Exhibit 10.23
DIGITAL LINK CORPORATION
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT
Effective December 14, 1998
This Executive Retention and Severance Agreement (the "Agreement") is made and
entered into as of the date written above (the "Effective Date"), by and between
Digital Link Corporation, a California corporation (the "Company")
and
------------------------------- ("Executive")
residing at -------------------------------
-------------------------------
RECITALS
A. Executive is ------------------------------- of the Company and possesses
valuable knowledge of the Company, its business and operations and the markets
in which the Company competes.
B. The Company draws upon the knowledge, experience and objective advice of
Executive in order to manage its business for the benefit of the Company's
stockholders.
C. The Company recognizes that if there occurred a change of control or other
event that could substantially change the nature and structure of the Company,
the resulting uncertainty regarding the consequences of such an event could
adversely affect the Company's ability to attract, retain and motivate its key
employees, including Executive.
D. The Company and Executive desire to enter into this Agreement in order (1) to
encourage Executive to continue to devote Executive's full attention and
dedication to the success of the Company, and (2) to provide specified
compensation and benefits to Executive in the event of a Termination Upon Change
of Control, pursuant to the terms of this Agreement.
THE COMPANY AND EXECUTIVE AGREE AS FOLLOWS:
1. GENERAL
1.1 Purpose. The purpose of this Agreement is to provide specified
compensation and benefits to an Executive in the event of a Termination Upon
Change of Control.
1.2 No employment agreement. This Agreement does not obligate the
Company to continue to employ an Executive for any specific period of time, or
in any specific role or geographic location. Subject to the terms of any
applicable written employment agreement between Company and an Executive,
Company may assign an Executive to other duties, and either an Executive or
Company may terminate an Executive's employment at any time for any reason.
1.3 Defined terms. Capitalized team used in this Agreement shall have
the meanings set forth in Section 4, unless the context clearly requires a
different meaning.
2. TERMINATION UPON CHANGE OF CONTROL
2.1 Basic severance compensation. In the event of an Executive's
Termination Upon Change of Control, an Executive shall be entitled to the basic
severance compensation described below.
2.1.1 All salary and accrued vacation earned through the date
of an Executive's termination shall be paid to Executive.
2.1.2 Within ten (10) days of submission of proper expense
reports by an Executive, the Company shall reimburse an Executive for all
expenses reasonably and necessarily incurred by an Executive in connection with
the business of the Company prior to an Executive's termination of employment.
2.1.3 An Executive shall receive the benefits, if any, under
the Company's 401(k) Plan, nonqualified deferred compensation plan, employee
stock purchase plan and other Company benefit plans to which an Executive may be
entitled pursuant to the terms of such plans.
2.2 Executive cash severance benefits. In the event of an Executive's
Termination Upon Change of Control, an Executive shall be entitled to the
additional executive severance benefits described below.
2.2.1 Prorated bonus payment. An Executive shall receive his
target bonus or incentive payment for the year in which termination occurs, pro
rated through the date of termination and less applicable withholding, paid
within thirty (30) days of termination of employment.
2.2.2 Cash severance payment. Executive shall receive a lump
sum payment in the amount of 100% of an Executive's Target Annual Earnings, less
applicable federal and state withholding, paid within thirty (30) days of
termination of employment.
2.3 Stock option acceleration.
2.3.1 Acceleration following Change of Control. All
unvested outstanding stock options granted and
restricted stock issued by the Company to Executive
prior to the Change of Control will have their
vesting accelerated so as to be __% vested on the
date of Change of Control.
2.3.2 Acceleration upon non-assumption in a Change of
Control. If there is a Change of Control transaction
in which outstanding stock options granted and
restricted stock issued by the Company prior to the
transaction are not fully assumed by the Successor,
or replaced by fully equivalent substitute options
or restricted stock, then (1) all such options and
restricted stock shall have their vesting fully
accelerated to be 100% vested prior to the effective
date of the Change of Control and (2) the Company
shall provide reasonable prior written notice to an
Executive of (a) the date such unexercised options
will terminate and (b) the period during which an
Executive may exercise the fully vested options.
Alternatively, the Company may elect to deliver to
an Executive on the effective date of the Change of
Control a cash payment equal to the difference
between (i) the aggregate exercise price of an
Executive's unexercised options or restricted stock,
whether vested or unvested, and (ii) the value of
the consideration deliverable for an equivalent
number of shares as a result of the Change of
Control transaction.
2.4 Extended medical and dental benefits.
2.4.1 Benefit continuation for twelve months. An Executive
shall receive continued provision of the Company's standard employee medical and
welfare benefit coverages, as elected by an Executive and in effect immediately
prior to the Change of Control, for twelve (12) months following the date of
termination.
2.4.2 Continued medical coverage for U.S. residents.
Thereafter, if an Executive resides in the United States, an Executive shall be
entitled to elect continued medical and dental insurance coverage in accordance
with the applicable provisions of U.S. federal law (COBRA). If such coverage
included an Executive's dependents immediately prior to the date of termination,
such dependents also shall be covered at Company expense during the extension
period. For purposes of title X of the Consolidated Budget Reconciliation Act of
1985 ("COBRA"), the date of the "qualifying event" for an Executive and his
dependents shall be the date upon which the Company-paid coverage terminates.
2.4.3 Termination upon coverage under another Plan.
Notwithstanding the preceding provisions of this Section 2.4, in the event an
Executive becomes covered as a primary insured (that is, not as a beneficiary
under a spouse's or partner's plan) under another employer's group health plan
during the period provided for herein, an Executive promptly shall inform the
Company and the Company shall cease provision of continued group health
insurance for an Executive and any dependents.
3. FEDERAL EXCISE TAX UNDER IRC SECTION 280G
3.1 Adjustment of excess payments payable to an Executive. If (1) any
amounts payable to an Executive under this Agreement are characterized as excess
parachute payments pursuant to Section 4999 of the Internal Revenue Code, and
(2) an Executive thereby would be subject to any United States federal excise
tax due to that characterization, then (3) an Executive may elect, in
Executive's sole discretion, to reduce the amounts payable under this Plan or to
have any portion of applicable options or restricted stock not vest in order to
avoid any "excess parachute payment" under Section 280G(b)(1) of the Internal
Revenue Code of 1986.
3.2 Determination by independent public accountants. Unless the Company
and an Executive otherwise agree in writing, any determination required under
this Section 3 shall be made in writing by independent public accountants agreed
to by the Company and an Executive (the "Accountants"), whose determination
shall be conclusive and binding upon an Executive and the Company for all
purposes. For purposes of making the calculations required by this Section 3,
the Accountants may rely on reasonable, good faith interpretations concerning
the application of Sections 280G and 4999 of the Code. The Company and an
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make the required determinations.
The Company shall bear all fees and expenses the Accountants may reasonably
charge in connection with the services contemplated by this Section 3.
4. DEFINITIONS
4.1 Capitalized terms defined. Capitalized terms used in this Agreement
shall have the meanings set forth in this Section 4, unless the context clearly
requires a different meaning.
4.2 "Cause" means:
(a) theft; a material act of dishonesty or fraud; intentional
falsification of any employment or Company records; or the commission of any
criminal act which impairs an Executive's ability to perform appropriate
employment duties under this Agreement;
(b) improper disclosure or use of the Company's confidential,
business or proprietary information by an Executive;
(c) an Executive's conviction (including any plea of guilty or
nolo contendere) for a crime involving moral turpitude causing material harm to
the reputation and standing of the Company, as determined by the Company in good
faith; or
(d) gross negligence or willful misconduct in the performance
of an Executive's assigned duties (but not mere unsatisfactory performance).
4.3 "Change of Control" means:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchanged Act")),
other than a current employee in service on the Effective Date or a trustee or
other fiduciary holding securities of the Company under the employee benefit
plan of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing more than 50% of (A) the outstanding shares of common
stock of the Company or (B) the combined voting power of the Company's
then-outstanding securities;
(b) the Company is party to a merger or consolidation which
results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation;
(c) the sale or disposition of all or substantially all of the
Company's assets (or consummation of any transaction having similar effect);
(d) there occurs a change in the composition of the Board of
Directors of the Company within a six month period, as a result of which fewer
than a majority of the directors are Incumbent Directors; or
(e) the dissolution of liquidation of the Company.
4.4 "Company" shall mean Digital Link Corporation and, following a
Change of Control, any Successor that agrees to assume, or otherwise becomes
bound to by operation of law, all the terms and provisions of this Agreement.
4.5 "Effective Date" means (1) December 14, 1998 or (2) such later
date as an Executive first became an officer of the Company.
4.6 "Executive" shall mean each person elected to the Board of
Directors to serve as an officer of the Company, and such additional individuals
as may be designated thereafter by the Board of Directors.
4.7 "Good Reason" means the occurrence of any of the following
conditions following a Change of Control, without an Executive's informed
written consent, which condition(s) remain(s) in effect ten (10) days after
written notice to the Company from an Executive of such condition(s):
(a) a material decrease in an Executive's base salary or
target bonus amounts;
(b) the relocation of an Executive's work place for the
Company to a location more than 50 miles from the location of the work place
prior to the Change of Control;
(c) assignment to responsibilities or duties that are not a
Substantive Functional Equivalent (as defined in this Agreement or in an
Agreement) of the position which an Executive occupied prior to the Change of
Control; or
(d) any material breach of an Agreement by the Company.
4.8 "Incumbent Director" shall mean a director who either (1) is a
director of the Company as of the Effective Date of this Agreement, or (2) is
elected, or nominated for election, to the Board of Directors of the Company
with the affirmative votes of at least a majority of the Incumbent Directors at
the time of such election or nomination, but (3) was not elected or nominated in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company.
4.9 "Permanent Disability" means that:
(a) an Executive has been incapacitated by bodily injury,
illness or disease so as to be prevented thereby from engaging in the
performance of an Executive's duties;
(b) such total incapacity shall have continued for a period of
six consecutive months; and
(c) such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of the Executive's
life.
4.10 "Substantive Functional Equivalent" means an employment position
occupied after a Change of Control that:
(a) is in a substantive area of competence (such as,
accounting; engineering management; executive management; finance; human
resources; marketing, sales and service; operations and manufacturing; etc.)
that is consistent with an Executive's experience and not materially different
from the position occupied prior to the Change of Control;
(b) requires an Executive to serve in a role and perform
duties that are functionally equivalent to those performed prior to the Change
of Control;
(c) does not otherwise constitute a material, adverse change
in an Executive's responsibilities or duties, as measured against an Executive's
responsibilities or duties prior to the Change of Control, causing it to be of
materially lesser rank or responsibility;
(d) if prior to the Change of Control an Executive was
identified as an officer of the Company for purposes of the rules promulgated
under Section 16 of the Securities Exchange Act of 1934, identifies an Executive
as a Section 16 officer of a publicly traded Successor having net assets and
annual revenues no less than those of the Company prior to the Change of
Control; and
(e) if prior to the Change of Control an Executive was
identified as an officer of the Company, for purposes of the rules promulgated
under Section 16 of the Securities Exchange Act of 1934, requires an Executive
to report directly to an executive officer, committee or board of the Successor
that is no less senior than an Executive officer, committee or board, as the
case may be, to whom an Executive reported at the Company prior to the Change of
Control.
4.12 "Successor" means the Company as defined above and any successor
or assign to substantially all of its business and/or assets.
4.13 "Target Annual Earnings" means the sum of annual base salary plus
100% of annual bonus or incentive pay. If different sums would result from
calculations as of (a) the date thirty (30) days prior to the date that the
Company publicly announces it is conducting negotiations leading to a Change of
Control, (b) the date on which a Change of Control occurs or (c) the date of an
Executive's Termination Upon Change of Control, then Target Annual Earnings
shall be determined by the calculation as of the specified date that yields the
highest value.
4.14 "Termination Upon Change of Control" means:
(a) any termination of the employment of an Executive by the
Company without Cause during the period commencing thirty (30) days prior to the
earlier of (1) the date that the Company first publicly announces it is
conducting negotiations leading to a Change of Control, or (2) the date that the
Company enters into a definitive agreement that would result in a Change of
Control (even though still subject to approval by the Company's stockholders and
other conditions and contingencies); and ending on the date which is six (6)
months after the Change of Control; or
(b) any resignation by an Executive for Good Reason within six
(6) months after the occurrence of any Change of Control; but
"Termination Upon Change of Control" shall not include any termination of the
employment of an Executive (1) by the Company for Cause; (2) by the Company as a
result of the Permanent Disability of an Executive; (3) as a result of the death
of an Executive; or (4) as a result of the voluntary termination of employment
by an Executive for reasons other than Good Reason.
5. EXCLUSIVE REMEDY
5.1 Sole remedy for Termination Upon Change of Control. The payments
and benefits provided in Section 2 shall constitute an Executive's sole and
exclusive remedy for any alleged injury or other damages arising out of the
cessation of the employment relationship between an Executive and the Company in
the event of an Executive's Termination Upon Change of Control.
5.2 No other benefits payable. An Executive shall be entitled to no
other compensation, benefits, or other payments from the Company as a result of
any termination of employment with respect to which the payments and/or benefits
described in Sections 2 and 3 have been provided to an Executive, except as
expressly set forth in this Agreement or, subject to the provisions of Sections
10 and 13, in a duly executed employment agreement between Company and an
Executive.
5.3 Release of claims. The Company may condition payment of the cash
severance benefits described in Section 2.2 of this Agreement and the stock
option acceleration described in Section 2.3 upon the delivery by an Executive
of a signed release of claims in a form reasonably satisfactory to the Company;
provided, however, that an Executive shall not be required to release any rights
an Executive may have to be indemnified by the Company.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION
An Executive agrees to continue to abide by the terms and conditions of the
Company's confidential and/or proprietary rights agreement between an Executive
and the Company.
7. NON-SOLICITATION
7.1 Agreement not to solicit. If Company performs its obligations to
deliver the severance benefits set forth in Section 2 of this Agreement, then
for a period of one (1) year after an Executive's Termination Upon Change of
Control, an Executive will not, directly or indirectly, solicit the services or
business of or in any other manner persuade any employee, distributor, vendor,
representative or customer of the Company to discontinue that person's or
entity's relationship with or to the Company.
7.2 Other agreements not superseded. This provision shall not supersede
or limit the terms, including more restrictive terms, of any other agreement by
an Executive to refrain from competition with or from soliciting the employees
or customers of Company.
8. ARBITRATION
8.1 Disputes subject to arbitration. Any claims dispute or controversy
arising out of this Agreement, the interpretation, validity or enforceability of
this Agreement or the alleged breach thereof shall be submitted by the parties
to binding arbitration by the American Arbitration Association; provided,
however, that (1) the arbitrator shall have no authority to make any ruling or
judgment that would confer any rights with respect to the trade secrets,
confidential and proprietary information or other intellectual property of the
Company upon an Executive or any third party; and (2) this arbitration provision
shall not preclude the Company from seeking legal and equitable relief from any
court having jurisdiction with respect to any disputes or claims relating to or
arising out of the misuse or misappropriation of the Company's intellectual
property. Judgment may be entered on the award of the arbitrator in any court
having jurisdiction.
8.2 Site of arbitration. The site of the arbitration proceeding shall
be, at an Executive's election, either (1) Santa Xxxxx County, California or (2)
if an Executive's primary assigned work place prior to the Change of Control was
not in California, a mutually agreed site located within 25 miles of that work
place.
8.3 Cost and expenses borne by Company. All costs and expenses of
arbitration or litigation, including but not limited to reasonable attorneys
fees and other costs reasonably incurred by an Executive, shall be paid by the
Company. Notwithstanding the foregoing, if an Executive initiates the
arbitration or litigation, and the finder of fact finds that an Executive's
claims were totally without merit or frivolous, then an Executive shall be
responsible for his own attorneys' fees.
9. INTERPRETATION
This Agreement shall be interpreted in accordance with and governed by the laws
of the State of California as applied to contracts entered into and entirely to
be performed within that state.
10. CONFLICT IN BENEFITS; NONCUMULATION OF BENEFITS
10.1 Effect of Plan. This Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement and shall be the exclusive agreement for the
determination of any payments and accelerated option vesting due upon an
Executive's Termination Upon Change of Control, except as provided in Sections
10.2, 10.3 and 13.
10.2 No limitation of regular benefit plans. This Agreement is not
intended to and shall not affect, limit or terminate any plans, programs, or
arrangements of the Company that are regularly made available to a significant
number of employees or officers of the Company, including without limitation the
Company's stock option plans.
10.3 Noncumulation of cash benefits. An Executive may not cumulate cash
severance payments and excise tax reimbursement benefits under both this
Agreement and another agreement. If an Executive has any other binding written
agreement with the Company which provides that upon a Change of Control or
termination of employment an Executive shall receive one or more of the benefits
described in Section 2.2 of this Agreement (i.e., the payment of cash
compensation or prorated bonus, post-termination consulting and adjustments or
payments relating to federal excise tax), then with respect to each such benefit
the amount payable under this Agreement shall be reduced by the corresponding
amount paid or payable under such other agreements.
11. SUCCESSORS AND ASSIGNS
11.1 Successors of the Company. The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, expressly, absolutely and unconditionally to assume and agree to
satisfy the terms of 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. Failure of the Company to obtain such agreement
shall be a material breach of this Agreement.
11.2 Acknowledgment by Company. If after a Change of Control the
Company (or any Successor) fails to reasonably confirm that it has performed the
obligation described in Section 11.1 within ten (10) days after written notice
from an Executive, an Executive shall be entitled to terminate his employment
with the Company for Good Reason, and to receive the benefits provided under
this Agreement in the event of Termination Upon Change of Control.
11.3 Heirs and representatives of an Executive. This Agreement shall
inure to the benefit of and be enforceable by an Executive's personal and legal
representatives, executors, administrator, successors, heirs, distributes,
devises and legatees.
12. NO REPRESENTATIONS
Executive acknowledges that in entering into this Agreement, Executive is not
relying and has not relied on any promise, representation or statement made by
or on behalf of the Company which is not set forth in this Agreement.
13. MODIFICATION AND AMENDMENT
This Agreement may be modified, amended or superseded only by a supplemental
written agreement signed with the same, formality as this Agreement by Executive
and by the Company. However, the noncumulation of benefits provision of section
10.3 shall apply to any subsequent agreement, unless (1) such provision is
explicitly disclaimed in the subsequent agreement, and (2) the subsequent
agreement has been authorized by the Company's Board of Directors or a committee
thereof.
14. VALIDITY
14.1 Invalid provisions. If any one or more of the provisions (or any
part thereof) of this Agreement shall be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
14.2 Execution by two Company executive officers or directors. This
Agreement and any modifications or amendments shall require the signatures of
two executive officers or members of the Board of Directors of the Company.
14.3 Certain business combinations. In the event it is determined by
the Company's Board of Directors (the "Board"), upon consultation with the
Company's management and the Company's independent auditors, that the
enforcement of any provision of this agreement would preclude accounting for any
proposed business combination of the Company involving a Change of Control as a
pooling of interests, and the Board otherwise desires to approve such a proposed
business transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any such
provision of this Agreement shall be null and void.
14.4 Consultation with legal and financial advisors. Executive
acknowledges that this Agreement confers significant legal rights, and may also
involve the waiver of rights under other agreements; that Company has encouraged
Executive to consult with Executive's personal legal and financial advisers; and
that Executive has had adequate time to consult with Executive's advisers before
signing this Agreement.
SIGNATURES
The parties have executed this Agreement, intending to be legally bound as of
the Effective Date.
EXECUTIVE
----------------------------------
Executive's signature
Printed name:
-------------
DIGITAL LINK CORPORATION
By: ------------------------------
Printed name: Xxxxxx Xxxxx
Title: President and Chief Executive Officer
By: ------------------------------
Printed name: Xxxxxxx X. Xxxxxxxxxxx
Title: Vice President, Finance and Operations
and Chief Financial Officer
In March 1999, the Company and the Employees listed below signed this
Agreement. In Section 2.3.1 of this Agreement, the percentage included for each
Employee is also listed below.
Executive Accelerated Vesting
Xxxx Xxxxxxxx 50%
Xxxxxx Xxxxx 100%
Xxxx Xxxxxxxxxxx 100%
Xxxxxx Xxxxxxxxx 50%
Xxx Xxxxxx 50%
Xxxxxxx Xxxxxxxxx 50%
Xxxxx Xxxxxx 50%
Xxxx Xxxxxxxx 50%
