Change of Control Retention Agreement - Brocade Communications Systems Inc. and Michael Klayko
BROCADE COMMUNICATIONS SYSTEMS, INC.
CHANGE OF CONTROL RETENTION AGREEMENT
This Change of Control Retention Agreement (the "Agreement") is entered
into as of March 9, 2005 (the "Effective Date") by and between Brocade
Communications Systems, Inc. (the "Company") and Michael Klayko ("Executive").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of a Change of Control. The Board of Directors of the Company (the
"Board") recognizes that such consideration can be a distraction to the
Executive and can cause the Executive to consider alternative employment
opportunities.
B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Executive with an incentive to continue his or
her employment and to maximize the value of the Company upon a Change of Control
for the benefit of its shareholders.
C. In order to provide the Executive with enhanced financial security and
sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Executive with certain severance benefits upon the Executive's
termination of employment.
AGREEMENT
In consideration of the mutual covenants herein contained and the
continued employment of Executive by the Company, the parties agree as follows:
1. At-Will Employment. Executive and the Company agree that Executive's
employment with the Company is and shall continue to be "at-will" employment.
Executive and the Company acknowledge that this employment relationship may be
terminated at any time, upon written notice to the other party, with or without
good cause or for any or no cause, at the option either of the Company or
Executive. However, as described in this Agreement, Executive may be entitled to
severance benefits depending upon the circumstances of Executive's termination
of employment.
2. Severance Benefits.
(a) Termination of Employment. In the event Executive's employment
with the Company terminates for any reason, Executive will be entitled to any
(i) unpaid Base Salary accrued up to the effective date of termination, (ii)
unpaid, but earned and accrued annual incentive for any completed fiscal year as
of his termination of employment, (iii) benefits or compensation as provided
under the terms of any employee benefit and compensation agreements or plans
applicable to Executive, and (iv) unreimbursed business expenses required to
reimbursed to Executive.
(b) Termination Without Cause not in Connection with a Change of
Control. If Executive's employment is terminated by the Company without Cause
and such termination does not
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occur in Connection with a Change of Control, then, subject to Section 3,
Executive will receive: (i) twelve (12) months of Executive's base salary, as in
effect immediately prior to the date of termination, payable in a lump sum
payment within thirty (30) days of the Release Effective Date, (ii) 100% of
Executive's target bonus for the fiscal year in which Executive's termination
occurs, payable in a lump sum payment within thirty (30) days of the Release
Effective Date, and (iii) reimbursement for premiums paid for medical, dental
and vision benefits (the "COBRA Benefits") for Executive and Executive's
eligible dependents under the Company's benefit plans for twelve (12) months
following Executive's termination of employment, payable when such premiums are
due (provided Executive and Executive's eligible dependents validly elect to
continue coverage under applicable law). Notwithstanding the previous sentence
but subject to Section 3, Executive's cash severance payments (other than the
payments with respect to the COBRA Benefits) will accrue during the first six
(6) months after Executive's termination and will become payable in a lump sum
payment on the date six (6) months and one (1) day following the date of
Executive's termination; provided, that such cash severance payments will be
paid earlier, subject to Section 3, if Internal Revenue Service guidance
provides that the imposition of additional tax under Internal Revenue Code
Section 409A will not apply to an earlier payment of Executive's cash severance
payments, as reasonably determined by the Company.
(c) Termination Without Cause or Resignation for Good Reason in
Connection with a Change of Control. If Executive's employment is terminated by
the Company without Cause or by Executive for Good Reason, and the termination
is in Connection with a Change of Control, then, subject to Section 3, Executive
will receive: (i) twenty-four (24) months of Executive's base salary, as in
effect immediately prior to the date of termination, payable in a lump sum
payment within thirty (30) days of the Release Effective Date, (ii) 200% of
Executive's target bonus for the fiscal year in which Executive's termination
occurs, payable in a lump sum payment within thirty (30) days of the Release
Effective Date, (iii) reimbursement for premiums paid for COBRA Benefits for
Executive and Executive's eligible dependents under the Company's benefit plans
for eighteen (18) months following Executive's termination of employment,
payable when such premiums are due (provided Executive and Executive's eligible
dependents validly elect to continue coverage under applicable law), and (iv)
full accelerated vesting with respect to Executive's then outstanding, unvested
stock options granted on or prior to March 8, 2005. Notwithstanding the previous
sentence but subject to Section 3, Executive's cash severance payments (other
than the payments with respect to the COBRA Benefits) will accrue during the
first six (6) months after Executive's termination and will become payable in a
lump sum payment on the date six (6) months and one (1) day following the date
of Executive's termination; provided, that such cash severance payments will be
paid earlier, subject to Section 3, if Internal Revenue Service guidance
provides that the imposition of additional tax under Internal Revenue Code
Section 409A will not apply to an earlier payment of Executive's cash severance
payments, as reasonably determined by the Company.
(d) Voluntary Termination without Good Reason; Termination for
Cause. If Executive's employment with the Company terminates voluntarily by
Executive without Good Reason or is terminated for Cause by the Company, then
(i) all further vesting of Executive's outstanding equity awards will terminate
immediately, (ii) all payments of compensation by the Company to Executive
hereunder will terminate immediately, and (iii) Executive will be eligible for
severance benefits only in accordance with the Company's then established plans,
programs, and practices.
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(e) Termination due to Death or Disability. Notwithstanding anything
to the contrary in this Agreement, if Executive's employment terminates by
reason of death or Disability, then (i) Executive's outstanding equity awards
will terminate in accordance with the terms and conditions of the applicable
award agreement(s); (ii) all payments of compensation by the Company to
Executive hereunder will terminate immediately, and (iii) Executive will be
entitled to receive benefits only in accordance with the Company's then
established plans, programs, and practices.
(f) Sole Right to Severance. This Agreement is intended to represent
Executive's sole entitlement to severance payments and benefits in connection
with the termination of Executive's employment. To the extent Executive is
entitled to receive severance or similar payments and/or benefits under any
other Company plan, program, agreement, policy, practice, or the like, severance
payments and benefits due to Executive under this Agreement will be so reduced.
3. Conditions to Receipt of Severance; No Duty to Mitigate.
(a) Separation Agreement and Release of Claims. The receipt of any
severance pursuant to Section 2 will be subject to Executive signing and not
revoking a separation agreement and release of claims in the form provided to
Executive by the Company. No severance will be paid or provided until the
separation agreement and release agreement becomes effective (the "Release
Effective Date").
(b) Nondisparagement. During the Employment Term and for 12 months
thereafter, Executive will not knowingly disparage, criticize, or otherwise make
any derogatory statements regarding the Company, its directors, or its officers.
The foregoing restrictions will not apply to any statements that are made
truthfully in response to a subpoena or other compulsory legal process.
(c) Other Requirements. Executive agrees to continue to comply with
the terms of the Company's Employment, Confidential Information, Invention
Assignment and Arbitration Agreement entered into by Executive (the
"Confidential Information Agreement").
(d) No Duty to Mitigate. Executive will not be required to mitigate
the amount of any payment contemplated by this Agreement, nor will any earnings
that Executive may receive from any other source reduce any such payment.
4. Definitions.
(a) Cause. For purposes of this Agreement, "Cause" means (i)
Executive's willful and continued failure to perform the duties and
responsibilities of his position that is not corrected within a thirty (30) day
correction period that begins upon delivery to Executive of a written demand for
performance from the Board that describes the basis for the Board's belief that
Executive has not substantially performed his duties; (ii) any act of personal
dishonesty taken by Executive in connection with his responsibilities as an
employee of the Company with the intention or reasonable expectation that such
may result in substantial personal enrichment of Executive; (iii) Executive's
conviction of, or plea of nolo contendre to, a felony that the Board reasonably
believes has had or will have a material detrimental effect on the Company's
reputation or business, or (iv) Executive materially breaching Executive's
Confidential Information Agreement, which breach is (if capable of cure) not
cured within thirty (30) days after the Company delivers written notice to
Executive of the breach.
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(b) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) the consummation by the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 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;
(ii) the consummation of the sale or disposition by the
Company of all or substantially all of the Company's assets;
(iii) 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; or
(iv) a change in the composition of the Board, 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 the date hereof, or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those directors whose
election or nomination was not in connection with any transactions described in
subsections (i), (ii), or (iii) or in connection with an actual or threatened
proxy contest relating to the election of directors of the Company.
(c) Disability. For purposes of this Agreement, Disability will have
the same defined meaning as in the Company's long-term disability plan.
(d) Good Reason. For purposes of this Agreement, "Good Reason" means
the occurrence of any of the following, without Executive's consent: (i) a
material reduction of Executive's duties, title, authority or responsibilities
in effect immediately prior to a Change of Control; (ii) a reduction in
Executive's base salary or target annual cash incentive compensation; (iii) the
failure of the Company to obtain the assumption of the Agreement by the
successor, or (iv) the Company requiring Executive to relocate his or her
principal place of business or the Company relocating its headquarters, in
either case to a facility or location outside of a thirty-five (35) mile radius
from Executive's current principal place of employment; provided, however, that
Executive only will have Good Reason if the event or circumstances constituting
Good Reason specified in any of the preceding clauses is not cured within thirty
(30) days after Executive gives written notice to the Board. Executive's actions
approving any of the foregoing changes (that otherwise may be considered Good
Reason) will be considered consent for the purposes of this Good Reason
definition.
(e) In Connection with a Change of Control. For purposes of this
Agreement, a termination of Executive's employment with the Company is "in
Connection with a Change of Control" if Executive's employment is terminated
within twelve (12) months following a Change of Control.
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5. Assignment. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors, and legal representatives of Executive upon
Executive's death, and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, "successor" means any person,
firm, corporation, or other business entity which at any time, whether by
purchase, merger, or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance, or other
disposition of Executive's right to compensation or other benefits will be null
and void.
6. Notices. All notices, requests, demands, and other communications
called for hereunder will be in writing and will be deemed given (a) on the date
of delivery if delivered personally, (b) one day after being sent overnight by a
well established commercial overnight service, or (c) four days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors at the following addresses, or at
such other addresses as the parties may later designate in writing:
If to the Company:
Attn: General Counsel
Brocade Communications Systems, Inc.
1745 Technology Drive
San Jose, CA 95110
If to Executive:
at the last residential address known by the Company.
7. Severability. If any provision hereof becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable, or void, this Agreement
will continue in full force and effect without said provision.
8. Arbitration. The Parties agree that any and all disputes arising out of
the terms of this Agreement, their interpretation, and any of the matters herein
released, will be subject to binding arbitration in Santa Clara County,
California before the American Arbitration Association under its National Rules
for the Resolution of Employment Disputes, supplemented by the California Rules
of Civil Procedure. The Parties agree that the prevailing party in any
arbitration will be entitled to injunctive relief in any court of competent
jurisdiction to enforce the arbitration award. The Parties hereby agree to waive
their right to have any dispute between them resolved in a court of law by a
judge or jury. This paragraph will not prevent either party from seeking
injunctive relief (or any other provisional remedy) from any court having
jurisdiction over the Parties and the subject matter of their dispute relating
to Executive's obligations under this Agreement.
9. Integration. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter herein and supersedes
all prior or contemporaneous agreements whether written or oral, including any
agreements that provide for severance benefits and any
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agreements that provide for vesting acceleration of Executive's outstanding
equity awards (except for any terms that provide for the accelerated vesting of
Executive's equity awards if they are not assumed or substituted by a successor
corporation). No waiver, alteration, or modification of any of the provisions of
this Agreement will be binding unless in a writing that specifically references
this Section and is signed by duly authorized representatives of the parties
hereto.
10. Waiver of Breach. The waiver of a breach of any term or provision of
this Agreement, which must be in writing, will not operate as or be construed to
be a waiver of any other previous or subsequent breach of this Agreement.
11. Headings. All captions and Section headings used in this Agreement are
for convenient reference only and do not form a part of this Agreement.
12. Tax Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.
13. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).
14. Acknowledgment. Executive acknowledges that he has had the opportunity
to discuss this matter with and obtain advice from his private attorney, has had
sufficient time to, and has carefully read and fully understands all the
provisions of this Agreement, and is knowingly and voluntarily entering into
this Agreement.
15. Counterparts. This Agreement may be executed in counterparts, and each
counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by a duly authorized officer, as of the day and year
written below.
COMPANY:
BROCADE COMMUNICATIONS SYSTEMS, INC.
By: /s/ Antonio Canova Date: March 9, 2005
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Title: Chief Financial Officer and
Vice President, Administration
EXECUTIVE:
/s/ Michael Klayko Date: March 9, 2005
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Michael Klayko
[SIGNATURE PAGE TO CHANGE OF CONTROL RETENTION AGREEMENT]
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