Key Employment Agreement - Novell Inc. and Eric Schmidt
NOVELL, INC.
KEY EMPLOYMENT AGREEMENT
THIS KEY EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this March 18, 1997 (the "Effective Date"), by and between NOVELL, INC., a
Delaware corporation, 122 East 1700 South, Provo, Utah ("Novell"), and Eric
Schmidt ("Employee").
RECITALS
A. Novell is engaged in the process of developing, manufacturing
and marketing computer hardware and software.
B. Commencing upon the Effective Date and through April 6, 1997
(the "Part-Time Employment Period"), Employee shall be a
part-time employee of Novell, familiarizing himself with
Novell's business operations. On April 7, 1997, Employee will
become (i) the Chief Executive Officer of Novell, and (ii)
subject to continued election to the Board by the vote of the
stockholders of the Company, a member of the Board.
C. In consideration of the benefits of new employment by Novell, as
well as other good and valuable consideration set forth herein,
Employee agrees to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto intending to be legally
bound, hereby agree as follows.
I. Definitions: As used herein, the following definitions shall apply:
A. "Board" shall mean Novell's Board of Directors.
B. "Cause" shall mean Employee's termination only upon:
1. Employee's continued violations of Employee's
obligations to perform the duties and responsibilities
normally required of a chief executive officer which are
demonstrably willful or deliberate on Employee's part
after there has been delivered to Employee a written
demand for performance from Novell which described the
basis for Novell's belief that Employee has not
substantially performed his duties;
2. Employee's engaging in willful misconduct which is
materially injurious to Novell or its affiliates;
3. Employee's committing a felony, an act of fraud against
or the misappropriation of property belonging to Novell
or its affiliates; or
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4. Employee's willful breaching, in any material respect,
the terms of this Agreement or any confidentiality or
proprietary information agreement between Employee and
Novell.
C. A "Change in Control" shall be deemed to have occurred if:
1. Novell sells or otherwise disposes of all or
substantially all of its assets;
2. There is a merger, consolidation or any other corporate
reorganization of Novell with any other corporation or
corporations or any other entity or person (or a related
series of such transactions), provided that the
stockholders of Novell, as a group, do not hold,
immediately after such event, at least 50% of the voting
power of the surviving or successor corporation or any
series of transactions.
3. Any person or entity, including any "person" as such
term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
becomes the "beneficial owner" (as defined in the
Exchange Act) of Common Stock of Novell representing 40%
or more of the combined voting power of the voting
securities of Novell.
D. "Code" shall mean the Internal Revenue Code of 1986, as amended.
E. "Constructive Termination" shall mean that the Employee has
terminated employment with Novell or its affiliated entities
because, although Novell has not terminated the Employee's
employment involuntarily, either the Employee's position, annual
base salary or responsibilities have been significantly reduced.
For purposes of this Agreement, a reduction of twenty percent
(20%) or more in Employee's annual base salary in effect
immediately prior to such reduction will be deemed to be a
significant reduction. A reduction in the Employee's annual base
salary that is part of an overall reduction in compensation also
applied to other senior executives of Novell as a result of
decreased business performance by Novell or one of its business
units shall not constitute a Constructive Termination.
F. "Novell" shall mean Novell and its subsidiaries.
G. "Restricted Business" shall mean:
1. the design, development, manufacture, marketing or
support of local or wide area network products, computer
operating systems, applications products, or any other
software products of the type designed, developed,
manufactured, sold or supported by Novell or as proposed
to be designed, developed, manufactured, sold or
supported by Novell pursuant to a development project
which is actually being pursued during the term of this
Agreement; and
2. any business which directly competes with the hardware
and software business of Novell.
H. "Restricted Territory" shall mean the counties, cities or states
of the United States.
II. Employment and Term
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A. This Agreement shall commence as of the Effective Date and shall
continue until all obligations of the parties hereto are
discharged following Employee's termination of employment.
B. During the term hereof, and subject to other provisions set
forth herein, Novell may terminate Employee's employment for
Cause or without Cause.
C. If Employee's employment is terminated for Cause or if Employee
resigns his employment other than upon a Constructive
Termination, no compensation or payments will be paid or
provided to Employee pursuant to this Agreement for the period
following the date upon which such a termination of employment
is effective.
D. If Novell terminates Employee's employment other than for Cause
or if a Constructive Termination occurs: (i) Employee shall be
entitled to receive a severance payment from Novell in an amount
equal to one times Employee's rate of annual base salary and
Target Bonus (as defined herein) at the time of termination;
(ii) Employee shall be entitled to receive an amount equal to
the cost of COBRA continuation for a period of one year after
termination; (iii) Novell agrees to accelerate the vesting of
that portion of Employee's stock options, if any, which would
have vested within one year after the date of Employee's
termination; and (iv) in the event that Employee holds any
shares subject to Novell repurchase rights upon termination of
employment or consulting relationship with the Company, Novell
agrees to waive such repurchase rights as to the vesting of all
such shares. The severance payment shall be payable in 12 equal
monthly installments.
E. During the Part-Time Employment Period, Novell shall pay the
Employee at the rate of $1000 per week. Following the Part-Time
Employment Period and while employed by Novell pursuant to this
Agreement, Novell shall pay the Employee as compensation for his
services a base salary at the annualized rate of $600,000 (the
"Base Salary"), subject to normal review for potential cost of
living or performance adjustments. Such salary shall be paid
periodically in accordance with normal Novell payroll practices
and subject to the usual, required withholding. Employee
understands and agrees that neither his job performance nor
promotions, commendations, bonuses or the like from Novell give
rise to or in any way serve as the basis for modification,
amendment, or extension, by implication or otherwise, of this
Agreement.
F. If Employee remains employed by Novell through October 31, 1997,
Employee shall receive a bonus payment equal to six hundred
thousand dollars ($600,000) multiplied by a fraction, the
numerator of which shall be the number of days between the
Effective Date and October 31, 1997 and the denominator of which
shall be three hundred and sixty-five, less applicable
withholding.
G. Following October 31, 1997, in addition to Employee's Base
Salary, Employee will participate in Novell's then current
incentive bonus program under which Employee will be entitled to
earn incentive bonus compensation equal to:
(i) 100% of Employee's base salary if certain performance
goals are met (the "Target Bonus"); and
(ii) Such additional bonus compensation as may be specified
by the Board should such goals be exceeded.
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H. On the Effective Date, Employee shall be granted stock options
to purchase a total of two million seven hundred and fifty
thousand shares (2,750,000) shares of Novell Common Stock with a
per share exercise price equal to 100% of the "Fair Market
Value," as such term is defined in the Novell 1991 Stock Plan
(the "Stock Plan"). These options shall be for a term of ten
years (or shorter upon termination of Employee's employment or
consulting relationship with Novell) and, subject to accelerated
vesting as set forth elsewhere herein, shall vest as to 20% of
the shares originally subject to the option on the first
anniversary of the date of grant, and as to of 1/60th of the
shares originally subject to the option each month thereafter,
so as to be 100% vested five years from the date of grant,
conditioned upon Employee's continued employment or consulting
relationship with Novell as of each vesting date. Except as
specified otherwise herein, these option grants are in all
respects subject to the terms, definitions and provisions of the
Stock Plan and all the standard form of stock option agreement
thereunder to be entered into by and between Employee and Novell
(the "Option Agreement"), both of which documents are
incorporated herein by reference; provided, however, that to the
extent such options may not be granted under the Stock Plan by
virtue of the limitation on the number of shares subject to
option that may be granted thereunder in any fiscal year of
Novell, they shall be granted outside of the Stock Plan pursuant
to a written option agreement containing the same terms and
conditions. Any such non-Stock Plan stock options shall be
registered by the Company on Form S-8 as soon following the
Effective Time as is practicable.
I. On the Effective Date, Employee shall purchase nine hundred
thousand shares of Novell Common Stock for a purchase price of
nine thousand dollars ($9,000) (the "Restricted Stock"). Subject
to accelerated vesting as specified elsewhere in this Agreement,
the Restricted Stock shall vest as to (i) 30% of the shares
purchased on the first anniversary of the Employment
Commencement Date, (ii) 25% of the shares purchased on the
second anniversary of the Employment Commencement Date, (iii)
20% of the shares purchased on the third anniversary of the
Employment Commencement Date, (iv) 15% of the shares purchased
on the fourth anniversary of the Employment Commencement Date,
and (v) 10% of the shares purchased on the fifth anniversary of
the Employment Commencement Date, so as to be 100% vested five
years following the Employment Commencement Date, conditioned
upon Employee's continued employment or consulting relationship
with Novell as of such vesting dates. Except as otherwise
specified herein, in the event that Employee's employment or
consulting relationship with Novell terminates, any unvested
Restricted Stock shall be subject to repurchase by Novell for
the per share purchase price originally paid by Employee. This
award is in all respects subject to the terms, definitions and
provisions of the Stock Plan and the standard form of restricted
stock purchase agreement to be entered into by and between
Employee and Novell (the "Restricted Stock Purchase Agreement"),
both of which documents are incorporated herein by reference.
Notwithstanding anything in this Agreement to the contrary, in
the event that the sale by Employee of Novell common stock is
restricted by federal securities laws (other than Section 16 of
the Securities Exchange Act of 1934, as amended) or the insider
trading policies of Novell, at the time any tax liability arises
as a result of the vesting of Restricted Stock, Novell shall
loan to Employee sufficient funds to pay such tax liability.
Such loan shall be pursuant to a Promissory Note, which shall
accrue interest at the minimum applicable federal rate to avoid
the imputation of income to the Employee, and shall be payable
by Employee to Novell no later than thirty (30) days after the
trading restriction expires.
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J. Employee will be entitled to receive Novell's employee benefits
made available to other employees and officers to the full
extent of Employee's eligibility therefor. During Employee's
employment, Employee shall be permitted, to the extent eligible,
to participate in any group medical, dental, life insurance and
disability insurance plans, or similar benefit plans of Novell
that are available to other comparable employees. Participation
in any such plan shall be consistent with Employee's rate of
compensation to the extent that such compensation is a
determinative factor with respect to coverage under any such
plan.
K. Employee is subject to the Novell policies set forth in the most
current version of the Employee Handbook, which policies may be
altered from time to time by Novell. In the event provisions of
this Agreement are in conflict with the Employee Handbook, the
provisions of this Agreement shall govern.
III. Work Responsibilities. During the Part-Time Employment Period, Employee
shall work on a part-time basis to familiarize himself with the business
operations of Novell. On April 7, 1997, Employee shall become Novell's
Chief Executive Officer (the "CEO Commencement Date"). Following the CEO
Commencement Date and during the term of this Agreement as set forth in
Section II.A hereof, Employee agrees to devote his full business time,
skill and attention to his duties as Chief Executive Officer of Novell,
and shall perform them faithfully and diligently, using his best efforts
to further the business of Novell. Employee shall report to, and agrees
to perform such responsibilities and duties as may reasonably be
required by, the Board from time to time.
IV. Covenants Not to Compete and Not to Solicit
A. Following the Part-Time Employment Period, Employee shall not,
while employed hereunder, and for a period of one (1) year
thereafter in the event of a voluntary termination, directly or
indirectly, engage in (whether as employee, consultant,
proprietor, partner, director or otherwise), or have any
ownership interest in, or participate in the financing,
operation, management or control of, any person, firm,
corporation or business that is a Restricted Business in a
Restricted Territory without the prior written consent of
Novell. It is agreed that (i) ownership of no more than 2% of
the outstanding voting stock of a publicly traded corporation or
any stock presently owned by Employee, and (ii) acting as a
member of any Board of Directors on which Employee is serving as
of the Effective Date, shall not constitute a violation of this
provision.
B. Employee agrees that for a period of one (1) year after his
employment hereunder terminates, Employee shall not:
1. solicit, encourage, or take any other action which is
intended to induce any other employee of Novell to
terminate his or her employment with Novell; or
2. interfere with the contractual or employment
relationship between Novell and any such employee of
Novell.
The foregoing shall not prohibit Employee or any entity with
which Employee may be affiliated from hiring a former employee
of Novell; provided that such hiring results exclusively from
such former employee's affirmative response to a general
recruitment effort.
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C. The parties intend that the covenants contained in the preceding
paragraphs shall be construed as a series of separate covenants,
one for each county, city and state or other political
subdivision of the Restricted Territory. Except for geographic
coverage, each such separate covenant shall be deemed identical
in terms to the covenant contained in the preceding paragraphs.
If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants (or any part thereof deemed
included in said paragraphs, then such unenforceable covenant
(or such part) shall be deemed eliminated from this Agreement
for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants (or portions thereof to
be enforced.
D. In the event that the provisions of this Section IV should ever
be deemed to exceed the time, scope or geographic limitations
permitted by applicable laws, then such provisions shall be
reformed to the maximum time, scope or geographic limitations,
as the case may be, permitted by applicable laws.
V. Reasonableness of Covenants. Employee represents that he: (a) is
familiar with the covenants not to compete and not to solicit , and (b)
is fully aware of and acknowledges his obligations hereunder, including
without limitation the reasonableness of the length of time and scope of
these covenants. Employee acknowledges that breach of Employee's
covenants not to compete and not to solicit in Section IV would cause
irreparable injury to Novell, and agrees that in the event of such
breach Novell shall be entitled to seek injunctive relief under
applicable law without the necessity of proving actual damages.
VI. Novell Agreements. As of the Effective Date, Employees agrees to enter
into Novell's Intellectual Property Agreement as well as Novell's
Conflicts Disclosure Form.
VII. At-Will Employment. Novell and Employee acknowledge that Employee's
employment is and shall continue to be at-will, as defined under
applicable law. If Employee's employment terminates for any reason,
Employee shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement or other
written Novell benefit plans.
VIII. Change in Control. In the event that Employee's employment with Novell
or its successor is terminated without Cause following a Change in
Control, or Employee experiences a Constructive Termination following a
Change in Control:
A. Employee shall receive a severance payment in an amount equal to
two times Employee's rate of annual Base Salary and Target Bonus
at the time of termination;
B. Employee shall receive an additional payment equal to the cost
of COBRA continuation for a period of eighteen months after
termination;
C. Novell agrees to accelerate the vesting of that portion of
Employee's Novell stock options, if any, which would have vested
within one year after the date of Employee's termination. No
other portion of Employee's stock option shall be accelerated.
D. In the event that Employee holds any shares subject to Novell
repurchase rights upon termination of employment, Novell agrees
to waive such repurchase rights as to the vesting of the greater
of (i) the number of shares that would have vested within one
year after the date of Employee's termination, or (ii) one-half
of the number of shares not vested on the date of Employee's
termination.
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E. The payments set forth in Sections VIII.A and VIII.B shall be
payable upon the date of Employee's termination.
Termination of employment without Cause, including Constructive
Termination, shall be presumed to be "following a Change in Control" if
it takes place at any time within two (2) months before or 1 (one) year
after a Change in Control.
IX. Best Results: 280G Excise Tax Gross-Up on Excise Tax Related to Stock
Option Vesting Acceleration. In the event that any payment or benefit
received or to be received by Employee upon a Change in Control would
result in all or a portion of such payment to be subject to excise tax
under Section 4999 of the Code, then the Employee's payment shall be
either (i) the full payment or (ii) such lesser amount which would
result in no portion of the payment 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 employment taxes,
income taxes, and the excise tax imposed by Section 4999 of the Code,
and also taking into account Novell's obligation to pay to Employee the
Excise Tax Amount (as defined below) related to the accelerated vesting
of Employee's Novell stock options, results in the receipt by Employee,
on an after-tax basis, of the greatest amount, notwithstanding that all
or some portion of the payment may be taxable under Section 4999 of the
Code. If the full payment is to be made to Employee pursuant to the
preceding sentence, Novell shall pay to Employee an amount equal to the
"Excise Tax Amount" relating to the accelerated vesting of Employee's
Novell stock options, such that Employee shall be fully "grossed-up" as
to the excise tax relating to the accelerated vesting of such options.
The "Excise Tax Amount" means a calculation of Employee's Code Section
4999 excise tax liability relating to the vesting of Employee's Novell
stock options, including any excise tax liability relating to payments
to be made pursuant to the preceding sentence. For purposes of
determining the Excise Tax Amount, the Code Section 4999 excise tax
liability relating to the vesting of Employee's Novell stock options
shall be calculated by allocating the "Base Amount" (as such term is
defined in Code Section 280G(b)(3) pro rata among the Novell stock
option acceleration and any other benefits (other than the Excise Tax
Amounts payments) that are determined to be "Parachute Payments" (as
such term is defined in Code Section 280G(b)(2)). All determinations
required to be made under this Section IX shall be made by Ernst & Young
or any other nationally recognized accounting firm which is Novell's
outside auditor at the time of such determination, which firm must be
reasonably acceptable to Employee (the "Accounting Firm"). Novell shall
cause the Accounting Firm to provide detailed supporting calculations of
its determinations to Novell and Employee. Notice must be given to the
Accounting Firm within fifteen (15) business days after an event
entitling Employee to a payment under this Agreement. All fees and
expenses of the Accounting Firm shall be borne solely by Novell. The
Accounting Firm's determinations must be made with substantial authority
(within the meaning of Section 6662 of the Code).
X. Disability or Death. If Employee's employment hereunder terminates due
to his total and permanent disability (as defined in Section 22(e)(3) of
the Code) or death, then such termination shall be treated as if it were
a termination without Cause.
XI. Amounts Payable Subject to Withholding. Any amounts payable hereunder,
including any amounts to be paid in the event of a termination without
Cause or a Constructive Termination, shall be subject to applicable tax
withholding.
XII. Arbitration. The parties hereto agree that any dispute or controversy
arising out of, relating to, or in connection with this Agreement, or
the interpretation, validity, construction, performance,
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breach, or termination thereof, shall be finally settled by binding
arbitration to be held in Santa Clara County, California under the
Employment Dispute Resolution Rules of the American Arbitration
Association as then in effect (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision
of the arbitrator shall be final, conclusive and binding on the parties
to the arbitration, and judgement may be entered on the decision of the
arbitrator in any court having jurisdiction.
The arbitrator shall apply California law to the merits of any dispute
or claim, without reference to rules of conflicts of law, and the
arbitration proceedings shall be governed by federal arbitration law and
by the Rules, without reference to state arbitration law, provided,
however, that this arbitration provision shall not preclude Novell from
seeking injunctive relief from any court having jurisdiction with
respect to any disputes or claims relating to or arising out of the
misuse or misappropriation of Novell's trade secrets or confidential and
proprietary information. The arbitrator shall award costs and fees,
including reasonable attorneys' fees to the prevailing party, or shall
be free to apportion costs and fees as deemed reasonable under the
circumstances.
EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION XII, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EMPLOYEE AGREES TO SUBMT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING
ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF
EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL
DISPUTES RELATING TO EMPLOYEE'S RELATIONSHIP WITH THE COMPANY.
XIII. Integration. This Agreement, including the documents referenced in
Sections II and VI of this Agreement, set forth the entire understanding
of the parties hereto with respect to the subject matter hereof and
supersedes all previous communications, negotiations and agreements
among the parties, whether written or oral. No waiver, alteration, or
modification, if any, of the provisions of this Agreement shall be
binding unless in writing and signed by duly authorized representatives
of the parties hereto.
XIV. Successors. Novell shall require any successor or assignee, in
connection with any sale, transfer or other disposition of all or
substantially all of Novell's assets or business, whether by purchase,
merger, consolidation or otherwise, expressly to assume and agree to
perform Novell's obligations under this Agreement in the same manner and
to the same extent that Novell would be required to perform if no such
succession or assignment has taken place.
XV. Severability. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision
shall be ineffective to the extent of such invalidity or
unenforceability without invalidating the remaining terms and provisions
hereof, and this Agreement shall be construed as if such invalid or
unenforceable term or provision had not been contained herein.
XVI. Notices. Any notice pursuant to the Agreement shall be deemed validly
given or served if given in writing and delivered personally or ten (10)
calendar days after being sent by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of Employee,
mailed notices shall be addressed to him or her at the home address
which he most recently communicated to Novell in writing. In the case of
Novell, mailed notices shall be addressed to
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Novell, Inc., 1555 N. Technology Way, Orem, Utah 84057, and all notices
shall be directed to the attention of Novell's General Counsel.
XVII. Title and Captions. Section titles or captions to this Agreement are for
convenience only and shall not be deemed part of this Agreement or in no
way define, limit, augment, extend, or describe the scope, content, or
intent of any part or parts of this Agreement.
XVIII. Pronouns and Plurals. Whenever the context may require, any pronoun used
herein shall include the corresponding masculine, feminine, or neuter
forms and the singular form of nouns, pronouns, and verbs shall include
the plural and vice versa. Each of the foregoing genders and plurals is
understood to refer to a corporation, partnership, or other legal entity
when the context so requires.
XIX. Further Action. The parties shall execute and deliver all documents or
instruments, provide all information, and take or forebear from all such
action as may be necessary or appropriate to achieve the purposes of
this Agreement.
XX. Applicable Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of California.
XXI. Waiver. No failure by any party to insist upon the strict performance of
any covenant, duty, agreement, or condition of this Agreement or to
exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or of such or any other covenant,
agreement, term or condition. Any party may, by notice delivered in the
manner provided in this Agreement, but shall be under no obligation to,
waive any of its rights or any conditions to its obligations hereunder,
or any duty, obligation or covenant of the other party. No waiver shall
affect or alter the remainder of this Agreement but each and every other
covenant, agreement, term, and condition hereof shall continue in force
and effect with respect to any other then existing or subsequently
occurring breach.
XXII. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall
constitute one and the same agreement.
XXIII. Employee Acknowledgment. Employee acknowledges that before signing this
Agreement, Employee was given an opportunity to read it, evaluate it,
and consult with an attorney and other personal advisors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
EMPLOYEE: NOVELL:
/s/Eric Schmidt /s/John A. Young
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Eric Schmidt John A. Young
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