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EXHIBIT 10.50
FORM OF CHANGE IN CONTROL AGREEMENT
WITH EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
[Date]
[Person's Name and Address]
Dear [name]:
We are pleased to inform you that the Company's Board of Directors has approved
a special severance benefit program for you. The purpose of this letter
agreement is to set forth the terms and conditions of your severance benefits
and to explain the limitations that will govern their overall value.
Your severance package will become payable should the Company
terminate your employment, or should you otherwise resign from the Company,
under certain circumstances following a substantial change in ownership or
control of the Company. To understand the full scope of your benefits, you
should familiarize yourself with the definitional provisions of Part One of this
letter agreement. The benefits comprising your severance package are detailed in
Part Two, and the dollar limitations on the overall value of your benefit
package and other applicable restrictions are specified in Parts Three and Four.
Part Five deals with ancillary matters affecting your severance arrangement.
PART ONE--DEFINITIONS
For purposes of this letter agreement, the following definitions will be in
effect:
AVERAGE COMPENSATION means the average of your W-2 wages from the
Company for the five (5) calendar years (or such fewer number of calendar years
of employment with the Company) completed immediately prior to the calendar year
in which the Change in Control is effected. Any W-2 wages for a partial year of
employment will be annualized, in accordance with the frequency which such wages
are paid during such partial year, before inclusion in your Average
Compensation.
BASE SALARY means the monthly rate of base salary in effect for
you immediately prior to the Change in Control or (if greater) the monthly rate
of base salary in effect at the time of your Involuntary Termination or
Voluntary Resignation (as applicable).
BOARD means the Company's Board of Directors.
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CHANGE IN CONTROL means a change in the ownership or control of
the Company effected through any of the following transactions:
(i) a merger or consolidation approved by the Company's
stockholders in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately
prior to such transaction;
(ii) any stockholder-approved sale, transfer or other
disposition of all or substantially all of the Company's assets
in complete liquidation or dissolution of the Company;
(iii) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by or
is under common control with, the Company) of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders; or
(iv) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election
or nomination.
CODE means the Internal Revenue Code of 1986, as amended.
COMMON STOCK means the Company's common stock.
COMPANY means PairGain Technologies, Inc., a Delaware
corporation, or any successor corporation, whether or not resulting from a
Change in Control.
DISABILITY means your inability to perform the normal and usual
duties of your position with the Company by reason of any physical or medical
impairment which is expected to result in death or continue for a period of
twelve (12) consecutive months or more.
FAIR MARKET VALUE means, with respect to the shares of Common
Stock subject to any of your Options, the closing selling price per share of
Common Stock on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market. If there is no
closing selling price reported for the Common Stock on
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the date in question, then the Fair Market Value will be the closing selling
price on the last preceding date for which such report exists.
INVOLUNTARY TERMINATION means (i) the involuntary termination of
your employment with the Company other than a Termination for Cause or (ii) your
voluntary resignation following (A) a change in your position with the Company
which materially reduces your duties and responsibilities or the level of
management to which you report, (B) a reduction in your level of compensation
(including Base Salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of your principal place of employment by more
than fifty (50) miles, provided and only if such change, reduction or relocation
is effected by the Company without your consent.
An Involuntary Termination will not be deemed to occur in the
event your employment terminates by reason of your death or Disability or a
Termination for Cause.
LIFE INSURANCE COVERAGE means the continued coverage to which you
will be entitled under the Company's group-term and executive life insurance
plans during any Salary Continuation Period in effect for you under this letter
agreement.
OPTION means any option granted to you under the Plan which is
outstanding at the time of the Change in Control or upon your subsequent
Involuntary Termination or Voluntary Resignation (as applicable). Your Options
will be divided into two (2) separate categories as follows:
Acquisition-Accelerated Options: any outstanding Option
(or installment thereof) which automatically accelerates, pursuant to
the acceleration provisions of the agreement evidencing that Option,
upon a Change in Control.
Severance-Accelerated Options: any outstanding Option (or
installment thereof) which, pursuant to Part Two of this letter
agreement, accelerates upon an Involuntary Termination or a Voluntary
Resignation.
OPTION PARACHUTE PAYMENT means, with respect to any
Acquisition-Accelerated Option or any Severance-Accelerated Option, the portion
of that Option deemed to be a parachute payment under Code Section 280G and the
Treasury Regulations issued thereunder. The portion of such Option which is
categorized as an Option Parachute Payment will be calculated in accordance with
the valuation provisions established under Code Section 280G and the applicable
Treasury Regulations and will include an appropriate dollar adjustment to
reflect the lapse of your obligation to remain in the Company's employ as a
condition to the vesting of the accelerated installment. In no event, however,
will the Option Parachute Payment attributable to any Acquisition-Accelerated
Option or Severance-Accelerated Option (or accelerated installment) exceed the
spread (the excess of the Fair Market Value of the accelerated option shares
over the option exercise price payable for those shares) existing at the time of
acceleration.
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OTHER PARACHUTE PAYMENT means any payment in the nature of
compensation (other than the benefits to which you become entitled under Part
Two of this letter agreement) which are made to you in connection with the
Change in Control and which accordingly qualify as parachute payments within the
meaning of Code Section 280G(b)(2) and the Treasury Regulations issued
thereunder. Your Other Parachute Payment will include (without limitation) the
Present Value, measured as of the Change in Control, of the aggregate Option
Parachute Payment attributable to your Acquisition-Accelerated Options (if any).
PARACHUTE PAYMENT means any payment or benefit provided you under
Part Two of this letter agreement (other than the Option Parachute Payment
attributable to your Severance-Accelerated Options) which is deemed to
constitute a parachute payment within the meaning of Code Section 280G(b)(2) and
the Treasury Regulations issued thereunder.
PLAN means (i) the Company's 1993 Stock Option/Stock Issuance
Plan, as amended or restated from time to time, and (ii) any successor stock
incentive plan subsequently implemented by the Company.
PRESENT VALUE means the value, determined as of the date of the
Change in Control, of any payment in the nature of compensation to which you
become entitled in connection with the Change in Control or your subsequent
Involuntary Termination or Voluntary Resignation (as applicable), including
(without limitation) the Option Parachute Payment attributable to your
Severance-Acceleration Options, the additional benefits to which you become
entitled under Part Two of this letter agreement and the Option Parachute
Payment attributable to your Acquisition-Accelerated Options. The Present Value
of each such payment will be determined in accordance with the provisions of
Code Section 280G(d)(4), utilizing a discount rate equal to one hundred twenty
percent (120%) of the applicable Federal rate in effect at the time of such
determination, compounded semi-annually to the effective date of the Change in
Control.
SALARY CONTINUATION PERIOD means the period for which payment of
your Base Salary may, pursuant to Part Two of this letter agreement, be
continued following an Involuntary Termination of your employment or your
Voluntary Resignation within a specified period following a Change in Control.
TERMINATION FOR CAUSE means the Company's termination of your
employment for any of the following reasons: (i) your commission of any act of
fraud, embezzlement or dishonesty, (ii) your unauthorized use or disclosure of
any confidential information or trade secrets of the Company, (iii) any
intentional misconduct by you which has a materially adverse effect upon the
Company's business or reputation or (iv) your continued failure to perform the
major duties, functions and responsibilities of your position after written
notice from the Company identifying the deficiencies in your performance.
PART TWO--CHANGE IN CONTROL BENEFITS
Should your employment with the Company terminate by reason of an
Involuntary Termination within _____ months after a Change in Control, then you
will become
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entitled to receive the severance benefits provided under this Part Two.
However, those benefits will in all events be subject to the benefit limitations
of Part Three and the restrictive covenants of Part Four of this letter
agreement and will be in lieu of all other severance benefits to which you might
otherwise be entitled upon such termination of your employment.
Xxxxxxx X. Xxxxxxx shall, during his period of service as an
officer, employee or Board member of the Company, have the sole and exclusive
authority to resolve any issues relating to whether or not any termination of
your employment within ______ months after a Change in Control qualifies as an
Involuntary Termination for purposes of this letter agreement, and his decision
on such issues shall be final, binding and conclusive upon both you and the
Company.
1. Accelerated Vesting.
Each outstanding Option which you hold at the time of your
Involuntary Termination, to the extent not otherwise exercisable for all the
shares of Common Stock subject to that Option, will immediately become
exercisable for all those option shares and may be exercised for any or all of
those shares as fully vested shares. Each such accelerated Option granted prior
to the date of this letter agreement with an exercise price per share below the
fair market value per share of Common Stock on the execution date of this letter
agreement will remain exercisable until the earlier of (i) the expiration of the
option term or (ii) the end of the three (3)-month period following the date of
your Involuntary Termination, and each such accelerated Option granted prior to
the execution date of this letter agreement with an exercise price per share
higher than the fair market value per share of Common Stock on the execution
date of this letter agreement, together with each such accelerated Option
granted after the date of this letter agreement, will remain exercisable until
the earlier of (x) the expiration of the option term or (y) the end of the
twelve (12)-month period following the date of your Involuntary Termination. Any
Options not exercised prior to the expiration of the applicable post-service
exercise period will lapse and cease to remain exercisable.
2. Severance Payment.
You will be entitled to salary continuation payments at one
hundred ten percent (110%) of your applicable rate of Base Salary for a Salary
Continuation Period of months. These salary continuation payments will be made
to you at bi-monthly intervals in accordance with the Company's normal payroll
practices.
You will immediately vest in any and all unpaid deferred bonuses
credited to you under the Company's management incentive plan for one or more
prior fiscal years, and those deferred bonuses will be paid to you in a lump sum
within thirty (30) days after your Involuntary Termination.
3. Life Insurance Coverage.
You will be entitled to Life Insurance Coverage through your
continued participation in the Company's group term and executive life insurance
plans following your Involuntary Termination, and the Company will pay the
entire premium charged for such
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continued Life Insurance Coverage. Such Company-paid coverage will continue
until the earlier of (i) the expiration of your Salary Continuation Period or
(ii) the first date on which you are covered under another employer's life
insurance plan. However, you will be responsible for the satisfaction of any
income tax liability attributable to your Company-paid Life Insurance Coverage.
Your payments and benefits under Paragraphs 2 and 3 of this Part
Two will immediately terminate in the event you fail to abide by the restrictive
covenants set forth in Part Four of this letter agreement. Your Paragraph 2
payments will be subject to the Company's collection of all applicable federal
and state income and employment withholding taxes.
PART THREE--LIMITATION ON BENEFITS
1. Benefit Limit.
The aggregate Present Value (measured as of the Change in
Control) of the benefits to which you become entitled under Part Two at the time
of your Involuntary Termination, namely, the salary continuation payments, the
Option Parachute Payment attributable to your Severance-Accelerated Options and
your Company-paid Life Insurance Coverage, will in no event exceed in amount the
greater of the following dollar amounts (the "Benefit Limit"):
(a) 2.99 times your Average Compensation, less the Present
Value, measured as of the Change in Control, of all Other Parachute
Payments to which you are entitled, or
(b) the amount which yields you the greatest after-tax
amount of benefits under Part Two of this letter agreement after taking
into account any excise tax imposed under Code Section 4999 on the
payments and benefits which are provided you under Part Two or which
constitute Other Parachute Payments.
The Option Parachute Payment attributable to the accelerated
vesting of your Acquisition-Accelerated Options at the time of the Change in
Control shall also be subject to the Benefit Limitation.
2. Resolution Procedure.
In the event there is any disagreement between you and the
Company as to whether one or more payments to which you become entitled in
connection with either the Change in Control or your subsequent Involuntary
Termination constitute Parachute Payments, Option Parachute Payments or Other
Parachute Payments or as to the determination of the Present Value of any of
those payments, such dispute will be resolved as follows:
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or
applicable judicial decisions) specifically address the status of
any such payment or
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the method of valuation therefor, the characterization afforded
to such payment by the Regulations (or such decisions) will,
together with the applicable valuation methodology, be
controlling.
(ii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the status of any payment in
dispute, the matter will be submitted for resolution to
independent tax counsel mutually acceptable to you and the
Company ("Independent Counsel"). The resolution reached by
Independent Counsel will be final and controlling; provided,
however, that if in the judgment of Independent Counsel the
status of the payment in dispute can be resolved through the
obtainment of a private letter ruling from the Internal Revenue
Service, a formal and proper request for such ruling will be
prepared and submitted by Independent Counsel, and the
determination made by the Internal Revenue Service in the issued
ruling will be controlling. All expenses incurred in connection
with the retention of Independent Counsel and (if applicable) the
preparation and submission of the ruling request will be shared
equally by you and the Company.
(iii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the appropriate valuation
methodology for any payment in dispute, the Present Value thereof
will, at the Independent Counsel's election, be determined
through an independent third-party appraisal, and the expenses
incurred in obtaining such appraisal will be shared equally by
you and the Company.
3. Status of Benefits.
A. No benefits shall be provided you under Part Two of
this letter agreement (including the accelerated vesting of your outstanding
Options, the salary continuation payments and the Company-paid Life Insurance
Coverage) until the Present Value of the Option Parachute Payment attributable
to both your Severance-Accelerated Options and your Acquisition-Accelerated
Options has been determined and the status of any payments in dispute under
Paragraph 5 above has been resolved in accordance therewith. The post-service
exercise period in effect for your Options shall be stayed and shall not run
until the resolution process hereunder is completed.
B. Once the requisite determinations under Paragraph 5
have been made, then to the extent the aggregate Present Value, measured as of
the Change in Control, of (i) the Option Parachute Payment attributable to your
Severance-Accelerated Options (or installments thereof) plus (ii) the Parachute
Payment attributable to your other benefit entitlements under Part Two of this
letter agreement would, when added to the Present Value of all your Other
Parachute Payments (including the Option Parachute Payment attributable to your
Acquisition-Accelerated Options), exceed the Benefit Limit, first your salary
continuation payments will be reduced and then the period of your Company-paid
Life Insurance Coverage will be shortened, to the extent necessary to assure
that such Benefit Limit is not exceeded.
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PART FOUR -- CONSULTING SERVICES AND SPECIAL RESTRICTIVE COVENANTS
1. Consulting Services.
In consideration for the salary continuation payments to which
you become entitled under Part Two, you will make yourself available during the
Salary Continuation Period to render such consulting services to the Company
within your area of expertise as may reasonably be requested by the Company's
Chief Executive Officer, but in no event may more than ten (10) hours of such
services will be required of you per month.
2. Cessation of Benefits.
Your Salary Continuation Period will immediately terminate, and
all salary continuation payments and Company-paid Life Insurance Coverage will
immediately cease, should you:
(a) own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or be employed by or
connected in any manner with, any enterprise which is engaged in any
business competitive with or similar to that of the Company; provided,
however, that such restriction will not apply to any passive investment
representing an interest of less than two percent (2%) of an outstanding
class of publicly-traded securities of any corporation or other
enterprise;
(b) encourage or solicit any of the Company's employees to
leave the Company's employ for any reason or interfere in any other
manner with employment relationships at the time existing between the
Company and its employees; or
(c) induce any of the Company's clients, customers,
suppliers, vendors, distributors, licensors or licensees to terminate
their existing business relationships with the Company or interfere in
any other manner with any existing business relationship between the
Company and any client, customer, supplier, vendor, distributor,
licensor, licensee or other third party.
PART FIVE--MISCELLANEOUS
1. Termination for Cause.
Should your employment cease by reason of a Termination for Cause
or should you voluntarily resign under circumstances which would otherwise
constitute grounds for a Termination for Cause, then the Company will only be
required to pay you (i) any unpaid compensation earned for services previously
rendered through the date of such termination and (ii) any accrued but unpaid
vacation benefits or sick days, and no benefits will be payable to you under
Part Two of this letter agreement.
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2. Deferred Compensation.
Solely for purposes of determining the commencement date for the
payment of any deferred compensation to which you may be entitled under the
Company's Management Deferred Compensation Plan, your employment with the
Company will be deemed to continue for the duration of your Salary Continuation
Period, and no deferred compensation under that Plan will be paid to you during
such Salary Continuation Payment. However, no portion of the salary continuation
payments you receive under Part Two of this letter agreement will be eligible
for deferral under that Plan, and for no other purpose will be you considered an
active employee during your Salary Continuation Period.
3. Death.
Should you die before receipt of one or more salary continuation
payments to which you become entitled under this letter agreement, then those
payments will be made to the executors or administrators of your estate. Should
you die before you exercise all your outstanding Options as accelerated
hereunder, then such Options may be exercised, within twelve (12) months after
your death, by the executors or administrators of your estate or by persons to
whom the Options are transferred pursuant to your will or in accordance with the
laws of inheritance. In no event, however, may any such Option be exercised
after the specified expiration date of the option term.
4. General Creditor Status.
All cash payments to which you become entitled hereunder will be
paid, when due, from the general assets of the Company, and no trust fund,
escrow arrangement or other segregated account will be established as a funding
vehicle for such payment. Accordingly, your right (or the right of the personal
representatives or beneficiaries of your estate) to receive such cash payments
hereunder will at all times be that of a general creditor of the Company and
will have no priority over the claims of other general creditors.
5. Indemnification.
The indemnification provisions for Officers and Directors under
the Company By-Laws will (to the maximum extent permitted by law) be extended to
you, during the period following your Involuntary Termination or Voluntary
Resignation, with respect to any and all matters, events or transactions
occurring or effected during your employment with the Company.
6. Miscellaneous.
This letter agreement will be binding upon the Company, its
successors and assigns (including, without limitation, the surviving entity in
any Change in Control) and is to be construed and interpreted under the laws of
the State of California. This letter agreement supersedes all prior agreements
between you and the Company relating to the subject of severance benefits
payable upon a change in control or ownership of the Company, and you will not
be entitled to any other severance benefits upon such a termination other than
those that are provided in this letter agreement. This letter may only be
amended by written instrument signed
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by you and an authorized officer of the Company. If any provision of this letter
agreement as applied to you or the Company or to any circumstance should be
adjudged by a court of competent jurisdiction to be void or unenforceable for
any reason, the invalidity of that provision will in no way affect (to the
maximum extent permissible by law) the application of such provision under
circumstances different from those adjudicated by the court, the application of
any other provision of this letter agreement, or the enforceability or
invalidity of this letter agreement as a whole. Should any provision of this
letter agreement become or be deemed invalid, illegal or unenforceable in any
jurisdiction by reason of the scope, extent or duration of its coverage, then
such provision will be deemed amended to the extent necessary to conform to
applicable law so as to be valid and enforceable or, if such provision cannot be
so amended without materially altering the intention of the parties, then such
provision will be stricken and the remainder of this letter agreement will
continue in full force and effect.
7. At Will Employment.
Nothing in this letter agreement is intended to provide you with
any right to continue in the employ of the Company (or any subsidiary) for any
period of specific duration or interfere with or otherwise restrict in any way
your rights or the rights of the Company (or any subsidiary), which rights are
hereby expressly reserved by each, to terminate your employment at will or as
otherwise specified in your employment contract.
Please indicate your acceptance of the foregoing by signing the
enclosed copy of this letter and returning it to the Company.
Very truly yours,
PAIRGAIN TECHNOLOGIES, INC.
By:
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Title:
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ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing
letter agreement governing the special benefits to which I may become entitled
upon an involuntary termination of my employment or if I voluntarily resign my
employment under certain prescribed circumstances following a substantial change
in control or ownership of the Company.
Signature:
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Dated:
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