Exhibit 10.13
November 5, 2003
RE: Termination, Severance Offer and General Release
Dear Brian:
In connection with the September 17, 2003 termination of your service as
President and Chief Executive Officer of Crossroads Systems, Inc. (the
"Company"), you are eligible for certain severance benefits. As set forth in the
severance benefit plan letter agreement dated as of May 15, 2003 (the "Severance
Agreement"), a signed copy of which is attached hereto as Exhibit A, your
eligibility for the benefits set forth in the Severance Agreement depends upon
your execution of a general release. Additionally, in recognition of your
service to the Company, the Company has agreed to extend you additional benefits
above and beyond those for which you are eligible under the Severance Agreement
("Additional Benefits") in exchange for a general release and your other
agreements contained herein. Attached as Exhibit B to this Letter Agreement is a
copy of the general release (the "Release") the Company is requiring you to sign
in order to receive the benefits for which you are eligible under the Severance
Agreement as well as those Additional Benefits the Company has made available to
you. As we have discussed, your employment with the Company is terminated
effective September 30, 2003 (your "Employment Termination Date"). This Letter
Agreement summarizes the separation benefits available to you upon your
executing the Release. Capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Severance Agreement.
I. Background
A. As of the date of the termination of your employment with the
Company, your annual salary was $250,000 ($20,833.33 monthly), and you had
received and held the following option grants:
i. On March 1, 2002, you received an option grant under
the terms of the Company's 1999 Stock Option Plan, as amended (the "Plan"), to
purchase up to an aggregate of 5,000 shares of the Company's common stock, par
value $0.001 per share (the "Common Stock"), with an exercise price of $3.54 per
share ("Option 1112"). As of your employment termination date, you are fully
vested in Option 1112.
ii. On May 7, 2002, you received an option grant under
the terms of the Plan to purchase up to an aggregate of 150,000 shares of Common
Stock, with an exercise price of
$2.51 per share ("Option 1114"). As of your employment termination date, you are
fully vested in Option 1114.
iii. On August 7, 2002, you received an option grant under
the terms of the Plan to purchase up to an aggregate of 150,000 shares of Common
Stock, with an exercise price of $0.71 per share ("Option 1235"). As of your
employment termination date, you are fully vested in Option 1235.
iv. On November 7, 2002, you received an option grant
under the terms of the Plan to purchase up to an aggregate of 150,000 shares of
Common Stock, with an exercise price of $0.69 per share ("Option 1239" and,
together with Option 1112, Option 1114 and Option 1235, the "Fully Vested
Options"). As of your employment termination date, you are fully vested in
Option 1239.
v. On November 19, 2002, you received an option grant
under the terms of the Plan to purchase up to an aggregate of 300,000 shares of
Common Stock, with an exercise price of $0.79 per share ("Option 99-249").
Option 99-249 is subject to a 4-year vesting schedule. As of your employment
termination date, you are not vested in any shares under Option 99-249.
II. Termination Rights and Obligations
A. Payment of Current Salary and Vacation. On September 30, 2003,
you received your final paycheck for wages earned through the termination date.
B. Continuation of Health and Welfare Coverage. If you elect not
to sign the Release and accept the health coverage benefits offered to you in
the Severance Agreement, your health care coverage will have terminated on
September 30, 2003. Upon termination of your coverage, you may choose to
continue your health care coverage under the Consolidated Omnibus Budget
Reconciliation Act ("COBRA"). If you elect to continue health coverage under
federal COBRA, you will be solely responsible for your and your dependents'
health benefits, including all COBRA premiums. A COBRA notification form
containing an explanation of your COBRA rights will be mailed to you and your
dependents at your last known address on file with the Company. You will have
sixty (60) days from the date of the COBRA notice to elect continuation of
benefits under COBRA. It is your responsibility to ensure that you and/or your
eligible dependents timely make the COBRA election, and if you fail to do so,
you will have waived rights under COBRA.
C. Reimbursement of Expenses. The Company will reimburse you for
actual and reasonable out-of-pocket costs and expenses incurred by you on behalf
of the Company prior to the date of your termination of employment, provided
that you provide proof of such costs and expenses on the appropriate forms and
consistent with Company policies. To the extent that you incur additional
reimbursable expenses on behalf of the Company in your continuing role as a
director, you will be reimbursed in accordance with Company policies, including
submission of such expenses on the Company's forms.
D. Other Agreements and/or Obligations. The Indemnity Agreement
and Proprietary Information and Inventions Agreement ("PIIA") by and between the
Company and you will remain in force pursuant to their terms. Also, you will
remain a member of the Board.
III. Separation Package Pursuant to the Severance Agreement. Because your
termination is not a Termination for Cause and is not in connection with a
Change in Control, upon signing the Release, you will become eligible for the
benefits set forth in Part Two, A(1-3) of the Severance Agreement, which are the
benefits available to you in the context of an Involuntary Termination not
related to a Change in Control. However, Part Four of the Severance Agreement
sets forth special restrictive covenants that would limit the benefits awarded
you under Part Two of the Severance Agreement should you violate any of the
non-solicitation or non-competition restrictions set forth in Part Four of the
Severance Agreement. Therefore, unless and until Part Four of the Severance
Agreement is invoked and based upon the terms of the Severance Agreement, upon
executing the Release, you are eligible for the following:
A. Salary Continuation. Twelve months of your monthly base salary
(which is $20,833.33 monthly), less all applicable withholdings (your "Salary
Continuation"), to be paid to you in the Company's normal payroll practices. As
additional consideration for your agreements herein and provided that you have
executed the Release, we have agreed that you may elect (upon at least five (5)
days' prior written notice) to have the Company accelerate payment of your
remaining unpaid Salary Continuation into a lump sum payment (less applicable
withholdings) at any point after signing of the general release.
B. Immediate Vesting and Exercisability of Certain Stock Options.
Immediate vesting and exercisability of each outstanding Option that you
currently hold for the number of additional shares in which you would have
vested had you remained in the Company's employ for a period of twelve (12)
months following the Involuntary Termination. We have agreed that such options,
as well as your Fully Vested Options, shall be exercisable until the earlier of
(i) the expiration of the option term or (ii) the end of the six (6)-month
period following the date of your cessation of service as a member of the Board
of Directors of the Company, and are subject to applicable income and
withholding taxes. Under Option 99-249, you would be vested as to 131,250 shares
by September 30, 2004, had you remained in the Company's employ. The option term
for Option 99-249 is ten years from the grant date, which was November 19, 2002.
Therefore, you have until the earlier of (i) November 18, 2012 or (ii) six
(6)-months following the date of your cessation of service as a member of the
Board of Directors of the Company to exercise the option to purchase those
131,250 vested shares at an exercise price of $0.79 per share.
C. Continuation of Health Coverage. Finally, the Company will, at
its expense, continue to provide you and your eligible dependents with the
Company's paid portion of health care coverage under the Company's
medical/dental plan until the earlier of (i) the expiration of that number of
months equal to the Severance Period measured from October 1, 2003 or (ii) the
first date that you are covered under another employer's health benefit program
which provides substantially the same level of benefits without exclusion for
pre-existing medical conditions. Such Health Care Coverage will be in lieu of
any other continued health care coverage to which
you or your dependents would otherwise be entitled at your own cost under Code
Section 4980B by reason of your termination of employment.
IV. Additional Agreements. In exchange for your execution of the Release,
the Company also has made available to you the following benefits:
A. Extension of Employment. Rather than September 17, 2003, the
date you ceased to serve as the Company's President and Chief Executive Officer,
the Company agreed to extend your employment date through September 30, 2003 for
option vesting, salary payment and health benefit coverage purposes.
B. Vesting and Exercisability of Additional Option 99-249 Shares.
The Severance Agreement provides for immediate vesting and exercisability of
131,250 shares pursuant to Option 99-249 in exchange for signing the Release.
The Company recognizes, however, that even if you execute the Release attached
as Exhibit B, pursuant to the terms of the Severance Agreement, 168,750 shares
pursuant to Option 99-249 would remain unvested and unexercisable. Thus, in
recognition of your service to the Company, the Company also wishes to extend
you the option of receiving certain additional benefits above and beyond those
to which you are entitled pursuant to the Severance Agreement.
Therefore, the Company has agreed to also accelerate the vesting as to
an additional 18,750 shares under Option 99-249, resulting in an aggregate of
150,000 shares under Option 99-249, which will be deemed to be vested and
exercisable at an exercise price of $0.79 per share for an aggregate purchase
price of $118,500. Should you sign the Release, you would have until the earlier
of (i) November 18, 2012 (the expiration date of Option 99-249) or (ii) six
(6)-months following the date of your cessation of service as a member of the
Board of Directors of the Company to exercise the vested shares under Option
99-249. Such options are subject to applicable income and withholding taxes.
Other than the foregoing acceleration in exchange for your signing the Release,
Option 99-249 will terminate and 150,000 unvested shares will be forfeited and
returned to the Plan.
C. Issuance of Stock Bonus Plan Shares. Pursuant to the Fiscal
Year 2003 Stock Bonus Incentive Program, you were eligible to receive a stock
performance grant for 174,000 shares of Common Stock (the "Stock Bonus Plan
Shares") provided that you were an employee of the Company on the date such
shares were to be issued. Your Severance Agreement does not provide that you
will receive the Stock Bonus Plan Shares. In recognition of your service to the
Company, provided that you execute the Release, then the Company will issue to
you 50,000 of the Stock Bonus Plan shares that you would have been entitled to
receive had you remained an employee of the Company on the date or dates such
shares were to be issued. Within three (3) business days after the Release is
delivered to the Company, the Company will request that the administrator of the
Plan, Salomon Smith Barney, issue the Stock Bonus Plan Shares to you in
accordance with its standard procedures for the issuance of shares under the
Plan, including payment of applicable taxes.
D. Laptop Computer/PDA. You will maintain possession of your
laptop computer and PDA, although you have agreed to return to the Company any
of the Company's Proprietary Information, as that term is defined in the
Company's PIIA. If requested, you also agree to allow Dave Riegel on behalf of
the Company to examine your laptop and PDA in your presence for any Proprietary
Information within thirty days of the date hereof.
E. Use of Company Email Address. The Company will allow you to
continue to have access to your Company email address to send and receive email,
such use to be in accordance with Company policies, until December 31, 2003.
V. Miscellaneous. This Letter Agreement and the Release are binding on
your representatives, heirs, executors, administrators, successors and assigns
and upon the Company's successors and assigns. You understand and agree that in
any dispute between you and the Company regarding the terms of this Letter
Agreement and/or the Release and/or any alleged breach thereof, that the
prevailing party shall be entitled to recover its costs and reasonable
attorneys' fees arising out of such dispute.
You understand that the Company is not providing you with any tax,
legal or financial advice regarding any of the matters covered herein, including
but not limited to, your tax obligations under this Letter Agreement or the
Release. You are personally responsible for the payment of all federal, state
and local taxes that are due, or may be due, for any payments and other
consideration received by you under this Letter Agreement or the Release. You
agree to indemnify the Company and hold the Company harmless, from any and all
taxes, penalties and/or other assessments that the Company is, or may become,
obligated to pay on account of your failure to comply with the preceding
sentence.
By signing this Letter Agreement and the Release, you acknowledge that
you do not have any Company property in your possession, nor have you failed to
return any Company property to the Company including but not limited to access
cards, keys, credit card and telephone calling card, cell phone, pagers, and
computer equipment including laptops, PDA and software (except that the Company
has agreed for you to keep your laptop computer and PDA). You hereby also
acknowledge that you do not have any of the Company's Proprietary Information,
as that term is defined in the Company's Confidentiality, Proprietary
Information and Inventions Agreement, in your possession.
This Letter Agreement, together with the Release, including any
agreements or documents referred to herein, constitute an integrated, written
contract, expressing the entire agreement between the Company and you with
respect to the subject matter hereof. In this regard, you represent and warrant
that you are not relying on any promises or representations that do not appear
in this Letter Agreement or the Release. This Letter Agreement and the Release
can be amended or modified only by a written agreement signed by you and the
Company.
This Letter Agreement and the Release shall, in all respects, be
interpreted, enforced and governed under the laws of the State of Texas
applicable to contracts executed and performed in Texas without giving effect to
conflicts of law principles. You agree that any disputes or
litigation that may arise with respect to this Letter Agreement and/or the
Release shall be brought and prosecuted in Travis County, Texas, and you agree
to waive any objections to the location of such disputes or litigation,
including, but not limited to objections based on forum non conveniens.
You agree that if any provision or portion of any provision of this
Letter Agreement or the Release is held to be invalid or unenforceable or to be
contrary to public policy or any law, for any reason, the remainder of the
Release shall not be affected thereby.
You and the Company each agree to take whatever additional actions and
execute whatever additional documents that may be necessary or advisable in
order to carry out or effect one or more of the obligations provided for in this
Letter Agreement or the Release.
This Letter Agreement and the Release may be executed in separate
counterparts and by facsimile and each such counterpart shall be deemed an
original with the same effect as if the Company and you signed the same
document.
VI. Conclusion. If you wish to receive the severance benefits available to
you pursuant to the Severance Agreement as well as the Additional Benefits being
offered to you, please (i) execute this Letter Agreement in the space provided
below, and (ii) review the attached Release, execute it, and return it to Kathy
Blair at the Company within twenty-one (21) days. The Release will be considered
"returned" to the Company when you have dated, signed and faxed or
hand-delivered it to Kathy Blair at the Company's office located at 8300 North
MoPac Expressway, Austin, Texas 78759, on or before 5:00 p.m. on the return
deadline. Should you desire to fax the executed Release to the Company instead,
you should use the following fax number: 512-928-7199.
[Signature Page Follows]
Very truly yours,
CROSSROADS SYSTEMS, INC.
By:_________________________
Name:_______________________
Title:______________________
By executing this Letter Agreement, I hereby agree to the provisions hereof, and
acknowledge that I am concurrently delivering an executed copy of the Release,
without which the Company's other agreements herein shall be null and void.
ACCEPTED AND ACKNOWLEDGED:
______________________
Brian R. Smith
EXHIBIT A
SEVERANCE AGREEMENT
(SEE ATTACHED)
EXHIBIT B
GENERAL RELEASE
By signing this General Release (this "Release") and accepting the
severance being offered to Brian R. Smith ("you" or "You") in the Termination,
Severance Offer and General Release Letter Agreement to which this Release is an
exhibit, you agree to waive, release, and forever discharge Crossroads Systems,
Inc. (the "Company") and its parents, successors, assigns, divisions,
subsidiaries, affiliates, partners, officers, directors, executives, investors,
shareholders, managers, supervisors, employees, agents, attorneys and
representatives (collectively the "Released Parties" or "Releasees"), from any
and all claims, demands, and causes of action which you have or claim to have,
whether known or unknown, of whatever nature, which exist or may exist as of the
date of your execution of this Release. "Claims," "demands," and "causes of
action" include, but are not limited to, claims based on contract, fraud,
equity, tort, discrimination, harassment, retaliation, personal injury,
constructive discharge, emotional distress, public policy, wage and hour law,
defamation, claims for debts, accounts, attorneys' fees, compensatory damages,
punitive damages, and/or liquidated damages, claims for vesting or accelerated
vesting of options to purchase the Company's Common Stock whether related to a
Change in Control or otherwise, and any and all claims arising under the
Americans with Disabilities Act, the Family and Medical Leave Act, or any other
federal or state statute governing employment, including but not limited to
Title VII of the Civil Rights Act of 1964, the Employee Retirement Income
Security Act of 1974, the Worker Adjustment Retraining and Notification Act, the
Texas Labor Code, and the Texas Commission on Human Rights Act, as such statutes
may have been or may be amended from time to time.
You understand and agree, in compliance with any statute or ordinance
which requires a specific release of unknown claims or benefits, that this
Release includes a release of unknown claims, and you hereby expressly waive and
relinquish any and all claims, rights or benefits that you may have which are
unknown to you at the time of the execution of this Release. You understand and
agree that if, hereafter, you discover facts different from or in addition to
those which you now know or believe to be true, that the waivers and releases of
this Release shall be and remain effective in all respects notwithstanding such
different or additional facts or the discovery of such fact.
You represent and warrant that you do not presently have on file, and
further represent and warrant to the maximum extent allowed by law that you will
not hereafter file, any lawsuits, claims, charges, grievances or complaints
against the Company and/or the Released Parties in or with any administrative,
state, federal or governmental entity, agency, board or court, or before any
other tribunal or panel or arbitrators, public or private, based upon any
actions or omissions by the Company and/or the Released Parties occurring prior
to the Effective Date of this Release. You understand that nothing in this
Release prevents you from filing a charge or complaint with or from
participating in an investigation or proceeding conducted by the EEOC or any
other federal, state or local agency charged with the enforcement of any
employment laws. To the extent that you are still entitled to file an
administrative charge with any governmental agency, you hereby release any
personal entitlement to reinstatement, back pay, or any other types of
damages or injunctive relief in connection with any civil action brought on your
behalf after your filing of any administrative charge.
The only claims that this Release does not include are claims related
to the consideration offered for this Release, the business expense
reimbursement policy of the Company, your rights under the employment benefits
plans of the Company, (as applicable to you on the date of your termination),
and any claims that controlling law clearly states may not be released by
settlement.
Nothing in this Release shall constitute or be treated as an admission
of any wrongdoing or liability on your part or on the part of the Company and/or
the Released Parties. You acknowledge that you have been advised to consult with
an attorney of your choosing prior to entering into this Release. You waive any
right to written notice of termination from the Company that may have been
contemplated or required pursuant to the Severance Benefit Plan you agreed to on
May 15, 2003 (the "Severance Agreement").
Nothing in this Release is intended to alter, modify or waive the
Company's and your continuing rights and obligations under the Company's
Confidentiality, Proprietary Information and Inventions Agreement or its
Indemnity Agreement, each signed by you and each incorporated herein by this
reference. You understand and agree that a breach of any continuing obligation
contained in the above agreements shall also constitute a breach of this
Release.
Finally, you represent and agree that you are the sole and lawful owner
of all rights, title and interest in and to all released matters, claims and
demands arising out of or in any way related to your employment with the Company
and/or the termination thereof.
You acknowledge that you have twenty-one (21) days to consider this
Release and that you may deliver your acceptance of this Release to Kathy Blair.
You acknowledge that you received this Release on November 5, and that this
Release will become effective, fully enforceable and irrevocable after you sign
this Release (hereinafter the "Effective Date").
[Signature Page Follows]
BRIAN R. SMITH
_____________________________
Dated:_______________________
ACCEPTED AND ACKNOWLEDGED:
CROSSROADS SYSTEMS, INC.
By:__________________________
Name:________________________
Title:_______________________
Dated:_______________________
[SIGNATURE PAGE TO GENERAL RELEASE]