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EXHIBIT _________
HARMONIC LIGHTWAVES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made
and entered into by and between Anthony J. Ley (the "Employee") and Harmonic
Lightwaves, Inc. (the "Company"), effective as of the latest date set forth by
the signatures of the parties hereto below.
R E C I T A L S
A. It is expected that the Company from time to time
will consider the possibility of an acquisition by another company or other
change of control. The Board of Directors of the Company (the "Board")
recognizes that such consideration can be a distraction to the Employee and can
cause the Employee to consider alternative employment opportunities. The Board
has determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication and
objectivity of the Employee, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the
Company and its shareholders to provide the Employee with an incentive to
continue his employment and to motivate the Employee to maximize the value of
the Company upon a Change of Control for the benefit of its shareholders.
C. The Board believes that it is imperative to provide the
Employee with certain severance benefits upon Employee's termination of
employment following a Change of Control which provides the Employee with
enhanced financial security and provides incentive and encouragement to the
Employee to remain with the Company notwithstanding the possibility of a Change
of Control.
D. Certain capitalized terms used in the Agreement are defined in
Section 6 below.
The parties hereto agree as follows:
1. Term of Agreement. This Agreement shall terminate upon the
date that all obligations of the parties hereto with respect to this Agreement
have been satisfied.
2. At-Will Employment. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at-will, as defined
under applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control,
the Employee shall not be entitled to any payments, benefits, damages, awards
or compensation other than as provided by this Agreement, or as may otherwise
be available in accordance with the Company's established employee plans and
practices or pursuant to other agreements with the Company.
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3. Severance Benefits.
(a) Termination Following A Change of Control. If the
Employee's employment terminates at any time within eighteen (18) months
following a Change of Control, then, subject to Section 5, the Employee shall
be entitled to receive the following severance benefits:
(i) Involuntary Termination. If the Employee's
employment is terminated as a result of Involuntary Termination other than for
Cause, then the Employee shall receive the following severance benefits from
the Company:
(1) Severance Payment. A cash payment in an
amount equal to three hundred percent (300%) of the Employee's Annual
Compensation;
(2) Continued Employee Benefits. One
hundred percent (100%) Company-paid health, dental and life insurance coverage
at the same level of coverage as was provided to such employee immediately
prior to the Change of Control (the "Company-Paid Coverage"). If such coverage
included the Employee's dependents immediately prior to the Change of Control,
such dependents shall also be covered at Company expense. Company-Paid
Coverage shall continue until the earlier of (i) three years from the date of
the Change of Control, or (ii) the date that the Employee and his dependents
become covered under another employer's group health, dental or life insurance
plans that provide Employee and his dependents with comparable benefits and
levels of coverage. For purposes of Title X of the Consolidated Budget
Reconciliation Act of 1985 ("COBRA"), the date of the "qualifying event" for
Employee and his dependents shall be the date upon which the Company-Paid
Coverage terminates.
(3) Option and Restricted Stock Accelerated
Vesting. One Hundred percent (100%) of the unvested portion of any stock
option or restricted stock held by the Employee shall automatically be
accelerated in full so as to become completely vested; provided, however, that
if such potential vesting acceleration would cause a contemplated Change of
Control transaction that was intended to be accounted for as a
"pooling-of-interests" transaction to become ineligible for such accounting
treatment under generally accepted accounting principles, as determined by the
Company's independent public accountants (the "Accountants") prior to the
Change of Control, Employee's stock options and restricted stock shall not have
their vesting so accelerated.
(4) Outplacement Assistance. If desired
by Employee, Company will pay up to five thousand dollars ($5,000.00) for
outplacement assistance selected by Company and approved by Employee.
(b) Timing of Severance Payments. Any payments to which
Employee is entitled under Sections 3(a)(i)(1) and 5 shall be paid by the
Company to the Employee (or to the Employee's successors in interest, pursuant
to Section 7(b)) in cash and in full, not later than thirty (30) calendar days
following the Termination Date.
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(c) Voluntary Resignation; Termination For Cause. If the
Employee's employment terminates by reason of the Employee's voluntary
resignation (and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be
established under the Company's then existing severance and benefits plans and
practices or pursuant to other agreements with the Company.
(d) Disability; Death. If the Company terminates the
Employee's employment as a result of the Employee's Disability, or such
Employee's employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive severance or other benefits except
for those (if any) as may then be established under the Company's then existing
severance and benefits plans and practices or pursuant to other agreements with
the Company.
(e) Termination Apart from Change of Control. In the
event the Employee's employment is terminated for any reason, either prior to
the occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Employee shall be entitled to receive
severance and any other benefits only as may then be established under the
Company's existing severance and benefits plans and practices or pursuant to
other agreements with the Company.
4. Attorney Fees, Costs and Expenses. The Company shall promptly
reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs
and expenses incurred by the Employee in connection with any action brought by
Employee to enforce his rights hereunder, regardless of the outcome of the
action.
5. Excise Tax Payments. In the event that the severance and
other benefits provided for in this Agreement or otherwise payable to the
Employee constitute "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to the excise tax imposed by Section 4999 of the Code, then the Employee shall
receive (a) a payment from the Company sufficient to pay such excise tax, and
(b) an additional payment from the Company sufficient to pay the excise tax and
federal and state income taxes arising from the payments made by the Company to
Employee pursuant to this sentence. Unless the Company and the Employee
otherwise agree in writing, the determination of Employee's excise tax
liability and the amount required to be paid under this Section 5 shall be made
in writing by the Accountants. In the event that the excise tax incurred by
Employee is determined by the Internal Revenue Service to be greater or lesser
than the amount so determined by the Accountants, the Company and Employee
agree to promptly make such additional payment, including interest and any tax
penalties, to the other party as the Accountants reasonably determine is
appropriate to ensure that the net economic effect to Employee under this
Section 5, on an after-tax basis, is as if the Code Section 4999 excise tax did
not apply to Employee. For purposes of making the calculations required by
this Section 5, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on interpretations of
the Code for which there is a "substantial authority" tax reporting position.
The Company and the Employee shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order to make a
determination under this
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Section. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 5.
6. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Annual Compensation. "Annual Compensation" means an
amount equal to (i) Employee's Company salary for the twelve months preceding
the Change of Control, and (ii) Employee's 100% "On Target" bonus for the year
in which the Change of Control occurs.
(b) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Employee in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee
which constitutes gross misconduct and which is injurious to the Company, and
(iv) following delivery to the Employee of a written demand for performance
from the Company which describes the basis for the Company's belief that the
Employee has not substantially performed his duties, continued violations by
the Employee of the Employee's obligations to the Company which are
demonstrably willful and deliberate on the Employee's part.
(c) Change of Control. "Change of Control" means the
occurrence of any of the following events:
(i) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the total voting power represented by the Company's then
outstanding voting securities;
(ii) A change in the composition of the Board
occurring within a two-year period, 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 the Incumbent Directors at the time of such
election or nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company);
(iii) The consummation 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) at least 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;
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(iv) The consummation of the sale or disposition
by the Company of all or substantially all the Company's assets.
(d) Disability. "Disability" shall mean that the
Employee has been unable to perform his Company duties as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Employee or the Employee's legal representative (such Agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Employee's employment. In the event
that the Employee resumes the performance of substantially all of his duties
hereunder before the termination of his employment becomes effective, the
notice of intent to terminate shall automatically be deemed to have been
revoked.
(e) Involuntary Termination. "Involuntary Termination"
shall mean (i) without the Employee's express written consent, the significant
reduction of the Employee's duties, authority or responsibilities, relative to
the Employee's duties, authority or responsibilities as in effect immediately
prior to such reduction, or the assignment to Employee of such reduced duties,
authority or responsibilities; (ii) without the Employee's express written
consent, a substantial reduction, without good business reasons, of the
facilities and perquisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) a reduction by the
Company in the base salary of the Employee as in effect immediately prior to
such reduction; (iv) a material reduction by the Company in the kind or level
of employee benefits, including bonuses, to which the Employee was entitled
immediately prior to such reduction with the result that the Employee's overall
benefits package is significantly reduced; (v) the relocation of the Employee
to a facility or a location more than twenty-five (25) miles from the
Employee's then present location, without the Employee's express written
consent; (vi) any purported termination of the Employee 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; (vii) the failure of the Company
to obtain the assumption of this agreement by any successors contemplated in
Section 7(a) below; or (viii) any act or set of facts or circumstances which
would, under California case law or statute constitute a constructive
termination of the Employee.
(f) Termination Date. "Termination Date" shall mean (i)
if this Agreement is terminated by the Company for Disability, thirty (30) days
after notice of termination is given to the Employee (provided that the
Employee shall not have returned to the performance of the Employee's duties on
a full-time basis during such thirty (30)-day period), (ii) if the Employee's
employment is terminated by the Company for any other reason, the date on which
a notice of termination is given, provided that if within thirty (30) days
after the Company gives the Employee notice of termination, the Employee
notifies the Company that a dispute exists concerning the termination or the
benefits due pursuant to this Agreement, then the Termination Date shall be the
date on which such dispute is finally determined, either by mutual written
agreement of the parties, or a by final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected), or (iii) if the Agreement is terminated by the
Employee, the date on which the Employee delivers the notice of termination to
the Company.
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7. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this Section 7(a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement
and all rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notice.
(a) General. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of
the Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the
Company for Cause or by the Employee as a result of a voluntary resignation or
an Involuntary Termination shall be communicated by a notice of termination to
the other party hereto given in accordance with Section 8(a) of this Agreement.
Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated,
and shall specify the termination date (which shall be not more than 30 days
after the giving of such notice). The failure by the Employee to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Employee hereunder or
preclude the Employee from asserting such fact or circumstance in enforcing his
rights hereunder.
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be
required to mitigate the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Employee may
receive from any other source.
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(b) Waiver. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
represents the entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior arrangements and understandings
regarding same.
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California.
(e) Severability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) Withholding. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(g) 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.
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IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year set forth below.
COMPANY HARMONIC LIGHTWAVES, INC.
By:_____________________________________
Title:__________________________________
Date:____________________
EMPLOYEE ________________________________________
Anthony J. Ley
Date:____________________
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