EXHIBIT 10.7
[QLOGIC(TM) LOGO]
August 4, 1995
Mr. Harshad K. Desai
28346 Chat Drive
Laguna Niguel, CA
Dear Mr. Desai:
You are currently employed as an officer of QLogic Corporation, a Delaware
corporation (the "Company" or "QLogic"). Because the Company wishes to assure
itself of both present and future continuity of management in the event of any
Change in Control (as defined below), as well as objectivity of management in
the event of a proposed Change in Control, you, and the Company are hereby
entering into the following agreements:
1. Severance Payment and Employee Benefits. If a Change in Control (as
defined below) shall occur after the date of this Agreement, you are then still
an employee of the Company, and at any time within two years after the Change in
Control and prior to your Normal Retirement Date (as defined below) your
employment is terminated by the Company without Cause (as defined below) or by
you because of a Demotion (as defined below):
(a) Severance Payment. The Company will pay to you within 15 days
after the date of termination of your employment (the "Termination Date") a
lump-sum severance payment (the "Severance Payment") equal to the present value
of two times the sum of your Annual Base Pay (as defined below) plus your Annual
Incentive Pay (as defined below); provided, however, that the Severance Payment
will be reduced by the aggregate amount of severance payments received by you
under any other severance policy, plan, program, or arrangement of the Company.
Such present value shall be determined as if an aggregate amount equal to two
times the sum of your Annual Base Pay plus your Annual Incentive Pay (minus, if
applicable, the aggregate amount of severance payments received by you under any
other severance policies, plan, program, or arrangement of the Company) would
otherwise have been paid to you in 24 equal monthly installments commencing one
month after the Termination Date, using a discount rate equal to the
then-applicable interest rate adopted by the Pension Benefit Guaranty
Corporation for purposes of benefit valuations in connection with
non-multiemployer pension plan terminations assuming the immediate commencement
of benefit payments, as set forth in Appendix B to Part 2619 of Title 29 of the
Code of Federal Regulations, or any successor appendix, schedule, rule or
regulation.
In lieu of a cash lump sum, you may, in your sole discretion,
elect to receive the Severance Payment in equal annual installments over five
years (or such lesser number of years as you may elect). Such installments shall
be paid to you on each anniversary of the Termination Date, beginning with the
first such anniversary and continuing on each such anniversary thereafter until
fully paid. Such election to receive the Severance Payment in installments may
be made and/or revoked by you at any time
and from time to time prior to the termination of your employment by providing
written notice to the Secretary of QLogic of such election. Any such election by
you to receive the Severance Payment in installments that has been made and not
revoked prior to your termination shall, effective the date of such termination,
be irrevocable and binding on all parties hereto.
In the event that at the time of your termination there is not
in effect an election by you to receive the Severance Payment in installments,
such Severance Payment shall be paid to you in a single cash lump sum as
provided in the first paragraph of this subparagraph (a). In the event that you
have made an appropriate election to receive the Severance Payment in annual
installments, and you become entitled to such Severance Payment as provided in
this Agreement, then such Severance Payment, to the extent at any time unpaid
and/or deferred, shall be deemed to bear interest at the aforementioned discount
rate or, if less, the maximum rate permitted by law. Accrued interest shall be
due and payable together with each annual installment of the Severance Payment.
(b) Employee Benefits. The Company shall provide or arrange to
provide to you continuation of your Employee Benefits (as defined below) for two
years following the Termination Date; provided, however, that such Employee
Benefits will be reduced to the extent comparable benefits are actually received
by you (i) from another employer during such two-year period (and any such
benefits actually received by you shall be reported promptly by you to the
Company) or (ii) under any other policy, plan, program, or arrangement of the
Company.
Any or all of such Employee Benefits may be provided to you,
in the discretion of the Company, pursuant to policies or plans of the Company
which exist as of the Termination Date and/or pursuant to policies, plans, or
arrangements which are implemented or adopted by the Company on or after the
Termination Date, including those which are implemented or adopted by the
Company for your benefit only or for the benefit of you and selected other
employees or former employees of the Company. The Company, in its discretion,
may also fulfill its obligation to provide continuation of any or all of your
Employee Benefits in accordance with the foregoing by paying to you in cash from
time to time the minimum amount necessary to enable you to purchase a comparable
Employee Benefit from another benefit provider; provided, however, that this
cash alternative shall not be utilized by the Company if and to the extent
comparable Employee Benefits are not available to be purchased by you.
(c ) Certain Payment Reductions.
(1) For purposes of this subparagraph (c), (i) a Payment
shall mean any payment or distribution in the nature of compensation to or for
your benefit, whether paid or payable pursuant to this Agreement or otherwise;
(ii) Agreement Payment shall mean a Payment paid or payable pursuant to this
Agreement (determined without regard to this subparagraph (c)); (iii) Net After
Tax Receipt shall mean the Present Value of a Payment net of all taxes imposed
on you with respect thereto under Sections 1 and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), determined by applying the highest
marginal rate under Section 1 of the Code which applied to your taxable income
for the immediately preceding taxable year; (iv) "Present Value" shall mean such
value determined in accordance with Section 280G(d) (4) of the Code; and (v)
"Reduced Amount" shall mean the smallest aggregate amount of Payments which (a)
is less than the sum of all Payments (determined without regard to this
subparagraph (c)) and (b) results in aggregate Net After Tax Receipts which are
equal to or greater than the Net After Tax Receipts which would result if the
aggregate Payments were equal to the sum of all Payments (determined without
regard to this subparagraph (c)) or any other amount less than the sum of all
payments (determined without regard to this subparagraph (c)).
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(2) Anything in this Agreement to the contrary
notwithstanding, in the event QLogic's independent public accountants (the
"Accounting Firm") shall determine that receipt of all Payments would subject
you to tax under Section 4999 of the Code, it shall determine whether some
amount of Payments would meet the definition of a "Reduced Amount. " If the
Accounting Firm determines that there is a Reduced Amount, the aggregate
Agreement Payments shall be reduced to such Reduced Amount; provided, however,
that if the Reduced Amount exceeds the aggregate Agreement Payments, the
aggregate Payments shall, after the reduction of all Agreement Payments, be
reduced (but not below zero) in the amount of such excess.
(3) If the Accounting Firm determines that aggregate
Agreement Payments or Payments, as the case may be, should be reduced to the
Reduced Amount, the Company shall promptly give you notice to that effect and a
copy of the detailed calculation thereof, and you may then elect, in your sole
discretion, which and how much of the Payments shall be eliminated or reduced
(as long as after such election the present value of the aggregate Payments
equals the Reduced Amount), and you shall advise the Company in writing of your
election within ten days of your receipt of notice. If no such election is made
by you within such ten-day period, the Company may elect which of the Agreement
Payments or Payments, as the case may be, shall be eliminated or reduced (as
long as after such election the present value of the aggregate Agreement
Payments or Payments, as the case may be, equals the Reduced Amount) and shall
notify you promptly of such election. All determinations made by the Accounting
Firm under this Paragraph 1 (c) shall be binding upon the Company and you and
shall be made within 60 days after a termination of your employment. As promptly
as practicable following such determination, the Company shall pay to or
distribute for your benefit such Payments as are then due to you under this
Agreement and shall promptly pay to or distribute for your benefit in the future
such Payments as become due to you under this Agreement.
(4) While it is the intention of the Company and you to
reduce the amounts payable or distributable to you hereunder only if the
aggregate Net After Tax Receipts to you would thereby be increased, as a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
amounts will have been paid or distributed by the Company to or for your benefit
pursuant to this Agreement which should not have been so paid or distributed
("Overpayment") or that additional amounts which will have not been paid or
distributed by the Company to or for your benefit pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Company or you which the Accounting Firm
believes has a high probability of success or controlling precedent or other
substantial authority, determines that an Overpayment has been made, any such
Overpayment paid or distributed by the Company to or for your benefit shall be
treated for all purposes as a loan to you which you shall repay to the Company
together with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to
have been made and no amount shall be payable by you to the Company if and to
the extent such deemed loan and payment would not either reduce the amount on
which you are subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for your benefit together with interest at the applicable federal
rate provided for under Section 7872(f)(2) of the Code.
(5) The Company will bear the fees and expenses of the
Accounting Firm in making the determinations required by this Paragraph 1(c).
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2. Accelerated Vesting of Stock Options. If a Change in Control shall
occur after the date of this Agreement and you are then still an employee of the
Company:
(a) Partial Acceleration. Upon the Change in Control, the vesting
of your right to exercise each QLogic Option (as defined below) held by you as
of the Change in Control based on the length of your continued employment
following the grant of such QLogic Option will be accelerated by one year so
that your right to exercise such QLogic Option after the Change in Control will
be determined as if such QLogic Option had been granted to you one year before
the actual date of grant of such QLogic Option; provided, however, that the term
and expiration date of, and any other restrictions on your right to exercise,
such QLogic Option shall not be affected by the Change in Control; provided
further, however, that, if the stock option agreement evidencing such QLogic
Option shall provide for acceleration of vesting of your right to exercise such
QLogic Option upon a Change in Control which is more favorable to you than the
foregoing provisions of this subparagraph (a), the acceleration provisions of
your stock option agreement shall apply and this subparagraph (a) shall be
disregarded.
(b) Full Acceleration. If, within two years after the Change in
Control and prior to your Normal Retirement Date, your employment with the
Company is terminated by the Company without Cause or by you because of a
Demotion, the vesting of your right to exercise each QLogic Option held by you
as of the Termination Date will be fully accelerated as of the Termination Date
so that you will have the right to exercise such QLogic Option in full at any
time during its remaining term.
3. No Mitigation. You shall not be obligated to seek employment or
otherwise mitigate the Severance Payment to you under this Agreement, nor shall
the Severance Payment be reduced by any compensation earned by you as a result
of your employment by another employer after the Termination Date.
4. Employment Rights. Nothing in this Agreement, expressed or implied,
shall obligate the Company or you to continue your employment with the Company
or limit the right of you or the Company to terminate your employment at any
time before or after a Change in Control. Notwithstanding the foregoing, if your
employment is terminated by the Company without Cause or by you because of a
Demotion after commencement by the Company of substantive discussions with any
third party which result in a Change in Control in which such third party has a
significant involvement within one year after commencement of such discussions
and prior to your Normal Retirement Date, your right to receive payments and
benefits under this Agreement will be determined as if your employment had
terminated immediately following the Change in Control.
5. Definitions. For purposes of this Agreement, the terms set forth
below are defined as follows:
(a) "Annual Base Pay" means an amount equal to the greatest of (i)
your annual fixed or base compensation as in effect immediately prior to a
Change in Control, (ii) your annual fixed or base compensation as in effect
immediately prior to commencement by the Company of substantive discussions with
any third party that results in a Change in Control in which such third party
has a significant involvement within one year after commencement of such
discussions, and (iii) your annual fixed or base compensation as in effect
immediately prior to the Termination Date.
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(b) "Annual Incentive Pay" means an amount equal to the highest
annual average of the aggregate bonuses or incentive payments of cash
compensation in addition to fixed or base compensation paid to you for your
services in any two of the last three full fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurs (or such lesser number of full fiscal years during which you were
employed by the Company if less than three) or, if higher, the highest annual
average of the aggregate annual bonuses or incentive payments of cash
compensation paid to you for services in any two of the last three full fiscal
years of the Company immediately preceding the fiscal year of the Company in
which the Termination Date occurs (or such lesser number of full fiscal years
during which you were employed by the Company if less than three).
(c) "Cause" for termination of your employment by the Company will
exist if (i) you become permanently disabled and are unable to perform your
duties as an employee of the Company or (ii) you commit any of the following
acts and any of such acts shall be determined by the board of directors of the
Company to have been materially harmful to the Company at a meeting of the board
of directors called and held for such purpose (after reasonable notice to you
and an opportunity for you and your representative to make a presentation to the
board of directors): an act of fraud, embezzlement or theft in connection with
your duties or in the course of your employment with the Company; intentional
wrongful damage to property of the Company; intentional wrongful disclosure of
trade secrets or confidential information of the Company; or intentional
wrongful engagement in any Competitive Activity (as defined below) while you are
employed by the Company.
(d) "Change in Control" shall be deemed to have occurred only if
(i) QLogic is merged or consolidated or reorganized into or with another
corporation and less than 51 % of the combined voting power of the
then-outstanding securities of the surviving corporation immediately thereafter
is held in the aggregate by the holders of Voting Stock (as defined below) of
QLogic immediately prior to such transaction; (ii) QLogic sells or otherwise
transfers all or substantially all of its assets to any other corporation if
less than 51 % of the combined voting power of the then-outstanding voting
securities of such corporation immediately after such sale or transfer is held
in the aggregate by the holders of Voting Stock of the Company immediately prior
to such sale or transfer; (iii) the Company sells or otherwise transfers all or
substantially all of its assets to another corporation if less than 51% of the
Voting Stock of the transferee corporation immediately after such sale or
transfer is held in the aggregate by QLogic, the Company or the holders of
Voting Stock of QLogic immediately prior to such sale or transfer; (iv) there is
a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule or
report) promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act") disclosing that any person has become the beneficial owner of securities
representing 33-1/3% or more of the combined voting power of the then-
outstanding securities entitled to vote generally in the election of directors
of QLogic (the "Voting Stock"); (v) QLogic shall file a report or proxy
statement with the Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to Item 1 of Form 8-K thereunder or Item 6(e) of
Schedule 14A thereunder (or any successor schedule or report) that a change in
control of QLogic has or may have occurred or will or may occur in the future
pursuant to any then-existing contract or transaction; or (vi) during any period
of two consecutive years, individuals who at the beginning of any such period
constitute the directors of QLogic cease for any reason to constitute at least a
majority thereof unless the election or the nomination for election by QLogic's
shareholders of each director of QLogic first elected during such period (y) was
approved by a vote of at least a majority of the directors of QLogic then still
in office who were directors of QLogic at the beginning of any such period and
(z) such election or nomination was not made in connection with an actual or
threatened election contest relating to the election of directors of QLogic, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act. Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred for purposes of this Agreement solely because QLogic,
an entity in which QLogic directly or indirectly beneficially
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owns more than 50% of the voting securities, or any QLogic-sponsored employee
stock ownership plan or any other employee benefit plan of QLogic or any entity
holding shares of Voting Stock for or pursuant to the terms of any such plan
either files or becomes obligated to file a report or proxy statement under or
in response to Schedule 13D, or Schedule 14D-1, Item 1 of Form 8-K or Item 6(e)
of Schedule 14A (or any successor report or schedule) under the Exchange Act,
disclosing beneficial ownership by it of shares of Voting Stock of QLogic,
whether in excess of 33-1/3% or otherwise, or because QLogic reports that a
change in control of QLogic has or may have occurred or will or may occur in the
future by reason of such beneficial ownership.
(e) "Competitive Activity" means your participation, without the
consent of the board of directors of the Company, in the management of any
business enterprise if such enterprise engages in substantial and direct
competition with the Company and such enterprise's sales of any product or
service competitive with any product or service of the Company amounted to 10%
of such enterprise's net sales for its most recently completed fiscal year and
if the Company's consolidated net sales of such products or services amounted to
10% of the Company's consolidated net sales for its most recently completed
fiscal year. "Competitive Activity" shall not include (i) the mere ownership of
securities in any enterprise and exercise of rights appurtenant thereto or (ii)
participation in management of any enterprise or business operation thereof
other than in connection with competitive operation of such enterprise.
(f) "Demotion" will be deemed to have occurred if any of the
following changes with respect to your employment with the Company shall occur
during the two-year period immediately following a Change in Control and prior
to your Normal Retirement Date and not be remedied within 15 days after written
notice thereof from you to the Company: (i) a significant adverse change in the
nature or scope of the powers, functions, titles, working environment, frequency
or mode of business travel, responsibilities or duties in respect of the Company
which you had immediately prior to the Change in Control; (ii) a reduction of
your annual aggregate cash compensation below the sum of your annual fixed or
base compensation as in effect immediately prior to the Change in Control plus
the highest annual average of the aggregate bonuses or incentive payments of
cash compensation in addition to fixed or base compensation paid to you for your
services in any two of the last three full fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred (or such lesser number of full fiscal years during which you
were employed by the Company if less than three); (iii) a reduction of the
Employee Benefits which you were receiving immediately prior to the Change in
Control below the comparable employee benefits provided by the Company to its
other executive officers from time to time; or (iv) relocation of the principal
executive offices of the Company to, or any requirement of you to have as your
principal location of work at, any place which is more than 50 miles from the
location thereof immediately prior to the Change in Control.
The parties acknowledge that, in the event of a Change in
Control, it may be mutually advantageous for you and your employer to discuss
and implement changes in your employment on a trial basis even though such
employment changes may constitute a "Demotion" under the terms of this
Agreement. Accordingly, any change with respect to your employment to which you
do not object will not constitute a Demotion; provided, however, that your
acceptance on a trial basis of a change which would otherwise constitute a
Demotion will not constitute a waiver of your right to object to such change
subsequently and to treat such change as a Demotion if it is not remedied within
15 days after written notice to the Company of your unwillingness to continue
accepting such change.
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(g) "Employee Benefits" means benefits provided to you by the
Company immediately prior to a Change in Control, or, if greater, benefits
provided to you by the Company immediately prior to commencement by the Company
of substantive discussions with any third party which result in a Change in
Control in which such third party has a significant involvement within one year
after commencement of such discussions, or, if greater, benefits provided to you
by the Company immediately prior to the Termination Date, in each case under any
and all medical or health, life insurance, disability income, tax assistance, or
executive automobile benefit policies, plans, programs or arrangements in which
you are a participant at the applicable time.
(h) "QLogic Option" means each option to purchase shares of stock
of QLogic which is granted to you by QLogic prior to a Change in Control and
each option to purchase shares of stock of QLogic's successor (by purchase of
assets, merger, consolidation, reorganization or otherwise) which is granted to
you by such successor in connection with or after a Change in Control in
exchange or substitution for an option granted to you by QLogic prior to the
Change in Control.
(i) "Normal Retirement Date" means the date designated by the
Company for your normal retirement under any retirement policy or plan which is
applied to the Company's executive officers in a non-discriminatory manner or,
if no such policy or plan has been established, the date when you attain age 65.
6. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
7. Notice. For all purposes of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or five business days after having been mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to you at your principal residence, or to
such other address as either party may have furnished to the other in writing
and in accordance herewith, except that any notice of change of address shall be
effective only upon receipt.
8. Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and their successors. In the event of a Change in
Control, any parent company, which directly or indirectly controls a majority of
the outstanding Voting Stock of the Company, or a successor to the Company (by
way of merger, consolidation, reorganization, sale of assets or otherwise)
shall, in the case of a successor, by an agreement in form and substance
reasonably satisfactory to you, expressly assume and agree to perform this
Agreement and, in the case of a parent company, by an agreement in form and
substance reasonably satisfactory to you, guarantee and agree to cause the
performance of this Agreement, in each case, in the same manner and to the same
extent as the Company would be required to perform if no Change in Control had
taken place.
9. Severability; Entire Agreement; Amendments. This Agreement sets
forth the entire understanding among us as to the subject matter hereof. There
are no terms, conditions, representations, warranties or covenants other than
those contained herein. No term or provision of this Agreement may be amended,
waived, released, discharged or modified in any respect except in writing,
signed by the appropriate party(s). No waiver of any breach or default shall
constitute a waiver of any other breach or default whether of the same or any
other covenant or condition. A delay or failure to assert rights or a breach of
this Agreement shall not be deemed to be a waiver of such rights either with
respect to that
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breach or any subsequent breach. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
10. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws of such
state.
11. Counterparts. This agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same agreement.
12. Board Approval. The Company hereby represents that the execution,
delivery, and performance of this Agreement has been duly authorized by its
board of directors.
13. Dispute Resolution. Any dispute between you and the Company arising
from or relating to this Agreement shall be resolved by arbitration in
accordance with the rules of the American Arbitration Association in Costa Mesa,
California. The prevailing party in any such arbitration shall be entitled to
recover his or its costs and reasonable attorneys fees.
14. Late Payment Interest. Any payment which is not made to you when due
under this Agreement shall bear interest at the rate of 10% per annum from the
due date to the payment date.
Very truly yours,
QLOGIC CORPORATION,
a Delaware Corporation
/s/ Thomas R. Anderson
-----------------------------------
By: Thomas R. Anderson
Vice President, and
Chief Financial Officer
AGREED:
/s/ Harshad K. Desai 8/2/95
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Harshad K. Desai
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