EXHIBIT 10.22
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into
effective as of October 16, 1997, by and between Employee (the "Employee") and
Xylan Corporation, a California corporation (the "Company").
RECITALS
A. It is expected that another company or other entity may from time
to time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company's Board
of Directors (the "Board"). The Board recognizes that such consideration can be
a distraction to the Employee, an executive officer or key employee of the
Company, and can cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication and objectivity of the Employee, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company.
B. 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 or her employment with the Company, which for purposes of this
Agreement as it relates to Employee's employment shall include a majority-owned
subsidiary of the Company.
C. The Board believes that it is imperative to provide the Employee
with certain benefits upon termination of the Employee's employment in
connection with a Change of Control, which benefits are intended to provide the
Employee with financial security and provide sufficient encouragement to the
Employee to remain with the Company notwithstanding the possibility of a Change
of Control.
D. To accomplish the foregoing objectives, the Board of Directors
has directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in
Section 3 below.
In consideration of the mutual covenants contained in this Agreement, and
in consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge
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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,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any benefits, other than as provided by this
Agreement, or as may otherwise be available in accordance with the terms of the
Company's established employee plans and written policies at the time of
termination. The terms of this Agreement shall terminate upon the earlier of (i)
the date on which Employee ceases to be employed as an executive officer or key
employee of the Company, other than as a result of an involuntary termination by
the Company without Cause (ii) the date that all obligations of the parties
hereunder have been satisfied, or (iii) one (1) year after a Change of Control.
A termination of the terms of this Agreement pursuant to the preceding sentence
shall be effective for all purposes, except that such termination shall not
affect the provision of benefits on account of a termination of employment
occurring prior to the termination of the terms of this Agreement.
2. Change of Control.
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(a) Termination Following A Change of Control. Subject to Sections 4
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and 5 below, if the Employee's employment with the Company is terminated at any
time within one (1) year after a Change of Control, then the Employee shall be
entitled to receive severance benefits as follows:
(i) Voluntary Resignation. If the Employee voluntarily resigns
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from the Company (other than as an Involuntary Termination (as defined below) or
if the Company terminates the Employee's employment for Cause (as defined
below)), then the Employee shall not be entitled to receive severance payments.
The Employee's benefits will be terminated under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination or as otherwise determined by the Board of Directors
of the Company.
(ii) Involuntary Termination and Certain Voluntary Terminations.
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If the Employee's employment is terminated as a result of an Involuntary
Termination other than for Cause, each stock option to purchase the Company's
Common Stock granted to Employee over the course of his or her employment with
the Company and held by Employee on the date of termination of employment shall
become immediately vested on such date as to that number of shares that would
have vested in accordance with the terms of such option (assuming that Employee
had remained in Continuous Status as an Employee, as defined in the relevant
plan and option agreement) for:
(x) 2 years after the date of Change of Control if Employee
had been employed by the Company for at least two (2) years as of the Change of
Control, or
(y) one (1) year after the date of Change of Control if
Employee had been so employed for less than two (2) years as of the Change of
Control.
Each such option shall be exercisable in accordance with the provisions of the
option agreement and plan pursuant to which such option was granted.
(iii) Involuntary Termination for Cause. If the Employee's
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employment is terminated for Cause, then the Employee shall not be entitled to
receive severance benefits. The Employee's benefits will be terminated under
the Company's then existing benefit plans and policies in accordance with such
plans and policies in effect on the date of termination.
(b) Termination Apart from A Change of Control. In the event the
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Employee's employment terminates for any reason, either prior to the occurrence
of a Change of Control or after one year period following the effective date of
a Change of Control, then the Employee shall not be entitled to receive any
severance benefits under this Agreement. The Employee's benefits will be
terminated under the terms of the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination or as otherwise determined by the Board of Directors of the
Company.
3. Definition of Terms. The following terms referred to in this
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Agreement shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean the occurrence
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of any of the following events:
(i) Ownership. Any "Person" (as such term is used in Sections
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13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing forty percent
(40%) or more of the total voting power represented by the Company's then
outstanding voting securities without the approval of the Board of Directors of
the Company;
(ii) Merger/Sale of Assets. A merger or consolidation of the
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Company whether or not approved by the Board of Directors of the Company, 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 shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets; or
(iii) Change in Board Composition. A change in the composition
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of the Board of Directors of the Company, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of December 31,
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).
(b) Cause. "Cause" shall mean (i) gross negligence or willful
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misconduct in the performance of the Employee's duties to the Company where such
gross negligence or willful misconduct has resulted or is likely to result in
substantial and material damage to the Company or its subsidiaries, (ii)
repeated unexplained or unjustified absence from the Company, (iii) a material
and willful violation of any federal or state law; (iv) commission of any act of
fraud with respect to the Company; or (v) conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and reputation
of the Company, in each case as determined in good faith by the Board of
Directors of the Company.
(c) Involuntary Termination. "Involuntary Termination" shall include
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any termination by the Company other than for Cause and the Employee's voluntary
termination, upon 30 days prior written notice to the Company, following (i) a
material reduction or change in job duties, responsibilities and requirements
inconsistent with the Employee's position with the Company and the Employee's
prior duties, responsibilities and requirements, taking into account the
differences in job title and duties that are normally occasioned by reason of an
acquisition of one company by another and that do not actually result in a
material change in duties, responsibilities and requirements inconsistent with
an employee's prior position with the acquired company; (ii) any reduction of
the Employee's base and cash bonus compensation (other than in connection with a
general decrease in base salaries for most similarly situated employees of the
successor corporation); or (iii) the Employee's refusal to relocate to a
location more than 50 miles from the Company's current location.
4. Limitation on Payments.
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(a) In the event that the severance benefits provided for in this
Agreement 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 benefits under Section 2 shall be
payable either: (i) in full, or (ii) 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 benefits under Section 2, notwithstanding that
all or some portion of such 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 4 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 4, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Section 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 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 4.
(b) The payment of severance benefits provided for in this Agreement
shall be subject to all applicable income, employment and social tax rules and
regulations.
5. Certain Business Combinations. In the event it is determined by the
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Board, upon consultation with Company management and the Company's independent
auditors, that the enforcement of any Section of this Agreement, including, but
not limited to, Section 2 hereof, which allows for the acceleration of vesting
of Option shares upon an involuntary termination of Employee's employment
following the effective date of 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 Section of this Agreement shall be null and void. For purposes of
this Section 5, the Board's determination shall require the unanimous approval
of the non-employee Board members.
6. Successors. Any successor to the Company (whether direct or indirect
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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. The terms of this Agreement and all of the Employee's rights
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.
7. Notice. Notices and all other communications contemplated by this
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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. Mailed notices to the Employee shall be
addressed to the Employee at the home address which the Employee 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.
8. Miscellaneous Provisions.
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(a) No Duty to Mitigate. The Employee shall not be required to
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mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, 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
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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
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(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. This Agreement supersedes any agreement
of the same title and concerning similar subject matter dated prior to the date
of this Agreement, and by execution of this Agreement both parties agree that
any such predecessor agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation, construction and
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performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or the
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application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and
equitable term or provision shall be substituted therefor to carry out, insofar
as may be valid and enforceable, the intent and purpose of the invalid or
unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in
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connection with this Agreement may be settled at the option of either party by
binding arbitration in the County of Ventura, California, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. Punitive
damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall each bear their own
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expenses, legal fees and other fees incurred in connection with this Agreement.
(h) No Assignment of Benefits. The rights of any person to payments
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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 (h) shall be
void.
(i) Employment Taxes. All payments made pursuant to this Agreement
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will be subject to withholding of applicable income and employment taxes.
(j) Assignment by Company. The Company may assign its rights under
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this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another 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.
(k) Counterparts. This Agreement may be executed in counterparts,
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each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
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.
XYLAN CORPORATION EMPLOYEE
BY: ____________________________ _____________________________
TITLE: _________________________
