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Exhibit 10.19
BAY NETWORKS, INC.
EMPLOYMENT AGREEMENT
This Agreement is made by and between Bay Networks, Inc. (the
"Company"), and Xxxxx Xxxxx ("Executive").
1. Duties and Scope of Employment.
(a) Position: Employment Commencement Date. The Company shall
employ the Executive as the President and Chief Executive Officer of the Company
reporting to the Board of Directors of the Company (the "Board"). Additionally,
Executive shall serve as Chairman of the Board during the period of his
employment hereunder. Executive's employment with the Company and tenure as
Chairman of the Board pursuant to this Agreement shall commence on October 30,
1996 (the "Effective Date").
(b) Obligations. Executive shall devote his full business efforts
and time to the Company. 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, provided, however, that
Executive may serve in any capacity with any civic, educational or charitable
organization without the approval of the Board, so long as such activities do
not interfere with his duties and obligations under this Agreement; provided,
further that (i) Executive may maintain his membership and participation as a
member of the board of directors of Merisel, Inc., and (ii) that for a
reasonable period of time following the Effective Date, on the order of six
months, Executive may devote a reasonable amount of time to assisting his prior
employer.
2. Employee and Fringe Benefits. During his employment hereunder,
Executive shall be eligible to participate in the employee benefit and fringe
benefit plan and programs maintained by the Company for its senior executives at
a level comparable to that of other senior executives of the Company.
3. Compensation and Stock Options.
(a) Base Salary. While employed by the Company pursuant to this
Agreement, the Company shall pay the Executive as compensation for his services
a base salary at the minimum annualized rate of $500,000 (the "Base Salary").
Such salary shall be paid periodically in accordance with normal Company payroll
practices and subject to the usual, required withholding. Executive's salary
shall be reviewed annually for possible raises in light of Executive's
performance of his duties, as determined by the Board.
(b) Bonus. Executive shall receive a bonus on account of the
Company's 1997 fiscal year equal to one million dollars ($1,000,000), payable in
a lump sum (subject to applicable withholding) promptly upon the close of the
fiscal year. Executive's bonus target amount shall be
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reviewed annually for possible increases in light of Executive's performance of
his duties, as determined by the Board.
(c) Stock Options.
(i) Initial Grant. Executive shall be granted a stock option,
which shall be, to the extent possible under the $100,000 rule of Section 422(d)
of the Internal Revenue Code of 1986, as amended (the "Code") an "incentive
stock option" (as defined in Section 422 of the Code) to purchase a total of one
million five hundred thousand (1,500,000) shares of Company Common Stock, with a
per share exercise price equal to $18.375. This option shall be for a term of
eight years and shall vest at the rate of 25% of the shares originally subject
to the option one year from the Effective Date and one-forty-eighth of the
shares originally subject to the option each month thereafter (so as to be 100%
vested four years after the Effective Date), conditioned upon Executive's
continued employment with the Company as of each vesting date. The option shall
be exercisable at any time, including by means of Executive entering into a
fully recourse promissory note covering the aggregate exercise price, subject to
Executive entering into a restricted stock purchase agreement with the Company
with respect to any unvested shares. The shares covered by the stock option
shall be registered on Form S-8 by the Company prior to the date of any vesting.
(ii) Sign-On Grant. On the Effective Date, Executive shall be
granted an additional stock option to purchase a total five hundred thousand
(500,000) shares of Company Common Stock, with a per share exercise price equal
to $18.375. This option shall be for a term of eighteen months, subject to
automatic ongoing extensions which may be multiple, each of ninety (90) days in
duration, upon notice to the Company by Executive that Executive has reasonably
deemed it imprudent to exercise the option or sell shares covered thereby by
virtue of such actions potentially giving rise to liability to litigation. The
option shall vest as to 100% of the shares originally subject to the option one
year from the Effective Date, conditioned upon Executive's continued employment
with the Company as of such vesting date. The option shall be exercisable at any
time, including by means of Executive entering into a fully recourse promissory
note covering the aggregate exercise price, subject to Executive entering into a
restricted stock purchase agreement with the Company with respect to any
unvested shares. The shares covered by the stock option shall be registered on
Form S-8 by the Company prior to the date of any vesting.
4. Expenses. The Company will pay or reimburse Executive for
reasonable travel, entertainment or other expenses incurred by Executive in the
furtherance of or in connection with the performance of Executive's duties
hereunder in accordance with the Company's established policies.
5. Life Insurance. The Company will obtain and pay premiums for,
during the term of Executive's employment hereunder, term life insurance for
Executive in the amount of $1,000,000 payable to the beneficiary designated by
Executive. Executive shall be fully "grossed-up" by the Company for this benefit
so that the economic effect to Executive is the same as if this benefit was
provided to Executive on a non-taxable basis.
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6. Severance Benefits. If Executive's employment with the Company
terminates involuntarily or if Executive terminates his employment with the
Company voluntarily for "Good Reason" (as defined herein), then (i) Executive
shall be entitled to receive a lump-sum severance payment from the Company,
within 30 days of such termination, equal to twelve months' of Executive's Base
Salary as in effect as of the date of such termination, plus 100% of Executives'
target bonus for the year in which the termination occurs, plus a pro-rated
target bonus equal to the bonus target amount for the year in which the
termination occurs amount multiplied by a fraction, the numerator of which is
the number of days from the Effective Date until the date of termination and the
denominator of which is three hundred and sixty-five (all less applicable
withholding), (ii) Executive's outstanding stock options and any stock subject
to restricted stock purchase agreements shall have their vesting accelerated as
to one year's additional vesting as of the date of termination, (iii) to the
extent permitted by law, Executive's accounts under any Company deferred
compensation plans or arrangements shall have their vesting accelerated as to
one year's additional vesting as of the date of termination, including as to any
amounts contributed by the Company, and (iv) the Company shall provide to
Executive one hundred percent (100%) Company-paid health, dental, vision and
life insurance coverage at the same level of coverage as was provided to
Executive immediately prior to the date of termination (the "Company-Paid
Coverage"). If such coverage included the Executive's dependents immediately
prior to the date of termination, such dependents shall also be covered at
Company expense. Company-Paid Coverage shall continue until the earlier of (x)
one year from the date of termination, or (y) the date that the Executive and
his dependents become covered under another employer's group health, dental,
vision and life insurance plans that provide Executive and his dependents with
comparable benefits and levels of coverage. For purposes of Title X of the
Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the
"qualifying event" for Executive and his dependents shall be the date upon which
the Company-Paid Coverage terminates.
For this purpose, "Good Reason" is defined as (i) the significant
reduction of the Executive's title, duties, authority or responsibilities,
relative to the Executive's title, duties, authority or responsibilities as in
effect immediately prior to such reduction; (ii) a reduction by the Company in
the Base Salary or bonus target amount of the Executive as in effect immediately
prior to such reduction; (iii) the relocation of the Executive to a facility or
a location more than thirty (30) miles from the Executive's then present
location, without the Executive's express written consent; (iv) any material
breach of this Agreement by the Company, or (v) any act or set of facts or
circumstances which would, under California case law or statute, constitute a
constructive termination of the Executive.
7. Change of Control. In the event of a change of control of the
Company (i) Executive's outstanding stock options and any stock subject to
restricted stock purchase agreements shall have their vesting accelerated as to
one year's additional vesting (this would, for example, make the stock option
referred to in subsection 3(c)(ii) hereof become fully vested if a change of
control occurs in the year following the Effective Date), and (ii) if a change
of control of the Company occurs within one year after the Effective Date, the
Company shall pay Executive an amount equal to twelve months' of Executive's
Base Salary as in effect as of the date immediately prior to such change of
control, plus 100% of Executive's target bonus for the year in which the change
of control occurs, plus a pro-rated target bonus equal to the bonus target
amount for the year in which the change of control occurs
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amount multiplied by a fraction, the numerator of which is the number of days
from the Effective Date until the date of the change of control and the
denominator of which is three hundred and sixty-five (all less applicable
withholding). For this purpose, "change of control of the Company" is defined
as:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becomes the "beneficial
owner" (as defined in Rule 13d-3 under said 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; or
(b) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors; provided, however, that such
provision shall not be effective until November 5, 1997 (and the determination
of who is an Incumbent Director shall be made as of such date) if Proposition
211 is approved by the voters of California on November 5, 1996. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof (or, if Proposition 211 is approved, as of November 5, 1997),
or (B) are 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 shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or
(c) The consummation of a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which 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) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; or
(d) The consummation of the sale or disposition by the Company of
all or substantially all of the Company's assets.
8. Golden Parachute Excise Tax Gross-Up. In the event that the
benefits provided for in this Agreement or otherwise payable to the Executive
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and will be subject to
the excise tax imposed by Section 4999 of the Code, then the Executive shall
receive (i) a payment from the Company sufficient to pay such excise tax, and
(ii) an additional payment from the Company sufficient to pay the excise tax and
federal and state income taxes arising from the payments made by the Company to
Executive pursuant to this sentence. Unless the Company and the Executive
otherwise agree in writing, the determination of Executive's excise tax
liability and the amount required to be paid under this Section 8 shall be made
in writing by the Accountants. For purposes of making the calculations required
by this Section 8, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith
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interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 8.
9. Death and Disability. If (i) Executive dies or becomes partially or
permanently disabled while employed by the Company, and (ii) the Company
appoints a new Chairman of the Board, President or Chief Executive Officer or
takes any action that would constitute Good Reason under Section 6 hereof, then
Executive's outstanding stock options and any stock subject to restricted stock
purchase agreements shall have their vesting accelerated in full so as to become
100% vested.
10. Indemnification Insurance. Upon the commencement of his employment
with the Company, Executive shall be offered an Indemnification agreement
comparable in form and substance to agreements entered into by and between the
Company and its executive officers and members of the Board. During the period
of Executive's employment with the Company, the Company agrees to maintain
director and officer liability insurance in scope and amounts reasonably
satisfactory to Executive, to the extent available. Following the termination of
Executive's employment or directorship for any reason, the Company agrees to
honor the indemnification agreement previously entered into with Executive.
11. Enforcement. In the event of any action to enforce the terms of
this Agreement, the prevailing party in such action shall be entitled to such
party's reasonable costs and expenses of enforcement including, without
limitation, reasonable attorneys' fees.
12. Assignment. This Agreement shall 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 shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include 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.
13. Notices. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if delivered
personally or three (3) days after being mailed by registered or certified mail,
or sent by Federal Express or a similar private delivery company, return receipt
requested, prepaid and addressed to the parties or their successors in interest
at the following addresses, or at such other addresses as the parties may
designate by written notice in the manner aforesaid:
If to the Company: Bay Networks, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx
Xxxxx Xxxxx, XX 00000
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If to Executive: Xxxxx Xxxxx
HOME ADDRESS REDACTED
14. Severability. In the event that any provision hereof becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
15. Entire Agreement. This Agreement represents the entire agreement
and understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
16. No Oral Modification, Cancellation or Discharge. This Agreement
may only be amended, canceled or discharged in writing signed by Executive and
the Company.
17. Governing Law. This Agreement shall be governed by the laws of
the State of California.
18. Effective Date. This Agreement is effective immediately after it
has been signed.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the respective dates set forth below.
BAY NETWORKS. INC.
By: /s/ XXXXXXXXXX XXXXXXX /s/ XXXX X. XXXXXXXX
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Signature
Date: 10/29/96
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XXXXX XXXXX
Date: 10/29/96 /s/ XXXXX X. HOUSE
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Signature
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