EXHIBIT 10.1
BROCADE COMMUNICATION SYSTEMS, INC.
TERMS OF EMPLOYMENT AGREEMENT
1. Position and Duties: Consultant to the Chief Executive Officer (the
"CEO") of Brocade Communications Systems Inc. (the
"Company") and to the Board of Directors of the
Company (the "Board"). Consultant reports to the
CEO and the Board. Consultant will render such
business and professional services in ways and at
times as reasonably directed by the CEO and the
Board which are consistent with his role as a
strategic advisor. Consultant will work
exclusively for the Company during the Term of
Employment, except that Consultant may continue
his affiliation with the San Jose Sharks, serve on
other boards of directors (subject to paragraph 14
below) and/or perform services for tax-qualified
charitable organizations. Consultant agrees he
will not stand for reelection as a Board member at
the next annual meeting.
2. Term of Agreement: Two years, beginning effective January 18, 2005
(the "Effective Date").
3. Term of Employment: At will; employment may be terminated by
Consultant or the Company, at any time. Severance
payable, as described below, upon the Company's
termination of Consultant without "Cause" (as
defined under "Severance" below) or Consultant's
resignation for "Good Reason" (as defined under
"Severance" below).
4. Total Cash Compensation: $910,000 per year, consisting of $520,000 in base
salary and $390,000 in incentive compensation.
Payment of Total Cash Compensation is based on the
fulfillment of the terms and conditions of this
agreement. The Total Cash Compensation will be
paid periodically in accordance with the Company's
normal payroll and incentive compensation
practices and procedures and will be subject to
the usual, required withholdings.
5. Expenses: The Company will reimburse the Consultant for all
reasonable travel, entertainment and other
expenses incurred by the Consultant in the
furtherance of his performance of his duties, in
accordance with the Company's expense
reimbursement policy in effect from time to time.
In addition, the Company will
reimburse the Consultant for the expense incurred
by the Consultant in the operation of his private
plane, when used for Company business, up to the
first class ticket market rate charged by
commercial airlines.
6. Options: The Consultant's options will continue to vest in
accordance with the current vesting schedules in
the Consultant's option agreements during the Term
of Employment, and subject to the acceleration
described under "Severance" below.
7. Benefits: During the Term of Employment, Consultant will be
eligible to participate in the Company's employee
benefit plans, policies and arrangements
applicable to other employees, as in place from
time to time, subject to the continued benefits
described in "Severance" below.
8. Termination of Employment: In the event Consultant's employment with the
Company terminates for any reason, the Consultant
shall be entitled to (a) all Base Salary accrued
up to the effective date of termination, (b) all
pay for accrued by unused vacation that the
Company is legally obligated to pay Consultant, if
any, (c) all benefits or compensation accrued
prior to termination, as provided under the terms
of any employee benefit and compensation
agreements or plans applicable to the Consultant,
and (d) all business expenses required to
reimbursed under the Company's expense
reimbursement policy to the Consultant with
respect to business expenses incurred prior to
termination. In addition, if the termination is by
the Company without Cause or by the Consultant for
Good Reason, he shall be entitled to the amounts
and benefits specified in paragraph 10; provided,
however, that the amounts specified in paragraph
10 will be reduced by amounts that Consultant is
eligible to receive as severance under any other
Company plan, policy, or practice. If the
termination is by the Company for Cause, the
Consultant is entitled to no severance or "Change
of Control" amounts and benefits specified in
paragraph 10.
-2-
9. D&O Insurance Consultant will retain any and all rights under
the Company's D&O policy through his employment
and while liability exists thereafter.
10. Severance: (1) In the event that during the term of the
Agreement, the Company terminates Consultant's
employment without "Cause" or Consultant resigns
for "Good Reason," Consultant shall receive: (i)
continued payment of Consultant's base salary and
incentive compensation for the "Severance Period"
(ii) reimbursement for COBRA premiums for
Consultant and Consultant's eligible dependents,
payable when such premiums are due, provided
Consultant elects to continue medical coverage
under applicable law for the "Severance Period"
and (iii) continued vesting for the "Severance
Period" with respect to all outstanding equity
awards granted by the Company. "Severance Period"
means the period beginning on the day following
Consultant's termination of employment and ending
on the date that is 24 months from the Effective
Date.
Consultant's options that vested prior to
termination are subject to the terms and
conditions in accordance with the applicable
option agreements. Consultant shall be permitted
to exercise those options that continue vesting
for the Severance Period in accordance with this
Agreement until ninety days after the end of the
Severance Period.
If a Change of Control occurs while the Consultant
is employed under this Agreement, Consultant will
receive accelerated vesting with respect to 100%
of the then unvested portion of all outstanding
equity awards.
The severance payments and accelerated vesting
will be subject to applicable tax withholding and
to (i) Consultant signing and not revoking a
separation
- --------
(1) Under the new Internal Revenue Code Section 409A, such severance may be
subject to an additional 20% income tax and interest penalties to Consultant,
unless the severance is distributed at least 6 months after the Consultant
terminates employment. Therefore, we should discuss accruing the severance
benefits to Consultant during the first 6 months but delaying actual payment of
the benefits until 6 months have elapsed to meet the requirements of Internal
Revenue Code Section 409A to avoid an additional tax on the Consultant under
Section 409A.
-3-
agreement and release of claims satisfactory to
the Company and (ii) Consultant continuing to
comply with the non-solicitation, non-compete, and
non-disparagement agreements with the Company
described under "Non-Solicitation, Non-Competition
and Non-Disparagement" below.
"Cause" means (i) Consultant's willful failure to
perform his assigned duties and responsibilities
reasonably assigned to him that are not corrected
within a fifteen (15) day correction period, after
there has been delivered to Consultant a written
demand for performance from the CEO or the Board
of Directors which describes the basis for the
belief of the CEO or the Board of Directors that
Consultant has not substantially performed his
duties and provides Consultant with fifteen (15)
days to take corrective action; (ii) any act of
personal dishonesty taken by Consultant in
connection with his responsibilities as an
employee of the Company with the intention or
reasonable expectation that such may result in
substantial personal enrichment of Consultant;
(iii) Consultant's conviction of, or plea of nolo
contendere to, a felony which the Board reasonably
believes has had or will have a material
detrimental effect on the Company's reputation or
business; or (iv) Consultant materially breaching
Consultant's Confidential Information Agreement
(defined below) or the Consultant's exclusive
employment, non-compete, non-solicitation and
non-disparagement agreements with the Company
described under "Terms of Employment" above and
"Non-Solicitation, Non-Competition and
Non-Disparagement" below, which breach is (if
capable of cure) not cured within fifteen (15)
days after the Company gives written notice to the
Consultant of the breach.
"Good Reason" means the occurrence of any of the
following, without Consultant's consent, prior to
a Change of Control or more than twelve (12)
months following a Change of Control: (i) a
reduction in Consultant's Base Salary; (ii) the
Company requiring Consultant to relocate his
principal place of business or the Company
relocating its headquarters, in either case to a
facility or location outside of a twenty-five (25)
-4-
mile radius from Consultant's current principal
place of employment; or (iii) any material breach
by the Company of this agreement; provided,
however, that Consultant only will have Good
Reason if the event or circumstances constituting
Good Reason specified in any of the preceding
clauses is not cured within fifteen (15) days
after Consultant gives written notice to the
Board.
"Change of Control" means (i) an acquisition of
the Company through the sale of all or
substantially all of its assets; (ii) a merger or
other business combination in which the Company is
not the surviving entity, or any reverse merger
where the Company is the surviving entity in each
case where more than 50% of the Company's combined
voting power is transferred to a person(s)
different from those holding such voting power
immediately prior to such acquisition; or (iii) an
acquisition by any person or related group of
persons, other than a group that includes
Consultant and other than the Company, of
beneficial ownership of securities possessing more
than 50% of the total combined voting power of the
Company's outstanding securities.
11. Indemnification: Full "Rite-Aid" rights.
12. Death and Disability: In the event of a termination of Consultant's
employment due to death or disability, Consultant
will be entitled to payments and benefits only in
accordance with the Company's standard plans,
programs, and practices.
13. Full Release: Consultant will sign a full release of any and all
claims, duties, obligations, actions and causes of
action, whether known or unknown, which he now
has, ever had, or shall or may hereafter have
against the Company, its directors, officers,
employees, advisors and related parties arising
from, directly or indirectly, any events, acts or
omissions that occurred prior to the date of
execution of the Employment Agreement. Pursuant to
paragraph 10, and as a condition to receive the
severance payments as described above, Consultant
will sign a supplemental release containing
similar terms promptly following termination.
-5-
14. Non-Solicitation,
Non-Competition and
Non-Disparagement: During the period of employment and two years
thereafter, Consultant shall not (i) solicit any
employee of the Company for employment other than
at the Company, (ii) directly or indirectly
provide services to, have any ownership interest
in or participate in any entity that competes with
the Company, or (iii) knowingly disparage,
criticize, or otherwise make any derogatory
statements regarding the Company and/or its
officers or directors. A general advertisement not
targeted specifically at a Company employee or
employees that is placed in general circulation
media outlets will not be a violation of clause
(i). Notwithstanding clause (i), upon the request
of a Company employee, Consultant may serve as an
employment reference for the employee. The Company
(in officially sanctioned communications) will not
knowingly disparage, criticize, or otherwise make
any derogatory statements regarding the
Consultant. The Company will instruct its officers
and directors to not knowingly disparage,
criticize, or otherwise make any derogatory
statements regarding the Consultant.
15. Arbitration: All disputes arising as a result of Consultant's
employment, including the termination thereof, or
Consultant's compensation or benefits shall be
resolved through binding arbitration.
16. Attorneys' Fees: The Company shall reimburse Consultant up to
$50,000 for reasonable attorneys' fees incurred in
the negotiation of this term sheet and the
preparation, and execution of an Employment
Agreement reflecting this term sheet.
17. Supersedes: The Employment Agreement will supersede all other
agreements between the Company or any subsidiary
and Consultant except the Confidential Information
Agreement and standard forms of equity award grant
and/or agreement (provided that the "Severance"
and "Change of Control" related acceleration and
exercisability provisions contained in the
Employment Agreement, to the extent they differ
from existing provisions, shall supersede any such
provisions contained in the equity award grant
and/or agreement).
18. Governing Law: The Employment Agreement will be governed by the
internal laws of the State of California, without
reference to the principles of conflicts of laws
thereof.
-6-