Employment Agreement - Silicon Graphics Inc. and Thomas A. Jermoluk
[LETTERHEAD]
February 1, 1995
Thomas A. Jermoluk
Dear Tom:
The purpose of this letter is to confirm our mutual agreement concerning
your continued employment with Silicon Graphics, Inc. ("Silicon Graphics" or the
"Company").
1. Silicon Graphics agrees to employ you, and you agree to continue your
employment with Silicon Graphics, in the position of President and Chief
Operating Officer reporting to the Company's Chief Executive Officer ("CEO").
You agree to assume and discharge such duties and responsibilities as are
consistent with such office and position or such other duties and
responsibilities as may be assigned to you by the CEO or the Company's Board of
Directors (the "Board") from time to time to the extent consistent with the role
of a senior executive. You shall comply with and be bound by Silicon Graphics'
operating policies, procedures and practices from time to time in effect during
your employment.
2. Unless earlier terminated as provided below, the term of your
employment with Silicon Graphics under this Agreement shall commence on the
effective date of this Agreement and shall continue until and terminate on June
30, 1999. During the employment term, you shall devote your full time, skill
and attention to your duties and responsibilities, and shall perform them
faithfully, diligently and competently, and you shall use your best efforts to
further the business of Silicon Graphics and its affiliated entities.
3. In consideration of your services, you will be paid a base salary and
will be eligible to earn incentive bonus compensation in accordance with Silicon
Graphics policies established from time to time in an amount averaging not less
than $1,000,000 per year over the term of this Agreement. As with other
executive officers of Silicon Graphics, base and bonus compensation will be
reviewed annually by the Compensation and Human Resources Committee.
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Thomas A. Jermoluk
February 1, 1995
Page 2
4. You will be eligible to participate in Silicon Graphics' incentive
compensation and employee fringe benefit plans and programs made available to
other employees and officers to the full extent of your eligibility therefor.
5. (a) If, on or prior to June 30, 1999, (i) your employment with
Silicon Graphics is involuntarily terminated other than for "Cause" (defined
below), (ii) you terminate your employment with Silicon Graphics for "Good
Reason" (defined below), or (iii) your employment with Silicon Graphics
terminates as a result of your death or "Disability" (defined below), then you
shall be entitled to the special payment described in paragraph 6 below. If
your employment with Silicon Graphics terminates for any other reason on or
prior to June 30, 1999, no compensation or benefits will be paid or provided to
you under this Agreement, and your rights under the Company's other benefit
plans and programs shall be determined under the provisions of those plans and
programs.
(b) For purposes of this Agreement, termination of your employment
with Silicon Graphics shall be regarded as a termination for "Cause" only upon
(i) your willful and continued failure to substantially perform your duties with
Silicon Graphics 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; (ii) your
willfully engaging in gross misconduct which is materially detrimental to
Silicon Graphics; (iii) your committing a felony or an act of fraud against
Silicon Graphics or its affiliates; or (iv) your breaching materially the terms
of your employee confidentiality and proprietary information agreement with
Silicon Graphics or any other similar agreement that may be in effect from time
to time. 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 interests of Silicon Graphics and/or
required by applicable law. You shall not be deemed to have been terminated for
Cause under clause (i), (ii) or (iv) of this paragraph 5(b) 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 are guilty of conduct set forth in such clauses and specifying the
particulars thereof in detail.
(c) For purposes of this Agreement, Silicon Graphics may terminate
your employment as a result of "Disability" in the event you are unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
(d) Your employment with Silicon Graphics may be regarded as having
been constructively terminated by Silicon Graphics, and you may therefore
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Thomas A. Jermoluk
February 1, 1995
Page 3
terminate your employment for "Good Reason" and thereupon become entitled to the
special payment pursuant to paragraph 6 below if, on or prior to June 30, 1999,
you terminate your employment with Silicon Graphics as a result of the
occurrence, without your written consent, of one or more of the following events
(unless such event(s) applies generally to executive officers of Silicon
Graphics and any successor to Silicon Graphics): (i) your duties,
responsibilities or authority are reduced to a level that is inconsistent with
the role of a senior executive, and (ii) the Company requires you to be based
anywhere other than the Company's current or future corporate headquarters or
the functional equivalent thereof (except for required travel on Silicon
Graphics business).
6. (a) You shall be entitled to a special payment from Silicon Graphics
as described in paragraph 6(b) below if you remain continuously employed by
Silicon Graphics and consistently perform your obligations under paragraphs 1
and 2 above through June 30, 1999, or if your employment with Silicon Graphics
is terminated at any time on or prior to June 30, 1999 (i) by Silicon Graphics
other than for Cause, (ii) by you for Good Reason, or (iii) as a result of your
death or Disability. You will not be entitled to the special payment if (i) you
terminate your employment with Silicon Graphics prior to June 30, 1999
voluntarily other than for Good Reason or (ii) Silicon Graphics terminates your
employment on or prior to June 30, 1999 for Cause.
(b) The special payment will be determined pursuant to the following
formula:
B = X - Y, where
B is the amount payable by Silicon Graphics
X is a fixed dollar amount described in paragraph 6(e) below
that is determined as of the "Determination Date" (defined
below)
Y is your "Total Compensation" (defined below).
Notwithstanding the foregoing, in the event your employment
terminates on or prior to June 30, 1999 as a result of your death of Disability,
the special payment shall be determined by multiplying B by a fraction, the
numerator of which is the number of whole months from July 1, 1994 to the
Determination Date, and the denominator of which is sixty (60).
(c) For purposes of this paragraph 6, the "Determination Date" shall
mean June 30, 1999 or, if earlier, the date on which your employment terminates
due to your death or Disability.
(d) For purposes of this paragraph 6, "Total Compensation" shall mean
the aggregate pre-tax value of the following:
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Thomas A. Jermoluk
February 1, 1995
Page 4
(i) all salary and bonus compensation (including any deferred
amounts), if any, paid or payable to you with respect to the period that
begins July 1, 1994 and that ends on the Determination Date in excess of
"Target Compensation" (defined below);
(ii) the value of any shares of restricted stock that vest during
the period that begins July 1, 1994 and that ends on the Determination
Date, valued as of the date the restrictions lapse, based on the closing
price for a share of the Company's Common Stock as reported daily in THE
WALL STREET JOURNAL or similar readily available public source (the "Fair
Market Value");
(iii) with respect to any Company stock options held by you
(whether granted before or after the date of this Agreement) that become
exercisable during the period that begins July 1, 1994 and that ends on the
Determination Date, the difference between the Fair Market Value of the
option shares and the applicable option exercise price determined (x) at
the time of exercise in the case of options that are exercised during such
period, (y) on the Determination Date in the case of options that are held
by you on the Determination Date but that were not exercised prior to such
Date, and (z) on the date of expiration in the case of options that expired
according to their terms prior to the Determination Date;
(iv) any amount paid or payable to you or realized or realizable
by you as the result of your termination of employment with Silicon
Graphics on or before the Determination Date pursuant to Section 3 of that
certain employment continuation agreement between you and the Company dated
July 10, 1989, as amended October 21, 1993 (the "Change in Control
Agreement"). For this purpose, any payment or benefit attributable to
stock options shall be calculated by first reducing the value attributable
to stock options as provided in clause (iii) above.
(v) in the event that you are employed by Silicon Graphics on
the Determination Date but there has been a "change in control" of Silicon
Graphics (as that term is defined in the Change in Control Agreement)
within the 24-month period preceding such date, "Total Compensation" shall
include the termination payment described in Section 3(a) of the Change in
Control Agreement notwithstanding your continued employment; provided,
however, that if, within the 24-month period after such change in control
you do not become entitled to such termination payment, you shall be
entitled to an additional payment from Silicon Graphics pursuant to this
Agreement equal in amount to the excess, if any, of (i) the special payment
that would have been payable to you pursuant to this paragraph 6 had Total
Compensation been computed without regard to this subparagraph (v), minus
(ii) the amount that was actually paid to
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Thomas A. Jermoluk
February 1, 1995
Page 5
you as a special payment, which additional payment shall be made between 30
and 60 calendar days after the second anniversary of such change in
control.
(vi) if, at the Determination Date, the CEO or the Board
determines that it is probable that there will be a "change in control" of
Silicon Graphics (as defined in the Change in Control Agreement) within the
six-month period following the Determination Date, then "Total
Compensation" shall include the difference between the Fair Market Value
(determined as of the Determination Date) of any option shares that are not
then exercisable and the applicable option exercise price of such options;
provided, however, that if, within the six-month period following the
Determination Date such "change in control" does not occur, you shall be
entitled to an additional payment from Silicon Graphics pursuant to this
Agreement equal in amount to the excess, if any, of (i) the special payment
that would have been payable to you pursuant to this paragraph 6 had Total
Compensation been computed without regard to this subparagraph (vi), minus
(ii) the amount that was actually paid to you as a special payment, which
additional payment shall be made between 30 and 60 calendar days after the
expiration of such six-month period.
(vii) in the event Silicon Graphics adopts any material new
benefit program during the term of this Agreement, Silicon Graphics and you
will agree on whether and how such program shall be valued for purposes of
the special payment described in this paragraph 6.
(e) The fixed dollar amount in the above formula (X) shall equal
$10,000,000 increased by the "Additional Amount" (defined below). For purposes
of the foregoing, the "Additional Amount" shall mean the amount, if any, by
which the aggregate pre-tax value of the salary and bonus compensation paid to
you with respect to the period that begins July 1, 1994 and that ends on the
earlier of June 30, 1999, or the date your employment with Silicon Graphics
terminates, is less than "Target Compensation" (defined below).
(f) For purposes of this paragraph 6, "Target Compensation" shall
mean a target aggregate level of salary and bonus compensation with respect to
the period that begins July 1, 1994 and that ends on June 30, 1999, which target
shall be calculated at an average annual rate of $1,000,000 per year.
(g) To the extent you become entitled to a payment pursuant to this
paragraph 6, such payment shall be made in cash, in shares of Silicon Graphics
Common Stock, or by combination of cash and shares as Silicon Graphics shall, at
its sole discretion, determine. In the event Silicon Graphics satisfies its
obligation with shares of Silicon Graphics Common Stock, Silicon Graphics agrees
to use its best efforts to deliver shares that are registered and freely
tradeable (subject to standard resale restrictions and
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Thomas A. Jermoluk
February 1, 1995
Page 6
limitations) or, alternatively, agrees to use its best efforts to undertake to
register and list such shares as soon as practicable after the Determination
Date. Any special payment to which you become entitled under this paragraph 6
shall be made between 30 and 60 calendar days after the Determination Date.
Your right to receive a special payment as set forth above may be terminated at
any time upon the mutual agreement of you and the Board that it is reasonable
and appropriate to terminate such provision.
7. Silicon Graphics shall require any successor or assignee, in
connection with any sale, transfer or other disposition of all or substantially
all of Silicon Graphic's assets or business, whether by purchase, merger,
consolidation or otherwise, expressly to assume and agree to perform the
Company's 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 or
assignment had taken place. In such event, the term "Company" or "Silicon
Graphics," as used in this Agreement, shall mean the Company and Silicon
Graphics as defined above and any successor or assignee to the business and
assets which by reason hereof becomes bound by the terms and provisions of this
Agreement.
8. You and Silicon Graphics agree that any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Santa Clara County, California, in accordance with the rules of
the American Arbitration Association then in effect by an arbitrator selected by
you and Silicon Graphics within 10 days after either party has notified the
other in writing that it desires a dispute between them to be settled by
arbitration. In the event you and Silicon Graphics cannot agree on such
arbitrator within such 10-day period, each party shall select an arbitrator and
inform the other party in writing of such arbitrator's name and address within
five days after the end of such 10-day period and the two arbitrators so
selected shall select a third arbitrator within 15 days thereafter; provided,
however, that in the event of a failure by either party to select an arbitrator
and notify the other party of such selection within the time period provided
above, the arbitrator selected by the other party shall be the sole arbitrator
of the dispute. Each party shall pay its own expenses associated with such
arbitration. The decision of the arbitrator or a majority of the panel of
arbitrators shall be binding upon the parties and judgment in accordance with
that decision may be entered in any court having jurisdiction thereover.
Punitive damages shall not be awarded. You and Silicon Graphics agree that
except as required by applicable laws, any such arbitration shall be kept
confidential.
9. Except as required by applicable laws, neither party shall disclose
the contents of this Agreement without first obtaining the prior written consent
of the other party, provided, however, that you may disclose this Agreement to
your attorney, financial planner and tax advisor if such persons agree to keep
the terms hereof confidential.
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Thomas A. Jermoluk
February 1, 1995
Page 7
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to agreements made and to be
performed entirely within such state.
11. This Agreement and any written agreements or Company plans that are
referenced herein represent the entire agreement and understanding between you
and Silicon Graphics as to the subject matter hereof and supersede all prior or
contemporaneous agreements, 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 you and a duly authorized representative of
Silicon Graphics.
Tom, we are excited about having you continue as a key contributor to
Silicon Graphics' future success. Please acknowledge acceptance of this
Agreement by signing and returning the enclosed copy of this letter, whereupon
it shall become a binding agreement.
Very truly yours,
SILICON GRAPHICS, INC.
Edward R. McCracken
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Edward R. McCracken
Chairman and Chief Executive Officer
Accepted By:
Thomas A. Jermoluk
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Thomas A. Jermoluk