1
EXHIBIT 10.1
GADZOOX NETWORKS, INC.
EMPLOYMENT, CHANGE OF CONTROL AND SEVERANCE AGREEMENT
This Employment, Change of Control and Severance Agreement (the
"Agreement") is made and entered into effective as of September 1, 2000 (the
"Effective Date"), by and between Xxxxxxx Xxxxxxx (the "Employee") and Gadzoox
Networks, Inc., a Delaware corporation (the "Company").
RECITALS
A. The Board desires to provide the Employee certain severance benefits
in the event Employee's employment with the Company terminates at any time as a
result of Involuntary Termination other than for Cause.
B. Additionally, it is expected that the Company from time to time will
consider the possibility of an acquisition by another company or other change of
control. The Board of Directors of the Company (the "Board") recognizes that
such consideration can be a distraction to the Employee and can cause the
Employee to consider alternative employment opportunities.
C. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his
employment and to maximize the value of the Company upon a Change of Control for
the benefit of its shareholders.
D. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon the Employee's termination of employment
following a Change of Control and thereby provide the Employee with enhanced
financial security and sufficient encouragement to remain with the Company
notwithstanding the possibility of a Change of Control.
E. Certain capitalized terms used in the Agreement are defined in Section
10 below.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Employee in the
position of President and Chief Executive Officer with such duties,
responsibilities and compensation as in effect as of the Effective Date;
provided, however, that the Board shall have the right, prior to the occurrence
of a Change of Control, to revise such responsibilities and compensation from
time to time as the Board may deem necessary or appropriate.
2
(b) Obligations. The Employee shall devote his full business
efforts and time to the Company and its subsidiaries. The foregoing, however,
shall not preclude the Employee from engaging in such activities and services as
do not interfere or conflict with his responsibilities to the Company.
2. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or other agreements with the Company at the time of termination.
3. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the Employee as
compensation for services a base salary at the annualized rate of Two Hundred
Fifty Thousand Dollars ($250,000). Such salary shall be reviewed at least
annually and may be increased from time to time subject to accomplishment of
such performance and contribution goals and objectives as may be established
from time to time by the Board of Directors. Such salary shall be paid
periodically in accordance with normal Company payroll practices. The annual
compensation specified in this Section 3(a), together with any increases in such
compensation that the Board may grant from time to time, is referred to in this
Agreement as "Base Compensation."
(b) Stock Options. Contingent and effective upon stockholder
approval of an amendment to the Amended and Restated 1993 Stock Plan (the "Plan
Amendment Date") increasing the number of shares reserved thereunder and the
Employee's employment with the Company as of the Plan Amendment Date, the
Employee shall be granted (i) an option to purchase 500,000 shares of Common
Stock (the "Option") with an exercise price equal to the fair market value of
the Common Stock as of the Plan Amendment Date (the "Future FMV") plus (ii) a
cash bonus to be paid from time to time in varying amounts as and when Xx.
Xxxxxxx exercises vested portions of the Option equal to the product of (a) the
number of vested shares subject to the Option then being exercised and (b) the
difference between the Future FMV and 120% of the fair market value of the
Common Stock on September 11, 2000, if any. Twenty-five percent (25%) of the
shares subject to the Option shall vest on the first anniversary of the date
hereof and 1/48 of the shares subject to the Option shall vest each month
thereafter so long as the Employee continues to be employed by the Company on
such dates.
(c) Employee Benefits. The Employee shall be eligible to
participate in the employee benefit plans and executive compensation programs
maintained by the Company applicable to other key executives of the Company,
including (without limitation) retirement plans, savings or profit-sharing
plans, deferred compensation plans, supplemental retirement or excess-benefit
plans, stock option, incentive or other bonus plans, life, disability, health,
accident and other insurance programs, paid vacations, and similar plans or
programs, subject in each case to the generally applicable terms and conditions
of the plan or program in question and to the determination of any committee
administering such plan or program.
-2-
3
4. Severance Benefits.
(a) If the Employee's employment with the Company terminates at
any time as a result of Involuntary Termination other than for Cause, the
Employee shall be entitled to receive the following:
(i) A continuation of the Employee's Base Compensation in
effect at the time of such termination for a period equal to twelve (12) months
in accordance with the Company's normal payroll practices;
(ii) In addition to any portion of the Employee's stock
options and/or restricted stock that were vested immediately prior to such
termination, such options and/or restricted stock shall become vested and
immediately exercisable as to an additional amount as though the Employee had
remained continuously employed for a period of twelve (12) months following such
termination and
(iii) The Employee and each eligible dependent who
constitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of the
Internal Revenue Code of 1986, as amended, will be eligible to continue coverage
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), within the time period prescribed pursuant to COBRA. For a period of
twelve months following the Termination Date, the Company agrees to pay for or
reimburse the Employee for any COBRA premiums required to obtain continued
coverage. The Employee agrees, however, that any obligation to provide COBRA
benefits or reimbursement pursuant to this paragraph shall cease upon the date
that the Employee commences full time employment with a third party, provided
said third party has comparable medical benefits.
(b) In addition, without regard to the reason for termination of
the Employee's employment: (i) the Company shall pay the Employee any unpaid
Base Compensation due for periods prior to the Termination Date; (ii) the
Company shall pay the Employee all of the Employee's accrued and unused vacation
through the Termination Date; and (iii) following submission of proper expense
reports by the Employee, the Company shall reimburse the Employee for all
expenses reasonably and necessarily incurred by the Employee in connection with
the business of the Company prior to termination. These payments shall be made
promptly upon termination and within the period of time mandated by law.
5. Termination Following A Change of Control.
(a) In the event of a Change of Control that occurs while the
Employee is employed by the Company, then, subject to Section 7 hereof, fifty
percent (50%) of the unvested portion of any and all stock options and
restricted stock as of the effective time of the Change of Control event shall
become vested and immediately exercisable and any repurchase option applicable
to restricted stock shall terminate so as to become vested as to fifty percent
(50%) of such shares, regardless of whether the Employee's employment with the
Company continues following the effective time of the Change of Control event.
The balance of any unvested shares not so accelerated shall continue to vest on
the same time schedule that existed prior to the Change of Control event with
respect to such shares.
-3-
4
(b) If the Employee's employment with the Company terminates at
any time as a result of Involuntary Termination other than for Cause within
twelve (12) months after a Change of Control, then, subject to Section 7 hereof,
the unvested portion of any and all stock options and restricted stock as of the
Termination Date shall become vested and immediately exercisable and any
repurchase option applicable to restricted stock shall terminate so as to become
completely vested as to such shares.
6. Voluntary Resignation; Termination For Cause. For the purposes of
Sections 4 and 5 hereof, if the Employee's employment terminates by reason of
the Employee's voluntary resignation (and is not an Involuntary Termination), or
if the Employee is terminated for Cause, then the Employee shall not be entitled
to receive severance, accelerated vesting or other benefits except for those (if
any) as may then be established under the Company's then existing severance and
benefits plans and policies at the time of such termination.
7. Disability; Death. For the purposes of Sections 4 and 5 hereof, if the
Company terminates the Employee's employment as a result of the Employee's
Disability, or such Employee's employment is terminated due to the death of the
Employee, then the Employee shall not be entitled to receive severance or other
benefits except for those (if any) as may then be established under the
Company's then existing severance and benefits plans and policies at the time of
such Disability or death.
8. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code,
then the Employee's severance benefits under subsection 4(a)(i) shall be payable
either
(a) in full, or
(b) as to such lesser amount which would result in no portion of
such severance benefits being subject to excise tax under Section 4999 of the
Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by the Employee on an after-tax basis, of the greatest amount of
severance benefits under Section 4(a) hereof, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Employee and the Company
for all purposes. 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
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in
-4-
5
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. Certain Business Combinations. In the event it is determined by the
Board of Directors, upon receipt of a written opinion of the Corporation's
independent public accountants, that the enforcement of any provision of this
Agreement, including, but not limited to, Section 5 hereof, which allows for the
acceleration of vesting of options to purchase shares of the Company's common
stock upon a termination in connection with a Change of Control, would preclude
accounting for any proposed business combination of the Company involving a
Change of Control as a pooling of interests, and the Board otherwise desires to
approve such a proposed business transaction which requires as a condition to
the closing of such transaction that it be accounted for as a pooling of
interests, then any such provision of this Agreement shall be null and void. For
purposes of this Section 9, the Board's determination shall require the
unanimous approval of the disinterested Board members.
10. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) becoming 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,
other than in a private financing where securities are acquired directly from
the Company; or
(ii) The 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 the sale or disposition by the Company of all or substantially
all the Company's assets.
(b) Involuntary Termination. "Involuntary Termination" shall mean
(i) without the Employee's express written consent, a significant reduction of
the Employee's duties, position or responsibilities, or the removal of the
Employee from such position and responsibilities, unless the Employee is
provided with a comparable position (i.e., a position of equal or greater
organizational level, duties, authority, compensation and status); provided
however, that a reduction is title, duties or responsibilities solely by virtue
of the Company being acquired and made part of a larger entity (as, for example,
when the Employee, if Chief Executive Officer of the Company immediately prior
to a Change of Control, remains as such following a Change of Control and is not
made the Chief Executive Officer of the acquiring corporation or a division
thereof) shall not constitute an "Involuntary Termination"; (ii) without the
Employee's express written consent, a substantial
-5-
6
reduction, without good business reasons, of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to such reduction; (iii) a significant reduction by the Company in the
Base Compensation of the Employee as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Employee is entitled immediately prior to such
reduction with the result that the Employee's overall benefits package is
significantly reduced; (v) without the Employee's express written consent, the
relocation of the Employee to a facility or a location more than 50 miles from
the Employee's then present location; (vi) any purported termination of the
Employee by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this Agreement by
any successors contemplated in Section 11 below.
(c) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee and
intended to result in substantial personal enrichment of the Employee, (ii) the
conviction of a felony which the Board reasonably believes had or will have a
material detrimental effect on the Company's reputation or business, (iii) a
willful act by the Employee which constitutes gross misconduct and which is
injurious to the Company, and (iv) continued violations by the Employee of the
Employee's obligations after there has been delivered to the Employee a written
demand for performance from the Company which describes the basis for the
Company's belief that the Employee has not substantially performed his duties.
(d) Disability. "Disability" shall mean that the Employee has been
unable to perform his duties under this Agreement as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the Employee
or the Employee's legal representative (such agreement as to acceptability not
to be unreasonably withheld).
(e) Termination Date. "Termination Date" shall mean the date on
which either party delivers a notice of termination to the other.
11. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
-6-
7
(b) Employee's Successors. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
12. Notice.
(a) General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for
Cause or by the Employee as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with Section 12(a) of this Agreement.
Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than 30 days after
the giving of such notice). The failure by the Employee to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his rights
hereunder.
13. Arbitration. At the option of either party, any and all disputes or
controversies whether of law or fact and of any nature whatsoever arising from
or respecting this Agreement shall be decided by arbitration in accordance with
the rules and regulations of the American Arbitration Association.
The arbitrator shall be selected as follows: in the event the
Company and the Employee agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. In the event the Company and the Employee do not
so agree, the Company and the Employee shall each select one independent,
qualified arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing organization.
Arbitration shall take place at Santa Xxxxx County, California, or
any other location mutually agreeable to the parties. At the request of either
party, arbitration proceedings will be conducted in the utmost secrecy; in such
case all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for the
inspection only of the Company or the Employee and their respective attorneys
and their respective experts who shall agree in advance and in writing to
receive all such information confidentially and to maintain such information in
secrecy until such information shall become generally known. The arbitrator, who
shall act by majority vote, shall be able to decree any and all relief of an
equitable
-7-
8
nature, including but not limited to such relief as a temporary restraining
order, a temporary and/or a permanent injunction, and shall also be able to
award damages, with or without an accounting and costs, provided that punitive
damages shall not be awarded. The decree or judgment of an award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
Reasonable notice of the time and place of arbitration shall be
given to all persons, other than the parties, as shall be required by law, in
which case such persons or those authorized representatives shall have the right
to attend and/or participate in all the arbitration hearings in such manner as
the law shall require.
14. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(h) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another
-8-
9
affiliate of the Company or to the Company; provided, however, that no
assignment shall be made if the net worth of the assignee is less than the net
worth of the Company at the time of assignment. In the case of any such
assignment, the term "Company" when used in a section of this Agreement shall
mean the corporation that actually employs the Employee.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
[Remainder of page intentionally left blank; signature pages to follow]
-9-
10
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY: GADZOOX NETWORKS, INC.
By:
-------------------------------------
Title:
----------------------------------
EMPLOYEE: XXXXXXX XXXXXXX
----------------------------------------
