EXHIBIT 10.14
------ --, -----
--------------------------
--------------------------
--------------------------
Re: KEY EMPLOYEE RETENTION AGREEMENT
Dear _______k:
Congratulations on your recent appointment as
_____________________ of Emulex Corporation, a California corporation (the
"Company"), which is a wholly-owned subsidiary of Emulex Corporation, a Delaware
corporation ("Emulex"). Because the Company and Emulex wish to assure themselves
of both present and future continuity of management in the event of any Change
in Control (as defined below), as well as objectivity of management in the event
of a proposed Change in Control, you, the Company and Emulex are hereby entering
into the following agreements:
1. Severance Payment and Employee Benefits. If a Change in
Control (as defined below) shall occur after the date of this Agreement, you are
then still an employee of the Company, and at any time within two years after
the Change in Control and prior to your Normal Retirement Date (as defined
below) your employment is terminated by the Company without Cause (as defined
below) or by you because of a Demotion (as defined below):
(a) Severance Payment. The Company will pay to you within
15 days after the date of termination of your employment (the "Termination
Date") a lump-sum severance payment (the "Severance Payment") equal to the
present value of the sum of your Annual Base Pay (as defined below) plus your
Annual Incentive Pay (as defined below); provided, however, that the Severance
Payment will be reduced by the aggregate amount of severance payments received
by you under any other severance policy, plan, program, or arrangement of the
Company. Such present value shall be determined as if an aggregate amount equal
to the sum of your Annual Base Pay plus your Annual Incentive Pay (minus, if
applicable, the aggregate amount of severance payments received by you under any
other severance policies, plan, program, or arrangement of the Company) would
otherwise have been paid to you in 12 equal monthly installments commencing one
month after the Termination Date, using a discount rate equal to the
then-applicable interest rate adopted by the Pension Benefit Guaranty
Corporation for purposes of benefit valuations in connection with
non-multiemployer pension plan terminations assuming the immediate commencement
of benefit payments, as set forth in Appendix B to Part 2619 of Title 29 of the
Code of Federal Regulations, or any successor appendix, schedule, rule or
regulation.
In lieu of a cash lump sum, you may, in your sole
discretion, elect to receive the Severance Payment in equal annual installments
over five years (or such lesser number of years as you may elect). Such
installments shall be paid to you on each anniversary of the
Termination Date, beginning with the first such anniversary and continuing on
each such anniversary thereafter until fully paid. Such election to receive the
Severance Payment in installments may be made and/or revoked by you at any time
and from time to time prior to the termination of your employment by providing
written notice to the Secretary of Emulex of such election. Any such election by
you to receive the Severance Payment in installments that has been made and not
revoked prior to your termination shall, effective on the date of such
termination, be irrevocable and binding on all parties hereto.
In the event that at the time of your termination there is
not in effect an election by you to receive the Severance Payment in
installments, such Severance Payment shall be paid to you in a single cash lump
sum as provided in the first paragraph of this subparagraph (a). In the event
that you have made an appropriate election to receive the Severance Payment in
annual installments, and you become entitled to such Severance Payment as
provided in this Agreement, then such Severance Payment, to the extent at any
time unpaid and/or deferred, shall be deemed to bear interest at the
aforementioned discount rate or, if less, the maximum rate permitted by law.
Accrued interest shall be due and payable together with each annual installment
of the Severance Payment.
(b) Employee Benefits. The Company shall provide or
arrange to provide to you continuation of your Employee Benefits (as defined
below) for one year following the Termination Date; provided, however, that such
Employee Benefits will be reduced to the extent comparable benefits are actually
received by you (i) from another employer during such one-year period (and any
such benefits actually received by you shall be reported promptly by you to the
Company) or (ii) under any other policy, plan, program, or arrangement of the
Company.
Any or all of such Employee Benefits may be provided to
you, in the discretion of the Company, pursuant to policies or plans of the
Company which exist as of the Termination Date and/or pursuant to policies,
plans, or arrangements which are implemented or adopted by the Company on or
after the Termination Date, including those which are implemented or adopted by
the Company for your benefit only or for the benefit of you and selected other
employees or former employees of the Company. The Company, in its discretion,
may also fulfill its obligation to provide continuation of any or all of your
Employee Benefits in accordance with the foregoing by paying to you in cash from
time to time the minimum amount necessary to enable you to purchase a comparable
Employee Benefit from another benefit provider; provided, however, that this
cash alternative shall not be utilized by the Company if and to the extent
comparable Employee Benefits are not available to be purchased by you.
(c) Certain Payment Reductions.
(1) For purposes of this subparagraph (c), (i) a Payment
shall mean any payment or distribution in the nature of compensation to or for
your benefit, whether paid or payable pursuant to this Agreement or otherwise;
(ii) Agreement Payment shall mean a Payment paid or payable pursuant to this
Agreement (determined without regard to this subparagraph (c)); (iii) Net After
Tax Receipt shall mean the Present Value of a Payment net of all taxes imposed
on you with respect thereto under Sections 1 and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), determined by applying the highest
marginal rate under Section 1 of the Code
2
which applied to your taxable income for the immediately preceding taxable year;
(iv) "Present Value" shall mean such value determined in accordance with Section
280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the smallest
aggregate amount of Payments which (a) is less than the sum of all Payments
(determined without regard to this subparagraph (c)) and (b) results in
aggregate Net After Tax Receipts which are equal to or greater than the Net
After Tax Receipts which would result if the aggregate Payments were equal to
the sum of all Payments (determined without regard to this subparagraph (c)) or
any other amount less than the sum of all payments (determined without regard to
this subparagraph (c)).
(2) Anything in this Agreement to the contrary
notwithstanding, in the event Emulex's independent public accountants (the
"Accounting Firm") shall determine that receipt of all Payments would subject
you to tax under Section 4999 of the Code, it shall determine whether some
amount of Payments would meet the definition of a "Reduced Amount." If the
Accounting Firm determines that there is a Reduced Amount, the aggregate
Agreement Payments shall be reduced to such Reduced Amount; provided, however,
that if the Reduced Amount exceeds the aggregate Agreement Payments, the
aggregate Payments shall, after the reduction of all Agreement Payments, be
reduced (but not below zero) in the amount of such excess.
(3) If the Accounting Firm determines that aggregate
Agreement Payments or Payments, as the case may be, should be reduced to the
Reduced Amount, the Company shall promptly give you notice to that effect and a
copy of the detailed calculation thereof, and you may then elect, in your sole
discretion, which and how much of the Payments shall be eliminated or reduced
(as long as after such election the present value of the aggregate Payments
equals the Reduced Amount), and you shall advise the Company in writing of your
election within ten days of your receipt of notice. If no such election is made
by you within such ten-day period, the Company may elect which of the Agreement
Payments or Payments, as the case may be, shall be eliminated or reduced (as
long as after such election the present value of the aggregate Agreement
Payments or Payments, as the case may be, equals the Reduced Amount) and shall
notify you promptly of such election. All determinations made by the Accounting
Firm under this Paragraph 1(c) shall be binding upon the Company and you and
shall be made within 60 days after a termination of your employment. As promptly
as practicable following such determination, the Company shall pay to or
distribute for your benefit such Payments as are then due to you under this
Agreement and shall promptly pay to or distribute for your benefit in the future
such Payments as become due to you under this Agreement.
(4) While it is the intention of the Company and you to
reduce the amounts payable or distributable to you hereunder only if the
aggregate Net After Tax Receipts to you would thereby be increased, as a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
amounts will have been paid or distributed by the Company to or for your benefit
pursuant to this Agreement which should not have been so paid or distributed
("Overpayment") or that additional amounts which will have not been paid or
distributed by the Company to or for your benefit pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Company or you which the Accounting Firm
believes has a high probability of success or controlling precedent or
3
other substantial authority, determines that an Overpayment has been made, any
such Overpayment paid or distributed by the Company to or for your benefit shall
be treated for all purposes as a loan ab initio to you which you shall repay to
the Company together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by you to the Company if
and to the extent such deemed loan and payment would not either reduce the
amount on which you are subject to tax under Section 1 and Section 4999 of the
Code or generate a refund of such taxes. In the event that the Accounting Firm,
based upon controlling precedent or other substantial authority, determines that
an Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for your benefit together with interest at the applicable
federal rate provided for under Section 7872(f)(2) of the Code.
(5) The Company will bear the fees and expenses of the
Accounting Firm in making the determinations required by this Paragraph 1(c).
2. Accelerated Vesting of Stock Options. If a Change in Control
shall occur after the date of this Agreement and you are then still an employee
of the Company:
(a) Partial Acceleration. Upon the Change in Control, the
vesting of your right to exercise each Emulex Option (as defined below) held by
you as of the Change in Control based on the length of your continued employment
following the grant of such Emulex Option will be accelerated by one year so
that your right to exercise such Emulex Option after the Change in Control will
be determined as if such Emulex Option had been granted to you one year before
the actual date of grant of such Emulex Option; provided, however, that the term
and expiration date of, and any other restrictions on your right to exercise,
such Emulex Option shall not be affected by the Change in Control; provided
further, however, that, if the stock option agreement evidencing such Emulex
Option shall provide for acceleration of vesting of your right to exercise such
Emulex Option upon a Change in Control which is more favorable to you than the
foregoing provisions of this subparagraph (a), the acceleration provisions of
your stock option agreement shall apply and this subparagraph (a) shall be
disregarded.
(b) Full Acceleration. If, within two years after the Change
in Control and prior to your Normal Retirement Date, your employment with the
Company is terminated by the Company without Cause or by you because of a
Demotion, the vesting of your right to exercise each Emulex Option held by you
as of the Termination Date will be fully accelerated as of the Termination Date
so that you will have the right to exercise such Emulex Option in full at any
time during its remaining term.
3. No Mitigation. You shall not be obligated to seek employment
or otherwise mitigate the Severance Payment to you under this Agreement, nor
shall the Severance Payment be reduced by any compensation earned by you as a
result of your employment by another employer after the Termination Date.
4. Employment Rights. Nothing in this Agreement, expressed or
implied, shall obligate Emulex, the Company or you to continue your employment
with the Company or limit the right of you or the Company to terminate your
employment at any time before or after a Change in
4
Control. Notwithstanding the foregoing, if your employment is terminated by the
Company without Cause or by you because of a Demotion after commencement by
Emulex or the Company of substantive discussions with any third party which
result in a Change in Control in which such third party has a significant
involvement within one year after commencement of such discussions and prior to
your Normal Retirement Date, your right to receive payments and benefits under
this Agreement will be determined as if your employment had terminated
immediately following the Change in Control.
5. Definitions. For purposes of this Agreement, the terms set
forth below are defined as follows:
(a) "Annual Base Pay" means an amount equal to the greatest
of (i) your annual fixed or base compensation as in effect immediately prior to
a Change in Control, (ii) your annual fixed or base compensation as in effect
immediately prior to commencement by Emulex or the Company of substantive
discussions with any third party that results in a Change in Control in which
such third party has a significant involvement within one year after
commencement of such discussions, and (iii) your annual fixed or base
compensation as in effect immediately prior to the Termination Date.
(b) "Annual Incentive Pay" means an amount equal to the
highest annual average of the aggregate bonuses or incentive payments of cash
compensation in addition to fixed or base compensation paid to you for your
services in any two of the last three full fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurs (or such lesser number of full fiscal years during which you were
employed by the Company if less than three) or, if higher, the highest annual
average of the aggregate annual bonuses or incentive payments of cash
compensation paid to you for services in any two of the last three full fiscal
years of the Company immediately preceding the fiscal year of the Company in
which the Termination Date occurs (or such lesser number of full fiscal years
during which you were employed by the Company if less than three).
(c) "Cause" for termination of your employment by the Company
will exist if (i) you become permanently disabled and are unable to perform your
duties as an employee of the Company or (ii) you commit any of the following
acts and any of such acts shall be determined by the board of directors of the
Company to have been materially harmful to the Company at a meeting of the board
of directors called and held for such purpose (after reasonable notice to you
and an opportunity for you and your representative to make a presentation to the
board of directors): an act of fraud, embezzlement or theft in connection with
your duties or in the course of your employment with the Company; intentional
wrongful damage to property of the Company; intentional wrongful disclosure of
trade secrets or confidential information of the Company; or intentional
wrongful engagement in any Competitive Activity (as defined below) while you are
employed by the Company.
(d) "Change in Control" shall be deemed to have occurred only
if (i) Emulex is merged or consolidated or reorganized into or with another
corporation and less than 51% of the combined voting power of the
then-outstanding securities of the surviving corporation immediately thereafter
is held in the aggregate by the holders of Voting Stock (as defined below) of
5
Emulex immediately prior to such transaction; (ii) Emulex sells or otherwise
transfers all or substantially all of its assets to any other corporation if
less than 51% of the combined voting power of the then-outstanding voting
securities of such corporation immediately after such sale or transfer is held
in the aggregate by the holders of Voting Stock of the Company immediately prior
to such sale or transfer; (iii) there is consummated a transaction which results
in Emulex beneficially owning, directly or indirectly, less than a majority of
the outstanding shares of Voting Stock of the Company, unless common stock of
the Company has been listed, approved or otherwise qualified for quotation or
trading on the NASDAQ National Market System, the American Stock Exchange or the
New York Stock Exchange and no person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act, as defined below) other than
Emulex beneficially owns (as "beneficial ownership" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act), as of
consummation of such transaction, more than 33-1/3% of the Voting Stock of the
Company; (iv) the Company sells or otherwise transfers all or substantially all
of its assets to another corporation if less than 51% of the Voting Stock of the
transferee corporation immediately after such sale or transfer is held in the
aggregate by Emulex, the Company or the holders of Voting Stock of Emulex
immediately prior to such sale or transfer; (v) there is a report filed on
Schedule 13D or Schedule 14D-1 (or any successor schedule or report) promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") disclosing that
any person has become the beneficial owner of securities representing 33-1/3% or
more of the combined voting power of the then-outstanding securities entitled to
vote generally in the election of directors of Emulex (the "Voting Stock"); (vi)
Emulex shall file a report or proxy statement with the Securities and Exchange
Commission pursuant to the Exchange Act disclosing in response to Item 1 of Form
8-K thereunder or Item 6(e) of Schedule 14A thereunder (or any successor
schedule or report) that a change in control of Emulex has or may have occurred
or will or may occur in the future pursuant to any then-existing contract or
transaction; or (vii) during any period of two consecutive years, individuals
who at the beginning of any such period constitute the directors of Emulex cease
for any reason to constitute at least a majority thereof unless the election or
the nomination for election by Emulex's shareholders of each director of Emulex
first elected during such period (y) was approved by a vote of at least a
majority of the directors of Emulex then still in office who were directors of
Emulex at the beginning of any such period and (z) such election or nomination
was not made in connection with an actual or threatened election contest
relating to the election of directors of Emulex, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act. Notwithstanding the
foregoing, a "Change in Control" shall not be deemed to have occurred for
purposes of this Agreement solely because Emulex, an entity in which Emulex
directly or indirectly beneficially owns more than 50% of the voting securities,
or any Emulex-sponsored employee stock ownership plan or any other employee
benefit plan of Emulex or any entity holding shares of Voting Stock for or
pursuant to the terms of any such plan either files or becomes obligated to file
a report or proxy statement under or in response to Schedule 13D, or Schedule
14D-1, Item 1 of Form 8-K or Item 6(e) of Schedule 14A (or any successor report
or schedule) under the Exchange Act, disclosing beneficial ownership by it of
shares of Voting Stock of Emulex, whether in excess of 33-1/3% or otherwise, or
because Emulex reports that a change in control of Emulex has or may have
occurred or will or may occur in the future by reason of such beneficial
ownership.
(e) "Competitive Activity" means your participation, without
the consent of the board of directors of the Company, in the management of any
business enterprise if such enterprise engages in substantial and direct
competition with the Company and such enterprise's sales
6
of any product or service competitive with any product or service of the Company
amounted to 10% of such enterprise's net sales for its most recently completed
fiscal year and if the Company's consolidated net sales of such products or
services amounted to 10% of the Company's consolidated net sales for its most
recently completed fiscal year. "Competitive Activity" shall not include (i) the
mere ownership of securities in any enterprise and exercise of rights
appurtenant thereto or (ii) participation in management of any enterprise or
business operation thereof other than in connection with competitive operation
of such enterprise.
(f) "Demotion" will be deemed to have occurred if any of the
following changes with respect to your employment with the Company shall occur
during the two-year period immediately following a Change in Control and prior
to your Normal Retirement Date and not be remedied within 15 days after written
notice thereof from you to the Company: (i) a significant adverse change in the
nature or scope of the powers, functions, titles, working environment, frequency
or mode of business travel, responsibilities or duties in respect of the Company
or Emulex which you had immediately prior to the Change in Control; (ii) a
reduction of your annual aggregate cash compensation below the sum of your
annual fixed or base compensation as in effect immediately prior to the Change
in Control plus the highest annual average of the aggregate bonuses or incentive
payments of cash compensation in addition to fixed or base compensation paid to
you for your services in any two of the last three full fiscal years of the
Company immediately preceding the fiscal year of the Company in which the Change
in Control occurred (or such lesser number of full fiscal years during which you
were employed by the Company if less than three); (iii) a reduction of the
Employee Benefits which you were receiving immediately prior to the Change in
Control below the comparable employee benefits provided by the Company to its
other executive officers from time to time; or (iv) relocation of the principal
executive offices of the Company to, or any requirement of you to have as your
principal location of work at, any place which is more than 50 miles from the
location thereof immediately prior to the Change in Control.
The parties acknowledge that, in the event of a Change
in Control, it may be mutually advantageous for you and your employer to discuss
and implement changes in your employment on a trial basis even though such
employment changes may constitute a "Demotion" under the terms of this
Agreement. Accordingly, any change with respect to your employment to which you
do not object will not constitute a Demotion; provided, however, that your
acceptance on a trial basis of a change which would otherwise constitute a
Demotion will not constitute a waiver of your right to object to such change
subsequently and to treat such change as a Demotion if it is not remedied within
15 days after written notice to the Company of your unwillingness to continue
accepting such change.
(g) "Employee Benefits" means benefits provided to you by the
Company immediately prior to a Change in Control, or, if greater, benefits
provided to you by the Company immediately prior to commencement by the Company
of substantive discussions with any third party which result in a Change in
Control in which such third party has a significant involvement within one year
after commencement of such discussions, or, if greater, benefits provided to you
by the Company immediately prior to the Termination Date, in each case under any
and all medical or health, life insurance, disability income, tax assistance, or
executive automobile benefit policies, plans, programs or arrangements in which
you are a participant at the applicable time.
7
(h) "Emulex Option" means each option to purchase shares of
stock of Emulex which is granted to you by Emulex prior to a Change in Control
and each option to purchase shares of stock of Emulex's successor (by purchase
of assets, merger, consolidation, reorganization or otherwise) which is granted
to you by such successor in connection with or after a Change in Control in
exchange or substitution for an option granted to you by Emulex prior to the
Change in Control. Emulex Option does not include any option to purchase shares
of stock of QLogic Corporation that you received in connection with the spinoff
of QLogic Corporation from the Company and Emulex.
(i) "Normal Retirement Date" means the date designated by
Emulex or the Company for your normal retirement under any retirement policy or
plan which is applied to the Company's executive officers in a
non-discriminatory manner or, if no such policy or plan has been established,
the date when you attain age 65.
6. Withholding of Taxes. The Company or Emulex may withhold from
any amounts payable under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or government regulation or ruling.
7. Notice. For all purposes of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or five business days after having been mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company or Emulex (to the attention of the Secretary of the
Company or Emulex) at its principal executive office and to you at your
principal residence, or to such other address as either party may have furnished
to the other in writing and in accordance herewith, except that any notice of
change of address shall be effective only upon receipt.
8. Successors. This Agreement shall inure to the benefit of and
be binding upon the Company, Emulex and their successors. In the event of a
Change in Control, any parent company, which directly or indirectly controls a
majority of the outstanding Voting Stock of Emulex or the Company, or a
successor to Emulex or the Company (by way of merger, consolidation,
reorganization, sale of assets or otherwise) shall, in the case of a successor,
by an agreement in form and substance reasonably satisfactory to you, expressly
assume and agree to perform this Agreement and, in the case of a parent company,
by an agreement in form and substance reasonably satisfactory to you, guarantee
and agree to cause the performance of this Agreement, in each case, in the same
manner and to the same extent as Emulex or the Company would be required to
perform if no Change in Control had taken place.
9. Severability; Entire Agreement; Amendments. This Agreement
sets forth the entire understanding among us as to the subject matter hereof.
The terms of any prior plans, policies or agreements relating to the subject
matter hereof are hereby superseded and replaced by this Agreement. There are no
terms, conditions, representations, warranties or covenants other than those
contained herein. No term or provision of this Agreement may be amended, waived,
released, discharged or modified in any respect, except in writing, signed by
the appropriate party(s). No waiver of any breach or default shall constitute a
waiver of any other breach or default whether of the same or any other covenant
or condition. A delay or failure to assert rights or a breach of this
8
Agreement shall not be deemed to be a waiver of such rights either with respect
to that breach or any subsequent breach. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
10. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws of such
State.
11. Counterparts. This agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same agreement.
12. Board Approval. Each of Emulex and the Company hereby
represents that the execution, delivery, and performance of this Agreement has
been duly authorized by its board of directors.
13. Dispute Resolution. Any dispute between you and the Company
and/or Emulex arising from or relating to this Agreement shall be resolved by
arbitration in accordance with the rules of the American Arbitration Association
in Costa Mesa, California. The prevailing party in any such arbitration shall be
entitled to recover his or its costs and reasonable attorneys fees.
14. Late Payment Interest. Any payment which is not made to you
when due under this Agreement shall bear interest at the rate of 10% per annum
from the due date to the payment date.
Very truly yours,
EMULEX CORPORATION,
a California corporation
By:
---------------------------------------
EMULEX CORPORATION,
a Delaware corporation
By:
---------------------------------------
AGREED:
---------------------------------------
9