Change in Control Agreement - Silicon Graphics Inc.
SILICON GRAPHICS, INC.
2011 North Shoreline Boulevard
Mountain View, California 94043-1389
November 14, 1997
Silicon Graphics, Inc.
2011 North Shoreline Boulevard
Mountain View, California 94043-1389
Dear:
This agreement amends and restates the prior agreement between you and
Silicon Graphics, Inc. (the "Company") dated as of ___________.
The Company considers it essential to the best interests of its
shareholders to foster the continuous employment of key management personnel.
In this connection, the Board of Directors of the Company (the "Board")
recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control may exist and that such possibility, and
the uncertainty and questions which it may raise among management, may result
in the departure or distraction of management personnel to the detriment of
the Company and its shareholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of officers of
the Company, including you, to their assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility
of a change in control of the Company, although no such change is now
contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your agreements set forth in subparagraph 2(g) hereof, the
Company agrees that you shall receive the benefits set forth in this
agreement ("Agreement") under the circumstances described below.
1. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall continue in effect until your employment with the Company is
terminated other than after a change in control unless sooner terminated by
written agreement of the Company and you.
2. DEFINITIONS. As used in this Agreement:
(a) "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Board" shall mean the Board of Directors of the Company.
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(c) "Business Combination" means and includes each and all of the
following occurrences:
(i) A consolidation or merger pursuant to which more than 75%
of the Company's voting stock is transferred to different holders, except
for a transaction intended primarily to change the state of the Company's
incorporation.
(ii) More than 75% of the assets of the Company are sold or
otherwise disposed of.
(iii) The Company dissolves or liquidates or effects a
partial liquidation involving more than 75% of its assets.
(d) "Change in Control" of the Company means and includes each and
all of the following occurrences:
(i) A Business Combination.
(ii) When any "person" as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) of the Exchange Act but excluding the
Company and any subsidiary and any employee benefit plan sponsored or
maintained by the Company or any subsidiary (including any trustee of such
plan acting as trustee), directly or indirectly, becomes the Beneficial
Owner of securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then outstanding
securities with respect to the election of the directors of the Company.
(iii) During any period of three (3) consecutive years (not
including any period prior to the date hereof), individuals who, at the
beginning of such period, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a Director subsequent to the date hereof
whose election, or nomination for election by the Company's shareholders,
was approved by the vote of at least a majority of the Directors then
comprising the Incumbent Board (other than an election or nomination of
any individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for purposes
of this Agreement, considered as though such person were a member of the
Incumbent Board.
For purposes of this Agreement, the Board of Directors may by resolution,
clarify the date as of which a Change in Control shall be deemed to have
occurred.
(e) "Current Compensation" shall mean your monthly base salary, as
in effect immediately prior to your termination of employment with the Company.
In addition, if you participate in a variable compensation program (other than
the corporate annual executive incentive plan or a similar incentive plan in
which all senior executives participate), then your
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Current Compensation will be based on your target compensation (including
base and variable compensation) in effect under that plan during the six (6)
months immediately preceding the month in which your termination occurs.
(f) "Disability" shall mean a physical or mental illness or injury
which, as determined by the Company, continuously prevents you from performing
your duties with the Company for a period of six months prior to termination.
(g) "Good Reason" shall mean grounds for termination by you of your
employment by the Company based upon prior constructive termination by the
Company as provided in Paragraph 5 hereof.
(h) "Potential Change in Control of the Company" shall be deemed
to have occurred if (i) the Company enters into an agreement or letter of
intent, the consummation of which would result in the occurrence of a Change
in Control of the Company; (ii) any person (including the Company) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control of the Company; (iii) any
person, other than a trustee or other fiduciary holding securities under an
employee benefit plan for the Company, who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 9.5%
or more of the combined voting power of the Company's then outstanding
securities increases his beneficial ownership of such securities by five (5)
percentage points or more over the percentage so owned by such person on the
date hereof; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of the Company has
occurred. You agree that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control of the Company, you
will remain in the employ of the Company (or the subsidiary thereof by which
you are employed at the date such Potential Change in Control occurs) until
the earliest of (x) a date which is six months from the occurrence of such
Potential Change in Control of the Company, (y) the termination by you of
your employment by reason of Disability, as defined in subparagraph 2(e) or
(z) the occurrence of a Change in Control of the Company.
(i) "Termination Payment" shall mean the severance pay to which you
are entitled upon termination of your employment within 24 months after a
Change in Control as provided in Subparagraph 3(a) hereof.
3. COMPENSATION FOLLOWING A CHANGE IN CONTROL.
(a) Subject to Sections 6 and 7 below, if your employment with the
Company is terminated within 24 months after a Change in Control, you shall be
entitled to a Termination Payment, payable in cash, in an amount equal to
twenty-four (24) months of your Current Compensation at the rate in effect
immediately prior to such Change in Control.
(b) In addition to the Termination Payment,
(i) you shall have the right during the period of six months
following such Change in Control either (i) to exercise all non-statutory
options granted to you by
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the Company and all incentive stock options granted to you by the
Company after ISODate, as to all or any part of the shares covered
thereby, including shares as to which such options would not otherwise
then be exercisable, or (ii) to have such options "cashed out" at their
market value determined as provided herein. The cash out proceeds shall
be paid to you or, in the event of your death prior to payment, the
representative of your estate. For this purpose, the fair market value
of an outstanding option shall be measured as the difference between the
option exercise price and the "Change in Control Price" as defined in
subparagraph 3(d), as of the date such Change in Control is determined
to have occurred or such other date as the Board of Directors may
determine prior to the Change in Control.
(ii) all outstanding incentive stock options granted to you by
the Company on or prior to ISODate (including any options issued in
substitution or assumption of such options as a result of a Change in
Control), shall be accelerated 15 calendar days after the date of such
Change in Control to the extent then unvested, and shall be fully
exercisable through the period ending three (3) months after the
termination of your employment with the company, subject to any further
limitation on your right to exercise such options upon termination of your
employment pursuant to the terms of any applicable option agreement.
(iii) all restricted stock granted to you by the Company
shall be released from the Company's repurchase right (which is set forth
in your restricted stock purchase agreements) 15 calendar days after the
date of such Change in Control.
(c) Any cash payable to you under subparagraph 3(a) shall be payable
between 30 and 60 calendar days after your termination of employment. Any cash
payable to you under subparagraph 3(b)(i) shall be made within 30 calendar days
after the earlier of (i) the expiration of the respective periods in the
subsections thereof, or (ii) the date the Company receives your written notice
electing to be cashed out on the value of your options in lieu of exercise
thereof.
(d) For purposes of this Paragraph 3, "Change in Control Price"
shall be, as determined by the Board, (i) the highest closing sale price of a
share of the Company's Common Stock as reported by the NASDAQ National Market
System and as appearing in the Wall Street Journal (or, in the event the Common
Stock is listed on a stock exchange, the highest closing price on such exchange
as reported on the composite transactions reporting system), at any time within
the 60-day period immediately preceding the date of determination of the Change
in Control Price by the Board (the "60-day period"), or (ii) the highest price
paid or offered for a share of the Common Stock, as determined by the Board, in
any bona fide transaction or bona fide offer related to the Change in Control
of the Company, at any time within the 60-day period.
(e) Anything contained in subparagraphs (a) or (b) above to the
contrary notwithstanding, the Company shall have no obligation to pay a
Termination Payment or to accelerate vesting of shares or to cash out options
or to release shares from the Company's repurchase right under this Agreement
in the event of a termination prior to a Change in Control. The Company also
shall have no obligation to pay a Termination Payment if, after a Change in
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Control, it terminates your employment for "Cause" or if your employment
terminates due to death, retirement or resignation other than for "Good
Reason." Furthermore, if it is determined by the Company's Board of
Directors, upon receipt of a written opinion of the Company's independent
public accountants that acceleration of vesting of shares or cash out of
outstanding options or releasing of shares from the Company's repurchase
right would preclude accounting for the acquisition of the Company as a
pooling of interests, and the Board otherwise desires to approve a proposed
acquisition of the Company by an acquiring Company which requires as a
condition to closing of the acquisition that the acquisition be accounted for
as a pooling of interests, then the Company shall not be obligated to
accelerate your options or cash out your options or release your restricted
stock from its repurchase right under this Paragraph 3.
(f) In the event that the terms of this Agreement relating to
options or restricted stock conflict with the terms of any option, stock award
or related agreement between you and the Company, the terms that are more
favorable to you will control."
4. TERMINATION FOR CAUSE. Termination of your employment with the
Company shall be regarded as termination for Cause only upon:
(a) your willful and continued failure to substantially perform your
duties with the Company (other than such failure resulting from your incapacity
due to physical or mental illness) after there is delivered to you by the Board
a written demand for substantial performance which sets forth in detail the
specific respects in which it believes you have not substantially performed
your duties;
(b) your willfully engaging in gross misconduct which is materially
and demonstrably injurious to the Company;
(c) your committing a felony or an act of fraud against the Company
or its affiliates; or
(d) your breaching materially the terms of your employee
confidentiality and proprietary information agreement with the Company.
No act, or failure to act, by you shall be considered "willful" if done,
or omitted to be done, by you in good faith and in your reasonable belief that
your act or omission was in the best interest of the Company and/or required by
applicable law.
Anything contained in this paragraph 4 to the contrary notwithstanding,
you shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to and an opportunity for you, together with your counsel, to
be heard before the Board), finding that in the good faith opinion of the
Board, you were guilty of conduct set forth in subparagraphs (a) or (b) of this
Paragraph 4 and specifying the particulars thereof in detail.
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5. TERMINATION FOR GOOD REASON. Your employment with the Company may be
regarded as having been constructively terminated by the Company, and you may
therefore terminate your employment for Good Reason and thereupon become
entitled to compensation pursuant to Paragraph 3 above, if, after a Change in
Control, one or more of the following events shall occur (unless such event(s)
applies generally to all officers of the Company and any successor to the
Company, or applies to a person solely in his capacity as a member of the
Board):
(i) without your express written consent, the assignment to you
of any duties or the significant reduction of your duties, either of which
is inconsistent with your position with the Company (or the duties and
responsibilities of such position) immediately prior to a Change in
Control, or your removal from or any failure to re-elect you to any such
position;
(ii) without your express written consent, the substantial
reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to you
immediately prior to a Change in Control;
(iii) a reduction by the Company in your salary or in any
bonus compensation formula applicable to you as in effect immediately
prior to a Change in Control, or the failure by the Company to increase
such base salary each year following a Change in Control by an amount
which equals at least one-half (1/2), on a percentage basis, of the
average annual percentage increase in base salary for all officers of the
Company (and any successor of the Company) during the prior two full
calendar years;
(iv) a material reduction by the Company in the kind or level of
employee benefits to which you were entitled prior to a Change in Control
with the result that your overall benefits package is significantly
reduced after the Change in Control; or the taking of any action by the
Company which would materially and adversely affect your participation in
any plan, program or policy generally applicable to executives or
employees of the Company or any successor of the Company (including but
not limited to paid vacation days), or deprive you in a material and
substantial way of any fringe benefits enjoyed by you prior to a Change in
Control;
(v) the Company's requiring you to be based anywhere other than
your then present location (except for required travel on the Company's
business to an extent substantially consistent with your present business
travel obligations) or a location more than 25 miles from your then
present location, without your consent;
(vi) any purported termination of your employment by the Company
which is not effected for Disability or for Cause, or any purported
termination for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of
this Agreement by any successor as contemplated in Paragraph 10 hereof.
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6. PARACHUTE PAYMENTS. In the event that any payment or benefit
received or to be received by you in connection with a termination of your
employment with the Company or any corporation which is a related corporation
within the meaning of section 280G(e) of the Internal Revenue Code of 1986
(the "Code") (collectively, the "Severance Payments") would (i) constitute a
"parachute payment" within the meaning of section 280G of the Code or any
similar or successor provision and (ii) but for this Paragraph 6, be subject
to the excise tax imposed by section 4999 of the Code or any similar or
successor provision (the "Excise Tax"), then, subject to the provisions of
Paragraph 7 hereof, such Severance Payments (which Severance Payments shall
collectively be referred to herein as the "Severance Parachute Payments")
shall be reduced to the largest amount which you, in your sole discretion,
determine would result in no portion of the Severance Parachute Payments
being subject to the Excise Tax. The determination of any required reduction
pursuant to this Paragraph 6 (including the determination as to which
specific Severance Parachute Payments shall be reduced) shall be made by you
in your sole discretion, and such determination shall be conclusive and
binding upon the Company or any related corporation for all purposes. The
Company and its related corporations waive all claims and rights against you
with respect thereto except as specifically set forth in the next sentence.
If the Internal Revenue Service (the "IRS") determines that a Severance
Parachute Payment is subject to the Excise Tax, then the Company or any
related corporation, as their exclusive remedy, shall seek to enforce the
provisions of Paragraph 7 hereof. Such enforcement of Paragraph 7 hereof
shall be the only remedy, under any and all applicable state and federal laws
or otherwise, for your failure to reduce the Severance Parachute Payments so
that no portion thereof is subject to the Excise Tax. The company or related
corporation shall reduce a Severance Parachute Payment in accordance with
Paragraph 6 only upon written notice by you indicating the amount of such
reduction, if any.
7. REMEDY. If, notwithstanding the reduction described in Paragraph 6
hereof, the IRS determines that you are liable for the Excise Tax as a result
of the receipt of a Severance Parachute Payment, then you shall, subject to
the provisions of this Agreement, be obligated to pay to the Company (the
"Repayment Obligation") an amount of money equal to the "Repayment Amount."
The Repayment Amount with respect to a Severance Parachute Payment shall be
the smallest such amount, if any, as shall be required to be paid to the
Company so that your net proceeds with respect to any Severance Parachute
Payment (after taking into account the payment of the Excise Tax imposed on
such Severance Parachute Payment) shall be maximized. Notwithstanding the
foregoing, the Repayment Amount with respect to a Severance Parachute Payment
shall be zero if a Repayment Amount of more than zero would not eliminate the
Excise Tax imposed on such Severance Parachute Payment. If the Excise Tax is
not eliminated through the performance of the Repayment Obligation, you shall
pay the Excise Tax. The Repayment Obligation shall be performed within 30
days of either (i) your entering into a binding agreement with the IRS as to
the amount of your Excise Tax liability or (ii) a final determination by the
IRS or a court decision requiring you to pay the Excise Tax with respect to
such a Severance Parachute Payment from which no appeal is available or is
timely taken.
8. DISPUTES. To dispute a termination for Good Reason by you, the
Company must give you written notice of such dispute within ten working days
after your effective date of termination. To dispute a termination by the
Company or any failure to make payments claimed to be due hereunder, you must
give written notice of such dispute to the Company within 30 days
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after receiving a notice of termination, or within 30 days after the date on
which a payment claimed by you to be due hereunder was due to be made, as the
case may be.
If any such dispute is finally determined in your favor, the Company shall
pay all reasonable fees and expenses, including attorneys' and consultants'
fees, that you incur in good faith in connection therewith.
9. NO MITIGATION.
(a) You shall not be required to mitigate the amount of any payment
provided for in Paragraph 3 hereof by seeking other employment or otherwise,
nor shall the amount of such payment be reduced by reason of compensation or
other income you receive for services rendered after your termination of
employment with the Company.
(b) In addition to the Termination Payment payable pursuant to
Paragraph 3 hereof, you shall be entitled to receive all benefits payable to
you under any benefit plan of the Company in which you participate.
10. COMPANY'S SUCCESSORS. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. As used in this Paragraph 10,
"Company" includes any successor to its business or assets as aforesaid which
executes and delivers this Agreement or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
11. NOTICE. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five (5) days after deposit with postal authorities
transmitted by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first or last page of this Agreement, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
12. AMENDMENT OR WAIVER. No provisions of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing by you and the Company. No waiver of either party at
any time of the breach of, or lack of compliance with, any conditions or
provisions of this Agreement shall be deemed a waiver of other provisions or
conditions hereof.
13. SOLE AGREEMENT. This Agreement represents the entire agreement
between you and the Company with respect to the matters set forth herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this Agreement will be made by either party
which are not set forth expressly herein.
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14. EMPLOYEE'S SUCCESSORS. This Agreement shall inure to the benefit of
and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
should die while any amounts are still payable to you hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee, or other designee or, if
there be no such designees, to your estate.
15. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. APPLICABLE LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
17. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
If the foregoing conforms with our understanding, please indicate your
agreement to the terms hereof by signing where indicated below and returning
one copy of this Agreement to the undersigned.
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IN WITNESS WHEREOF, this Agreement is executed effective as of the date
set forth above.
Very truly yours,
SILICON GRAPHICS, INC.
By: _____________________________________
Edward R. McCracken
Chairman and Chief Executive Officer
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
_____________________________________
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