more of the
parties selected by WED you may provide WED with the names of legal counsel,
certified public accountants and/or executive compensation consultants
acceptable to you. If WED does not accept the party or parties selected by you,
the legal counsel, certified public accountants and/or executive compensation
consultants selected by you and WED, respectively, will select the legal
counsel, certified public accountants and/or executive compensation consultants
to provide the opinions required.

 

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     At a minimum, the opinions required by this Section 6 must set forth
(a) the amount of your Base Period Income, (b) the present value of the Total
Payments and (c) the amount and present value of any excess parachute payments.
     If the opinions state that there would be an excess parachute payment, your
payments under this Agreement will be reduced to the extent necessary to
eliminate the excess.
     You will be allowed to choose which payment should be reduced or
eliminated, but the payment you choose to reduce or eliminate must be a payment
determined by such legal counsel, certified public accountants, and/or executive
compensation consultants to be includible in Total Payments. You will make your
decision in writing and deliver it to WED within 30 days of your receipt of such
opinions. If you fail to so notify WED, it will decide which payments to reduce
or eliminate.
     If the legal counsel, certified public accountants, and/or executive
compensation consultants selected to provide the opinions referred to above so
requests in connection with the opinion required by this Section 6, a firm of
recognized executive compensation consultants, selected by you and WED pursuant
to the procedures set forth above, shall provide an opinion, upon which such
legal counsel, certified public accountants, and/or executive compensation
consultants may rely, as to the reasonableness of any item of compensation as
reasonable compensation for services rendered before or after the Change in
Control.
     If WED believes that your Total Payments will exceed the limitations of
this Section 6, it will nonetheless make payments to you, at the times stated
above, in the maximum amount that it believes may be paid without exceeding such
limitations. The balance, if any, will then be paid after the opinions called
for above have been received.
     If the amount paid to you by WED is ultimately determined, pursuant to the
opinion referred to above or by the Internal Revenue Service, to have exceeded
the limitation of this Section 6, the excess will be treated as a loan to you by
WED and shall be repayable on the 90th day following demand by WED, together
with interest at the “applicable federal rate” provided in Section 1274(d) of
the Code.
     In the event that the provisions of Sections 280G and 4999 of the Code are
repealed without succession, this Section 6 shall be of no further force or
effect.
     7. SUCCESSORS.
     WED will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of WED to assume, whether expressly or by operation of law, this
Agreement in the same manner and to the same extent that the Company would be
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place. As used in this agreement “Company” shall mean Company, as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law or otherwise.
8. BINDING AGREEMENT.
     This Agreement shall inure to the benefit of and be enforceable by you and
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder had you continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
     9. NOTICE.
     For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to WED shall be directed to the attention of the Chief
Executive Officer of WED with a copy to the General Counsel of WED, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
     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 you
and a senior executive officer of the Company or a member of the Executive
Compensation Committee of the Board of Directors of WED. No waiver by either
party hereto at any time of any breach by the 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 either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arizona without regard to its conflicts of law principles. All references to
sections of the Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law.

 

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     11. VALIDITY.
     The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
     12. COUNTERPARTS.
     This Agreement may be executed in several counterparts, each of which shall
he deemed to be an original but all of which together will constitute one and
the same instrument.
     13. ALTERNATIVE DISPUTE RESOLUTION.
     All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 6 and 7(d)), be resolved by the arbitration provisions set forth below.
     Any dispute, controversy, or claim, whether contractual or non-contractual,
between WED and you arising directly or indirectly out of or connected with this
Agreement, relating to the breach or alleged breach of any representation,
warranty, agreement, or covenant under this Agreement, unless mutually settled
by the parties hereto, shall be resolved by binding arbitration in accordance
with the Employment Arbitration Rules of the American Arbitration Association
(the “AAA”). Any arbitration shall be conducted by arbitrators approved by the
AAA and mutually acceptable to WED and you. All such disputes, controversies, or
claims shall be conducted by a single arbitrator, unless the dispute involves
more than $100,000 in the aggregate in which case the arbitration shall be
conducted by a panel of three arbitrators. If the parties hereto are unable to
agree on the arbitrator(s), then the AAA shall select the arbitrator(s). The
resolution of the dispute by the arbitrator(s) shall be final, binding,
nonappealable, and fully enforceable by a court of competent jurisdiction under
the Federal Arbitration Act. The arbitrator(s) shall award damages to the
prevailing party. The arbitration award shall be in writing and shall include a
statement of the reasons for the award. The arbitration shall be held in the
Phoenix metropolitan area. The arbitrator(s) shall award reasonable attorneys’
fees and costs to the prevailing party.
     14. EXPENSES AND INTEREST.
     If a good faith dispute shall arise with respect to the enforcement of your
rights under this Agreement or if any arbitration or legal proceeding shall be
brought in good faith to enforce or interpret any provision contained herein, or
to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys’ fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest

 

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announced by Guaranty Bank from time to time as its prime rate from the date
that payments to you should have been made under this Agreement.
     15. PAYMENT OBLIGATIONS ABSOLUTE.
     WED’s obligation to pay you the compensation and to make the arrangements
in accordance with the provisions herein shall be absolute and unconditional and
shall not be affected by any circumstances; provided, however, that the Company
may apply amounts payable under this Agreement to any debts owed to the Company
by you on your Termination Date. All amounts payable by WED in accordance with
this Agreement shall be paid without notice or demand. If WED has paid you more
than the amount to which you are entitled under this Agreement, the Company
shall have the right to recover all or any part of such overpayment from you or
from whomsoever has received such amount.
     16. ENTIRE AGREEMENT.
     This Agreement sets forth the entire agreement between you and WED
concerning the subject matter discussed in this Agreement and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations, or warranties, whether written or oral, by any officer,
employee or representative of the Company. Any prior agreements or
understandings with respect to the subject matter set forth in this Agreement
are hereby terminated and canceled.
     17. PARTIES.
     This Agreement is an agreement between you and WED. In certain cases,
though, obligations imposed upon WED may be satisfied by a subsidiary of WED.
Any payment made or action taken by a subsidiary of WED shall be considered to
be a payment made or action taken by WED for purposes of determining whether WED
has satisfied its obligations under this Agreement.
     18. SECTION 409A.
     The Company believes that the benefits provided pursuant to this Section 2
of this Agreement comply with the short-term deferral exception to the
requirements of Section 409A of the Internal Revenue Code (the “Code”) as
described in Prop. Treas. Reg. § 1.409A-1(b)(4). Under no circumstances may the
time or schedule of any payment made or benefit provided pursuant to this
Agreement be accelerated or subject to a further deferral except as otherwise
permitted or required pursuant to regulations and other guidance issued pursuant
to Section 409A of the Code. You do not have any right to make any election
regarding the time or form of any payment due under the terms of this Agreement.
If the Company concludes at a later date, in the exercise of its discretion,
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requirements of Section 409A is available, the terms of this Agreement shall be
performed in compliance with Section 409A and each provision of this Agreement
shall be interpreted, to the extent possible, to comply with Section 409A.
     If you would like to participate in this special benefits program, please
sign and return the extra copy of this letter which is enclosed.

              Sincerely,
 
            WHITE ELECTRONIC DESIGN
 
       
 
  By:   /s/ Hamid R. Shokrgozar
 
       
 
  Name:   Hamid R. Shokrgozar
 
  Title:   Chairman & CEO

ACCEPTANCE and ACKNOWLEDGEMENT
     I hereby accept the offer to participate in this special benefits program
and I agree to be bound by all of the provisions noted above.
/s/ Dan Tarantine

 
14, Dec.06