FIRST AMENDMENT TO EXECUTIVE SEVERANCE AND RETENTION AGREEMENT
Exhibit 10.4
FIRST AMENDMENT TO
EXECUTIVE SEVERANCE AND RETENTION AGREEMENT
EXECUTIVE SEVERANCE AND RETENTION AGREEMENT
This First Amendment (the “Amendment”) to the Executive Severance and Retention Agreement (the
“Agreement”) dated as of May 22, 2008 by and between Bookham, Inc., the predecessor to Oclaro,
Inc., a Delaware corporation (the “Company”) and Xxxxxxxxx Xxxx Xxxxxx (the “Executive”) is made
effective as of this 14th day of December, 2010 (the “Effective Date”).
PREAMBLE
WHEREAS, the Executive and the Company desire to update the Agreement to address certain
provisions therein to comply with Section 409A of the Internal Revenue Code of 1986, as amended,
and the guidance promulgated thereunder (“Section 409A”); and
WHEREAS, the Agreement provides that it may be amended by a written instrument executed by the
parties thereto.
AGREEMENT
NOW THEREFORE, effective as of the Effective Date, the parties hereto agree as follows:
| 1. | Section 1.5 (Definition of “Good Reason”) is hereby deleted in its entirety and replaced with the following: |
“1.5 “Good Reason” means the occurrence, without the Executive’s written consent, of any of
the events or circumstances set forth in clauses (a) through (d) below.
(a) a material diminution in the Executive’s authority, duties or responsibilities as in
effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date
of the execution by the Company of the definitive written agreement or instrument providing for the
Change in Control or (iii) the date of the adoption by the Board of a resolution providing for a
Change in Control (with the earliest to occur of such dates referred to herein as the “Measurement
Date”);
(b) a material diminution in the Executive’s base compensation as in effect on the Measurement
Date or as the same may be increased from time to time thereafter;
(c) a change by the Company in the location at which the Executive performs Executive’s
principal duties for the Company to a new location that is both (i) outside a radius of 35 miles
from the Executive’s principal residence immediately prior to the Measurement Date and (ii) more
than 20 miles from the location at which the Executive performed Executive’s principal duties for
the Company immediately prior to the Measurement Date; or
(d) any other action or inaction that constitutes a material breach by the Company of this
Agreement.”
| 2. | Section 3.1 (Termination of Employment without Cause) is hereby deleted in its entirety and replaced with the following in lieu thereof: |
“3.1 Termination of Employment Without Cause or Upon Death. Subject to the terms and
conditions set forth in Section 8.14, in the event that the Executive’s employment is terminated
because of the death of the Executive or by the Company without Cause at any time prior to a Change
in Control (such date of termination or death, the “Section 3 Date of Termination”), the Executive
(or Executive’s heirs) shall be entitled to the following aggregate benefits:
(a) The sum of (i) the Executive’s Target bonus approved by the Company’s Compensation
Committee for the then current bonus payment period, multiplied by a fraction, the numerator of
which is the number of days preceding
the Section 3 Date of Termination in the current bonus period and the denominator of which is the
total number of days in the current bonus period (the “Pro-Rata Bonus”), (ii) any prior period
bonus approved by the Board or the Compensation Committee of the Board but not paid, (iii) the
amount of any compensation previously deferred by the Executive (together with any accrued interest
or earnings thereon) and any accrued base salary and/or vacation pay to the Section 3 Date of
Termination, in each case to the extent not previously paid (the sum of the amounts described in
clauses (i), (ii) and (iii) shall be hereinafter referred to as “Accrued Obligations”), payable in
a lump sum in cash on the first business day that is at least 30 days following the Section 3 Date
of Termination.
(b) An amount equal to Executive’s base salary then in effect multiplied by a fraction, the
numerator of which shall be (i) the sum of eight (8) plus one (1) for each whole year of the
Executive’s employment by the Company, but in no event more than eighteen (18), measured from the
Section 3 Date of Termination (the “Section 3 Termination Payment Period”), and (ii) the
denominator of which shall be twelve (12), which amount shall be paid as a lump sum cash payment
basis on the first business day that is at least 30 days following the Section 3 Date of
Termination (subject to Section 3.2 below). Existing option, restricted stock and other equity
awards will continue to be governed by the terms of their respective grants and plan provisions.”
| 3. | Section 3.2 (Release) is hereby deleted in its entirety and replaced with the following: |
“3.2 Release. The payment to the Executive (or Executive’s heirs) of the amounts and
benefits payable under Sections 3.1(a)(i) and 3.1(b) shall be contingent upon (i) the execution by
the Executive (or Executive’s heirs) of a separation agreement and release in a form reasonably
acceptable to the Company and substantially as set forth in Exhibit A to this Agreement (the
“Executive Release”) and upon the Executive Release becoming effective in accordance with its terms
within 30 days following the Section 3 Date of Termination and (ii) agreement by the Executive to
standard confidentiality obligations, a non-solicitation of Company customers for six-months
following the Section 3 Date of Termination and a non-solicitation of Company employees for
twelve-months following the Section 3 Date of Termination.”
| 4. | The Agreement is hereby amended to add the following Section 3.3 thereto: |
“3.3 Sole Remedy. The payments under this Section 3 constitute the sole remedy of the
Executive as a result of the circumstances set forth in this Section 3.”
| 5. | Section 4.1(d) is hereby amended by adding the following sentence to the end thereto: |
“Notwithstanding the foregoing, such occurrence shall not be deemed to constitute Good Reason
unless (i) within 30 days of the Company’s receipt of the Notice of Termination, such event or
circumstance has not been fully corrected and the Executive has not been reasonably compensated for
any losses or damages resulting therefrom and (ii) the Executive’s Date of Termination occurs
within two years following the Company’s receipt of the Notice of Termination.”
| 6. | Section 4.2.1 (Stock Acceleration) is hereby deleted in its entirety and replaced with the following in lieu thereof: |
“4.2.1.Stock Acceleration. If the Change in Control Date occurs during the Term,
then, effective upon the Change in Control Date, (a) each outstanding option to purchase shares of
Common Stock of the Company held by the Executive (or Executive’s heirs) shall become immediately
exercisable in full and shares of Common Stock of the Company received upon exercise of any options
will no longer be subject to a right of repurchase by the Company, (b) each outstanding restricted
stock award or restricted stock unit shall be deemed to be fully vested and will no longer be
subject to a right of repurchase by the Company and (c) notwithstanding any provision in any
applicable option agreement to the contrary, each such option shall continue to be exercisable by
the Executive (to the extent such option was exercisable on the Date of Termination) until the
earlier of (i) a period of six months following the Date of Termination and (ii) the original
expiration date of such option.”
| 7. | Section 4.2.2 (Compensation) is hereby deleted in its entirety and replaced with the following in lieu thereof: |
“4.2.2.Compensation. If the Change in Control Date occurs during the Term and the
Executive’s employment with the Company terminates within 12 months following the Change in Control
Date, the Executive shall be entitled to the following additional benefits:
(a) Termination Upon Death, Without Cause or for Good Reason. Subject to the terms and
conditions set forth in Sections 4.4 and 8.14, if the Executive’s employment with the Company is
terminated (i) because of the death of the Executive or (ii) by the Company (other than for Cause)
or by the Executive for Good Reason in each case within 12 months following the Change in Control
Date, then the Executive shall be entitled to a lump sum payment in cash, payable on the first
business day that is at least 30 days after the Date of Termination, of the aggregate of the
following amounts:
(1) the Accrued Obligations; and
(2) the amount equal to Executive’s base salary then in effect multiplied by a fraction, the
numerator of which shall be (a) the sum of eight (8) plus one (1) for each whole year of the
Executive’s employment by the Company, but in no event more than eighteen (18), measured from the
Termination Date (the “Termination Payment Period”), and (b) the denominator of which shall be
twelve (12) (such amount the “Change in Control Severance”).
(b) Resignation Without Good Reason or Disability. Subject to the terms and conditions
set forth in Sections 4.4 and 8.14, if the Executive voluntarily terminates Executive’s employment
with the Company following the Change in Control Date, excluding a termination for Good Reason, or
if the Executive’s employment with the Company is terminated by reason of the Executive’s
Disability, then the Company shall pay the Executive in a lump sum in cash on the first business
day that is at least 30 days after the Date of Termination, the Accrued Obligations.”
| 8. | Section 4.3(d) is hereby deleted in its entirety and replaced with the following in lieu thereof: |
“(d) Any payments or other benefits otherwise due to the Executive following a Change in
Ownership or Control that could reasonably be characterized (as determined by the Company) as
Contingent Compensation Payments (the “Potential Payments”) shall not be made until the dates
provided for in this Section 4.3(d). Within 30 days after each date on which the Executive first
becomes entitled to receive (whether or not then due) a Contingent Compensation Payment relating to
such Change in Ownership or Control, the Company shall determine and notify the Executive (with
reasonable detail regarding the basis for its determinations) (i) which Potential Payments
constitute Contingent Compensation Payments, (ii) the Eliminated Amount and (iii) whether the
Section 4.3(b) Override is applicable. Within 30 days after delivery of such notice to the
Executive, the Executive shall deliver a response to the Company (the “Executive Response”) stating
either (A) that Executive agrees with the Company’s determination pursuant to the preceding
sentence or (B) that Executive disagrees with such determination, in which case Executive shall set
forth (i) which Potential Payments should be characterized as Contingent Compensation Payments,
(ii) the Eliminated Amount, and (iii) whether the Section 4.3(b) Override is applicable. If and to
the extent that any Contingent Compensation Payments are required to be treated as Eliminated
Payments pursuant to this Section 4.3, then the Payments shall be reduced or eliminated, as
determined by the Company, in the following order: (W) any cash payments, (X) any taxable benefits,
(Y) any nontaxable benefits, and (Z) any vesting of equity awards, in each case in reverse order
beginning with payments or benefits that are to be paid the farthest in time from the date that
triggers the applicability of the excise tax, to the extent necessary to maximize the Eliminated
Payments. In the event that the Executive fails to deliver an Executive Response on or before the
required date, the Company’s initial determination shall be final and the Contingent Compensation
Payments that shall be treated as Eliminated Payments shall be determined by the Company in
accordance with the preceding sentence. If the Executive states in the Executive Response that
Executive agrees with the Company’s determination, the Company shall make the Potential Payments to
the Executive within three business days following delivery to the Company of the Executive
Response (except for any Potential Payments which are not due to be made until after such date,
which Potential Payments shall be made on the date on which they are due). If the Executive states
in the Executive Response that Executive disagrees with the Company’s determination, then, for a
period of 60 days following delivery of the Executive Response, the Executive and the Company shall
use good faith efforts to resolve such
dispute. The Company shall, within three business days following delivery to the Company of the
Executive Response, make to the Executive those Potential Payments as to which there is no dispute
between the Company and the Executive regarding whether they should be made (except for any such
Potential Payments which are not due to be made until after such date, which Potential Payments
shall be made on the date on which they are due). The balance of the Potential Payments shall be
made within three business days following the resolution of such dispute. Subject to the
limitations contained in Sections 4.3(a) and (b) hereof, the amount of any payments to be made to
the Executive following the resolution of such dispute shall be increased by amount of the accrued
interest thereon computed at the prime rate announced from time to time by The Bank of America,
compounded monthly from the date that such payments originally were due.”
| 9. | Section 4.4 (Payments subject to 409A) is hereby deleted in its entirety and replaced with the following in lieu thereof: |
“4.4 Release. The payment to the Executive (or the Executive’s heirs) of both the
Pro-Rata Bonus portion of the Accrued Obligations and the Change in Control Severance in the event
of a termination pursuant to Section 4.2.2(a) shall be contingent on (i) the execution by the
Executive (or the Executive’s heirs) of the Executive Release and upon the Executive Release
becoming effective in accordance with its terms within 30 days following the Date of Termination
and (ii) agreement by the Executive to standard confidentiality, a non-solicitation of Company
customers for six-months following the Change in Control and a non-solicitation of Company
employees for twelve months following the Change in Control.”
| 10. | The Agreement is hereby amended to add the following Section 4.5 thereto: |
“4.5 Sole Remedy. The payments under this Section 4 constitute the sole remedy of the
Executive in the circumstances set forth in this Section 4.”
| 11. | Sections 5.1 (Settlement of Disputes) is hereby amended by replacing the reference to “Section 4” with “Sections 3 and 4”. |
| 12. | Section 5.2 (Expenses) is hereby deleted in its entirety and replaced with the following in lieu thereof: |
“5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by
law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as
a result of any claim or contest by the Company, the Executive or others regarding the validity or
enforceability of, or liability under, Sections 3 and 4 of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive regarding the amount of
any payment or benefits pursuant to this Agreement); provided that Executive prevails in the
outcome of such claim or contest. Notwithstanding the foregoing, (i) the expenses eligible for
reimbursement may not affect the expenses eligible for reimbursement in any other taxable year and
(ii) the right to reimbursement is not subject to liquidation or exchange for another benefit.”
| 13. | Section 5.3 (Compensation During a Dispute) is hereby amended by (i) deleting the words “If the”at the beginning thereto and replacing such language with the following: “Subject to any limitations under Section 409A, if the”. |
| 14. | Section 8.4 (Exclusive Severance Benefits) is hereby amended by replacing the reference to “employment without” in the fourth line thereto with the word “employment”. |
| 15. | Section 8.5 (Mitigation) is hereby amended by deleting the second sentence thereto and replacing it with the following: |
“Further, the amount of any payment or benefits provided for in this Agreement shall not be
reduced by any compensation earned by the Executive as a result of employment by another employer,
by retirement benefits, by offset against any amount claimed to be owed by the Executive to the
Company or otherwise.”
| 16. | Section 8.13 (Executive’s Acknowledgments) is hereby deleted in its entirety and
replaced with the following in lieu thereof: |
“The Executive acknowledges that Executive: (a) has read this Agreement; (b) has been
represented in the preparation, negotiation, and execution of this Agreement by legal counsel of
the Executive’s own choice or has voluntarily declined to seek such counsel; and (c) understands
the terms and consequences of this Agreement.”
| 17. | Section 8.14 (Section 409A) is hereby deleted in its entirety and replaced with the
following in lieu thereof: |
8.14 Payments Subject to Section 409A. Subject to the provisions in this Section
8.14, any severance payments or benefits under this Agreement shall begin only upon the date of the
Executive’s “separation from service” (determined as set forth below) which occurs on or after the
Section 3 Date of Termination or the Date of Termination, as applicable. The following rules shall
apply with respect to distribution of the payments and benefits, if any, to be provided to the
Executive under this Agreement.
8.14.1 It is intended that each installment of the severance payments and benefits provided
under this Agreement shall be treated as a separate “payment” for purposes of Section 409A of the
Code. Neither the Executive nor the Company shall have the right to accelerate or defer the
delivery of any such payments or benefits except to the extent specifically permitted or required
by Section 409A.
8.14.2 If, as of the date of the Executive’s “separation from service” from the Company, the
Executive is not a “specified employee” (within the meaning of Section 409A), then each installment
of the severance payments and benefits shall be made on the dates and terms set forth in this
Agreement.
8.14.3 If, as of the date of the Executive’s “separation from service” from the Company, the
Executive is a “specified employee” (within the meaning of Section 409A), then:
(a) Each installment of the severance payments and benefits due under this Agreement that, in
accordance with the dates and terms set forth herein, will in all circumstances, regardless of when
the separation from service occurs, be paid within the short-term deferral period (as defined in
Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation
Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A; and
(b) Each installment of the severance payments and benefits due under this Agreement that is
not described in Section 8.14.2 above and that would, absent this subsection, be paid within the
six-month period following the Executive’s “separation from service” from the Company shall not be
paid until the date that is six months and one day after such separation from service (or, if
earlier, the Executive’s death), with any such installments that are required to be delayed being
accumulated during the six-month period and paid in a lump sum on the date that is six months and
one day following the Executive’s separation from service and any subsequent installments, if any,
being paid in accordance with the dates and terms set forth herein; provided, however, that the
preceding provisions of this sentence shall not apply to any installment of severance payments and
benefits if and to the maximum extent that such installment is deemed to be paid under a separation
pay plan that does not provide for a deferral of compensation by reason of the application of
Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation
from service). Any installments that qualify for the exception under Treasury Regulation Section
1.409A-1(b)(9)(iii) must be paid no later than the last day of the second taxable year following
the taxable year in which the separation from service occurs.
8.14.4 The determination of whether and when the Executive’s separation from service from the
Company has occurred shall be made in a manner consistent with, and based on the presumptions set
forth in, Treasury Regulation Section 1.409A-1(h).
8.14.5 All reimbursements and in-kind benefits provided under this Agreement shall be made or
provided in accordance with the requirements of Section 409A to the extent that such reimbursements
or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that
(i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter
period of time specified in this Agreement), (ii) the
amount of expenses eligible for reimbursement during a calendar year may not affect the expenses
eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible
expense will be made on or before the last day of the calendar year following the year in which the
expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or
exchange for any other benefit.
8.14.6 Notwithstanding anything herein to the contrary, the Company shall have no liability to
the Executive or to any other person if the payments and benefits provided in this Agreement that
are intended to be exempt from or compliant with Section 409A are not so exempt or compliant.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of the date
set forth above.
| OCLARO, INC. | ||||||
| By: Its: |
/s/ Xxxxx Xxxxxx
|
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| /s/ Xxxxxxxxx Xxxx Xxxxxx
|
