HI/FN, INC. ALBERT E. SISTO EMPLOYMENT AGREEMENT
HI/FN,
INC.
▇▇▇▇▇▇
▇. ▇▇▇▇▇ EMPLOYMENT AGREEMENT
This
Employment Agreement (the “Agreement”) is entered into as of February 6, 2007,
by and between Hi/fn, Inc. (the “Company”) and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (“Executive”) and
amends and restates the employment agreement entered into as of November 9,
2006
by the Company and Executive (the “Interim Employment Agreement”).
1. Duties
and Scope of Employment.
(a) Positions
and Duties.
Effective as of November 10, 2006, Executive has served as the Company’s Interim
Chief Executive Officer. As of February 6, 2007, Executive will serve as the
Company’s Chief Executive Officer (the “Effective Date”). Executive will report
to the Company’s Board of Directors (the “Board”) and will continue in his role
as Chairman of the Board. As of the Effective Date, Executive will render such
business and professional services in the performance of his duties, consistent
with Executive’s position within the Company, as will reasonably be assigned to
him by the Board. The period Executive is employed by the Company under this
Agreement is referred to herein as the “Employment Term.”
(b) Board
Membership.
Executive was appointed to serve as a member of the Board prior to the Effective
Date and was appointed Chairman of the Board effective as of November 10,
2006. During the Employment Term, at each annual meeting of the Company’s
stockholders at which Executive’s term as a member of the Board has otherwise
expired, the Company will nominate Executive to serve as a member of the Board.
Executive’s service as a member of the Board will be subject to any required
stockholder approval. Upon the termination of Executive’s employment for any
reason, unless otherwise requested by the Board, Executive will be deemed to
have resigned from all positions held at the Company and its affiliates,
including that of Chairman of the Board, voluntarily, without any further
required action by Executive, as of the end of Executive’s employment and
Executive, at the Board’s request, will execute any documents necessary to
reflect his resignation.
(c) Obligations.
During
the Employment Term, Executive will devote Executive’s full business efforts and
time to the Company and will use good faith efforts to discharge Executive’s
obligations under this Agreement to the best of Executive’s ability and in
accordance with each of the Company’s corporate guidance and ethics guidelines,
conflict of interests policies and code of conduct. For the duration of the
Employment Term, Executive agrees not to actively engage in any other
employment, occupation, or consulting activity for any direct or indirect
remuneration without the prior approval of the Board (which approval will not
be
unreasonably withheld); provided, however, that Executive may, without the
approval of the Board, serve in any capacity with any civic, educational, or
charitable organization, provided such services do not interfere with
Executive’s obligations to Company. Executive expects to serve as a member of
the Board of Directors of Digital Signal Corporation, Tulip Ego Lifestyle,
and
Validity Sensors, Inc. and such service will not constitute a violation of
this
Section 1(c).
Executive
hereby represents and warrants to the Company that Executive is not party to
any
contract, understanding, agreement or policy, written or otherwise, that would
be breached by
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Executive’s
entering into, or performing services under, this Agreement. Executive further
represents that he has disclosed to the Company in writing all threatened,
pending, or actual claims that are unresolved and still outstanding as of the
Effective Date, in each case, against Executive of which he is aware, if any,
as
a result of his employment with his current employer (or any other previous
employer) or his membership on any boards of directors.
(d) Other
Entities.
Executive agrees to serve and will be appointed, without additional
compensation, as an officer and director for each of the Company’s subsidiaries,
partnerships, joint ventures, limited liability companies and other affiliates,
including entities in which the Company has a significant investment as
determined by the Company. As used in this Agreement, the term “affiliates” will
include any entity controlled by, controlling, or under common control of the
Company.
2. At-Will
Employment.
Executive and the Company agree that Executive’s employment with the Company
constitutes “at-will” employment. Executive and the Company acknowledge that
this employment relationship may be terminated at any time, upon written notice
to the other party, with or without good cause or for any or no cause, at the
option either of the Company or Executive.
3. Compensation.
(a) Base
Salary.
As of
the Effective Date, the Company will pay Executive an annual salary of $350,000
as compensation for his services (such annual salary, as is then effective,
to
be referred to herein as “Base Salary”). The Base Salary will be paid
periodically in accordance with the Company’s normal payroll practices and be
subject to the usual, required withholdings.
(b) Annual
Incentive.
Executive will be eligible to receive annual cash incentives payable for the
achievement of performance goals established by the Board or by the Compensation
Committee of the Board (the “Committee”). During the Employment Term,
Executive’s
target annual incentive (“Target Annual Incentive”) will equal 75% of
Executive’s Base Salary. The actual earned annual cash incentive, if any,
payable to Executive for any performance period will depend upon the extent
to
which the applicable performance goal(s) specified by the Committee are achieved
or exceeded and will be adjusted for under- or over-performance as determined
by
the Committee in its sole discretion.
(c) Performance
Shares.
(i) Performance
Share Grant.
Following the Effective Date, the Committee will grant Executive
an award performance shares
covering a maximum of 150,000 shares of the Company’s common stock (the
“Performance Share Grant”) under and subject to the terms, definitions and
provisions of the Company’s Amended and Restated 1996 Equity Incentive Plan (the
“Plan”). The number of performance shares actually earned by Executive pursuant
to the Performance Share Grant will be determined based on achievement of
certain specified Company objectives as described herein and may be subject
to
further vesting requirements as set forth in clause (iii). Each
performance share subject to the Performance Share Grant represents the right
to
receive one share of the Company’s common stock. No shares of Company common
stock will be issued to Executive pursuant to the Performance Share Grant until
the number of performance shares
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*
Omitted
and filed separately with the SEC pursuant to a confidential treatment
request
actually
earned, as
determined by the Committee in its sole discretion, have otherwise vested.
Subject to the provisions of Section 7 of this Agreement, upon Executive ceasing
to provide services to the Company for any reason, Executive will no longer
be
able earn any additional performance shares pursuant to the Performance Share
Grant and will have no right to receive any shares of Company common stock
with
respect to the unearned portion of the Performance Share Grant on the date
of
such termination.
(ii) Revenue
and Net Income.
Subject
to the vesting requirements set forth in clause (iii), Executive will be able
to
earn the number of performance shares based on achievement of performance goals
as follows:
|
Threshold
|
Revenue
|
Number
of Performance Shares
|
|
0
|
||
|
Minimum
|
[*]
|
30,000
|
|
Target
|
[*]
|
37,500
|
|
Maximum
|
[*]
|
75,000
|
|
Threshold
|
GAAP
Net Income
|
Number
of Performance Shares
|
|
0
|
||
|
Minimum
|
[*]
|
30,000
|
|
Target
|
[*]
|
37,500
|
|
Maximum
|
[*]
|
75,000
|
For
purposes of the foregoing tables, the revenue targets will be based on the
Company’s revenues for fiscal year 2007 and the net income targets will be based
on the Company’s net income for the fourth quarter for fiscal year 2007, each as
measured by GAAP financials as reported by the Company to the public. The number
of performance shares to be earned for achievement of revenues and net income
greater than minimum threshold and less than target threshold will be determined
on a linear basis based on the number of performance shares that can be earned
based on achievement of the minimum threshold and target threshold. Similarly,
the number of performance shares to be earned for achievement of revenues and
net income greater than the target threshold and less than maximum threshold
will be determined on a linear basis based on the number of performance shares
that can be earned based on achievement of the target threshold and maximum
threshold. By way of example only, if revenues for fiscal year 2007 are [*]
and net income for the fourth quarter of fiscal year 2007 is [*],
the
number of performance
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*
Omitted
and filed separately with the SEC pursuant to a confidential treatment
request
shares
earned based on revenues would equal 32,250 and the number of performance shares
earned based on net income would equal 34,500.
(iii) Any
performance shares earned pursuant to clause (ii) will vest as to 50% of such
performance shares on the last calendar day of fiscal year 2008 and 50% of
such
performance shares on the last calendar day of fiscal year 2009, subject, in
each case, to Executive’s continued service to the Company through each
applicable vesting date.
(iv) If
a
Change of Control occurs while Executive is employed with the Company prior
to
the last calendar day of fiscal year 2007, then in lieu of earning any
performance shares pursuant to clause (ii), Executive will be able to earn
(and
such performance shares will be vest immediately prior to the consummation
of
such transaction) the number of performance shares based on the value of such
Change of Control as follows:
|
Threshold
|
Deal
Price Per Share
|
Number
of Performance Shares
|
|
0
|
||
|
Minimum
|
[*]
|
60,000
|
|
Base
|
[*]
|
75,000
|
|
Target
|
[*]
|
150,000
|
The
number of performance shares to be earned for achievement of a deal price per
share of common stock greater than minimum threshold and less than base
threshold will be determined on a linear basis based on the number of
performance shares that can be earned based on achievement of the minimum
threshold and base threshold. Similarly, the number of performance shares to
be
earned for achievement of deal price per share of common stock greater than
the
base threshold and less than target threshold will be determined on a linear
basis based on the number of performance shares that can be earned based on
achievement of the base threshold and target threshold. By way of example only,
if the Company should experience a Change of Control while Executive is employed
with the Company prior to the last calendar day of fiscal year 2007 and the
deal
price per share of common stock is [*], then Executive would earn 125,000
performance shares. Any performance shares subject to the Performance Share
Grant not earned pursuant to this clause (iv) will immediately terminate upon
the consummation of the Change of Control and Executive will have no further
right to receive any shares of Company common stock with respect
thereto.
(d) Equity
Awards under Interim Employment Agreement.
The
option to purchase 225,000 shares of Company common stock described in Section
3(c)(i) of the Interim Employment Agreement, as well as the award of 75,000
shares of restricted stock described in Section 3(c)(ii) of the Interim
Employment Agreement, will be subject to accelerated vesting in accordance
with
Section 7(b) and will otherwise continue to be governed by the terms and
conditions of such awards, including, without limitation, the original vesting
schedules for such awards.
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(e) Sign-on
Bonus.
Within
thirty (30) days of the Effective Date, Executive will receive a signing bonus
equal to $50,000.
4. Employee
Benefits.
(a) Generally.
Executive will be eligible to participate in accordance with the terms of all
Company employee benefit plans, policies and arrangements that are applicable
to
other executive officers of the Company, as such plans, policies and
arrangements may exist from time to time.
(b) Vacation.
Executive will be entitled to paid vacation of four (4) weeks per year in
accordance with Company policy for other senior executive officers, with the
timing and duration of specific vacations mutually and reasonably agreed to
by
the parties hereto.
5. Expenses.
The
Company will reimburse Executive for reasonable travel, entertainment and other
expenses incurred by Executive in the furtherance of the performance of
Executive’s duties hereunder, in accordance with the Company’s expense
reimbursement policy as in effect from time to time.
6. Termination
of Employment.
In the
event Executive’s employment with the Company terminates for any reason,
Executive will be entitled to any (a) unpaid Base Salary accrued up to the
effective date of termination; (b) unpaid, but earned and accrued annual
incentive for any completed fiscal year as of his termination of employment;
(c) pay for accrued but unused vacation; (d) benefits or compensation
as provided under the terms of any employee benefit and compensation agreements
or plans applicable to Executive (e) unreimbursed business expenses
required to be reimbursed to Executive; and (f) rights to indemnification
Executive may have under the Company’s Articles of Incorporation, Bylaws, the
Agreement, or separate indemnification agreement, as applicable.
7. Severance.
(a) Termination
Without Cause or Resignation for Good Reason other than in Connection with
a
Change of Control.
If
Executive’s employment is terminated by the Company without Cause or if
Executive resigns for Good Reason, and the termination is not in Connection
with
a Change of Control, then, subject to Executive signing and not revoking a
separation agreement and release of claims in a form acceptable to the Company,
Executive will receive (i) continued payment of his Base Salary for eighteen
(18) months in accordance with the Company’s normal payroll policies, and (ii)
reimbursement for premiums paid for continued health benefits for Executive
(and
any eligible dependents) under the Company’s health plans for eighteen (18)
months, payable when such premiums are due (provided Executive validly elects
to
continue coverage under applicable law).
(b) Termination
Without Cause or Resignation for Good Reason in Connection with a Change of
Control.
If
Executive’s employment is terminated by the Company without Cause or if
Executive resigns for Good Reason, and the termination is in Connection with
a
Change of Control, then, subject to Executive signing and not revoking a
separation agreement and release of claims in a form acceptable to the Company,
Executive will receive: (i) continued payment of his
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Base
Salary for twenty-four (24) months in accordance with the Company’s normal
payroll policies, (ii) full accelerated vesting with respect to Executive’s then
outstanding unvested equity awards, and (iii) reimbursement for premiums paid
for continued health benefits for Executive (and any eligible dependents) under
the Company’s health plans for eighteen (18) months, payable when such premiums
are due (provided Executive validly elects to continue coverage under applicable
law).
8. Definitions.
(a) Cause.
For
purposes of this Agreement, “Cause” means:
(i) A
failure
by Executive to substantially perform Executive’s duties as an employee, other
than a failure resulting from the Executive’s complete or partial incapacity due
to physical or mental illness or impairment;
(ii) A
willful
act by Executive that constitutes misconduct;
(iii) Circumstances
where Executive intentionally or negligently imparts material confidential
information relating to the Company or its business to competitors or to other
third parties other than in the course of carrying out Executive’s
duties;
(iv) A
material violation by Executive of a federal or state law or regulation
applicable to the business of the Company;
(v) A
willful
violation of a material Company employment policy or the Company’s ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ policy;
(vi) Any
act
or omission by Executive constituting dishonesty (other than a good faith
expense account dispute) or fraud, with respect to the Company or any of its
affiliates, or any other misconduct which is injurious to the financial
condition of the Company or any of its affiliates or is injurious to the
business reputation of the Company or any of its affiliates;
(vii) Executive’s
failure to cooperate with the Company in connection with any actions, suits,
claims, disputes or grievances against the Company or any of its officers,
directors, employees, shareholders, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, whether or not such
cooperation would be adverse to Executive’s own interest; or
(viii) Executive’s
conviction or plea of guilty or no contest to a felony.
(b) Change
of Control.
For
purposes of this Agreement, “Change of Control” will mean the occurrence of any
of the following events:
(i)
The
sale,
lease, conveyance or other disposition of all or substantially all of the
Company’s assets to any “person” (as such term is used in Section 13(d) of the
Securities
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Exchange
Act of 1934, as amended (the “Exchange Act”)), entity or group of persons acting
in concert;
(ii)
Any
person or group of persons becoming the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the total voting power represented by the
Company’s then outstanding voting securities;
(iii) A
merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or its controlling entity) at least 50% of the total voting
power represented by the voting securities of the Company or such surviving
entity (or its controlling entity) outstanding immediately after such merger
or
consolidation; or
(iv) A
contest
for the election or removal of members of the Board that results in the removal
from the Board of at least 50% of the incumbent members of the
Board.
(c) Good
Reason.
For
purposes of this Agreement, “Good Reason” means (without Executive’s
consent):
(i) A
material reduction in Executive’s title, authority, status, or responsibilities,
unless Executive is provided with a comparable position (i.e. a position of
equal or greater organizational level, duties, authority, compensation and
status);
(ii) The
reduction of Executive’s aggregate Base Salary and Target Annual Incentive as in
effect immediately prior to such reduction (other than a reduction applicable
to
executives generally); or
(iii) A
relocation of Executive’s principal place of employment by more than fifty (50)
miles.
(d) In
Connection with a Change of Control.
For
purposes of this Agreement, a termination of Executive’s employment with the
Company is “in Connection with a Change of Control” if Executive’s employment is
terminated within twelve (12) months following a Change of Control.
9. Indemnification.
Subject
to applicable law, Executive will be provided indemnification to the maximum
extent permitted by the Company’s Articles of Incorporation or Bylaws,
including, if applicable, any directors and officers insurance policies, with
such indemnification to be on terms determined by the Board or any of its
committees, but on terms no less favorable than provided to any other Company
executive officer or director and subject to the terms of any separate written
indemnification agreement.
10. Confidential
Information.
As a
condition of employment with the Company, Executive will execute the Company’s
standard form of Proprietary Information
and Inventions Agreement
(the
“Confidential Information Agreement”).
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11. Assignment.
This
Agreement will be binding upon and inure to the benefit of (a) the heirs,
executors and legal representatives of Executive upon Executive’s death, and
(b) any successor of the Company. Any such successor of the Company will be
deemed substituted for the Company under the terms of this Agreement for all
purposes. For this purpose, “successor” means any person, firm, corporation, or
other business entity which at any time, whether by purchase, merger, or
otherwise, directly or indirectly acquires all or substantially all of the
assets or business of the Company. None of the rights of Executive to receive
any form of compensation payable pursuant to this Agreement may be assigned
or
transferred except by will or the laws of descent and distribution. Any other
attempted assignment, transfer, conveyance, or other disposition of Executive’s
right to compensation or other benefits will be null and void.
12. Notices.
All
notices, requests, demands and other communications called for hereunder will
be
in writing and will be deemed given (a) on the date of delivery if
delivered personally; (b) one (1) day after being sent overnight by a
well-established commercial overnight service, or (c) four (4) days after
being mailed by registered or certified mail, return receipt requested, prepaid
and addressed to the parties or their successors at the following addresses,
or
at such other addresses as the parties may later designate in
writing:
If
to the
Company:
Attn:
Chairman of the Compensation Committee
c/o
Corporate Secretary
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If
to
Executive:
at
the
last residential address known by the Company.
13. Severability.
If any
provision hereof becomes or is declared by a court of competent jurisdiction
to
be illegal, unenforceable, or void, this Agreement will continue in full force
and effect without said provision.
14. Arbitration.
The
Parties agree that any and all disputes arising out of the terms of this
Agreement, their interpretation, and any of the matters herein released, will
be
subject to arbitration in Santa ▇▇▇▇▇ County before JAMS, pursuant to its
Employment Arbitration Rules & Procedures (“JAMS Rules”). The Arbitrator
will administer and conduct any arbitration in accordance with California law,
including the California Code of Civil Procedure, and the Arbitrator will apply
substantive and procedural California law to any dispute or claim, without
reference to any conflict-of-law provisions of any jurisdiction. To the extent
that the JAMS rules conflict with California law, California law will take
precedence. The Arbitrator may grant injunctions and other relief in such
disputes. The decision of the Arbitrator will be final, conclusive, and binding
on the parties to the arbitration. The Parties agree that the prevailing party
in any arbitration will be entitled to injunctive relief in any court of
competent jurisdiction to enforce the arbitration award. The
Arbitrator will award attorneys’ fees and costs to the prevailing party, except
as prohibited by law. The
Parties hereby agree to waive their right to have any dispute between them
resolved in a court of law by a
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judge
or
jury.
This
paragraph will not prevent either party from seeking injunctive relief (or
any
other provisional remedy) from any court having jurisdiction over the Parties
and the subject matter of their dispute relating to Executive’s obligations
under this Agreement and the Confidential Information Agreement.
15. Integration.
This
Agreement, together with the Confidential Information Agreement and the standard
forms of equity award grant that describe Executive’s outstanding equity awards,
represents the entire agreement and understanding between the parties as to
the
subject matter herein and supersedes all prior or contemporaneous agreements
(including, but not limited to the Interim Employment Agreement) whether written
or oral. No waiver, alteration, or modification of any of the provisions of
this
Agreement will be binding unless in a writing and signed by duly authorized
representatives of the parties hereto. In entering into this Agreement, no
party
has relied on or made any representation, warranty, inducement, promise, or
understanding that is not in this Agreement. To the extent that any provisions
of this Agreement conflict with those of any other agreement to be signed upon
Executive’s hire, the terms in this Agreement will prevail.
16. Waiver
of Breach.
The
waiver of a breach of any term or provision of this Agreement, which must be
in
writing, will not operate as or be construed to be a waiver of any other
previous or subsequent breach of this Agreement.
17. Survival.
The
Confidential Information Agreement will survive the termination of this
Agreement.
18. Headings.
All
captions and Section headings used in this Agreement are for convenient
reference only and do not form a part of this Agreement.
19. Tax
Withholding.
All
payments made pursuant to this Agreement will be subject to withholding of
applicable taxes.
20. Governing
Law.
This
Agreement will be governed by the laws of the state of California without regard
to its conflict of laws provisions.
21. Code
Section 409A.
The
Company and the Executive agree to work together in good faith to consider
amendments to this Agreement necessary or appropriate to avoid imposition of
any
additional tax or income recognition prior to actual payment to Executive under
Internal Revenue Code Section 409A and any temporary or final Treasury
Regulations and Internal Revenue Service guidance thereunder.
22. Acknowledgment.
Executive acknowledges that he has had the opportunity to discuss this matter
with and obtain advice from his private attorney, has had sufficient time to,
and has carefully read and fully understands all the provisions of this
Agreement, and is knowingly and voluntarily entering into this
Agreement.
23. Counterparts.
This
Agreement may be executed in counterparts, and each counterpart will have the
same force and effect as an original and will constitute an effective, binding
agreement on the part of each of the undersigned.
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IN
WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of
the Company by a duly authorized officer, as of the day and year written
below.
|
COMPANY:
|
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|
HI/FN,
INC.
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|
|
Date:
February 6, 2007
|
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|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
Vice
President of Finance, Chief Financial Officer
and
Secretary
|
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|
EXECUTIVE:
|
||
|
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Date:
February 6, 2007
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▇▇▇▇▇▇
▇. ▇▇▇▇▇
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[SIGNATURE
PAGE TO ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ EMPLOYMENT AGREEMENT]
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