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SENIOR EXECUTIVE TERMINATION BENEFITS AGREEMENT
AGREEMENT, dated as of August 7, 1997 between TELCO SYSTEMS, INC., a
Delaware corporation (the "Company"), and Anand S. Parikh (the "Executive").
R E C I T A L S
A. The Company considers it essential to the best interests of the Company
and its stockholders that its management be encouraged to remain with the
Company and to continue to devote full attention to the Company's business in
the event that an effort is made to obtain control of the Company through a
tender offer or otherwise. In this connection, the Company recognizes that the
possibility of a change in control and the uncertainty and questions which it
may raise among management may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders.
Accordingly, the Company's board of directors (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
B. The Executive is a key executive of the Company, and the Company
believes that the Executive has made valuable contributions to the productivity
and profitability of the Company.
C. In the event that the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equity
securities of, the Company, the Board believes it imperative that the Company
and the Board be able to rely upon the Executive to continue in his position and
that the Company be able to receive and rely upon his advice, if so requested,
as to the best interests of the Company and its stockholders without concern
that he might be distracted by the personal uncertainties and risks created by
such a proposal.
D. Should the Company receive any such proposal, in addition to the
Executive's regular duties, he may be called upon to assist in the assessment of
such proposals, advise management and the Board as to whether such proposal
would be in the best interests of the Company and its stockholders, and to take
such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to
remain in the employ of the Company, and for other good and valuable
consideration, the Company and the Executive agree as follows:
1. SERVICES DURING CERTAIN EVENTS
In the event that a third person begins a tender or exchange offer,
circulates a proxy to stockholders, or takes other steps seeking to effect a
Change in Control (as hereafter defined), the
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Executive agrees that he will not voluntarily leave the employ of the Company,
and will render the services contemplated in the recitals to this Agreement,
until the third person has abandoned or terminated his or its efforts to effect
a Change in Control or until after such a Change in Control has been effected.
2. CHANGE IN CONTROL
For purposes of this Agreement, a Change in Control of the Company shall
be deemed to have taken place if: (a) a third person, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the
beneficial owner of shares of any class of the Company's stock having 40% or
more of the total number of votes that may be cast for the election of directors
of the Company (excluding (i) Kopp Investment Advisors ("KIA") for so long as
KIA qualifies to report its beneficial ownership of shares of the Company's
stock on Schedule 13G under the Securities and Exchange Act of 1934 or (ii)
affiliates or associates of KIA that have acquired the Company's stock in the
ordinary course of business and, in the case of KIA, its affiliates and
associates, not with the purpose or effect of changing or influencing the
control of the Company); or (b) the stockholders of the Company approve a
definitive agreement for the sale or other disposition of all or substantially
all of the assets of the Company, the merger or other business combination of
the Company with or into another corporation pursuant to which the Company will
not survive or will survive only as a subsidiary of another corporation, in
either case with the stockholders of the Company prior to the merger or other
business combination holding less than 50% of the voting shares of the merged or
combined companies after such merger or other business combination, or any
combination of the foregoing.
3. CIRCUMSTANCES TRIGGERING RECEIPT OF SEVERANCE BENEFITS
(a) The Company shall provide the Executive with the benefits set forth in
Section 5 upon any termination of the Executive's employment by the Company
within 18 months following a Change in Control for any reason except the
following:
(i) Termination by reason of the Executive's death, provided the
Executive has not previously given a valid Notice of Termination
(as defined in Section 4) pursuant to Subsection 3(b);
(ii) Termination by reason of the Executive's disability. For the
purpose hereof, "disability" shall be defined as the Executive's
inability by reason of illness or other physical or mental
disability to perform the duties required by his employment for any
consecutive period of 180 calendar days, provided that notice of
any termination by the Company because of the Executive's
disability shall have been given to the Executive prior to the full
resumption by him of the performance of such duties;
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(iii) Termination for cause. For the purposes hereof, "cause" shall be
defined as the willful and continued failure of the Executive to
perform substantially his duties or action by the Executive
involving willful misfeasance, gross negligence or the commission
of any felonious action; provided, however, that termination for
cause based on the Executive's willful and continued failure to
substantially perform his duties shall not be effective unless the
Executive shall have received written notice from the Board of such
failure (specifying in detail the facts and circumstances on which
the Board is relying) and a demand for substantial performance 30
days prior to such termination and the Board determines that the
Executive shall have failed during such 30-day period to resume the
diligent performance of his duties.
(b) The Company shall also provide the Executive with the benefits set
forth in Section 5 upon any termination of the Executive's employment with the
Company at the option of the Executive within 18 months after a Change in
Control followed by the occurrence of any one of the following events:
(i) Without the express written consent of the Executive, the
assignment of the Executive to any duties substantially
inconsistent with this positions, duties, responsibilities or
status with the Company immediately prior to the Change in Control,
a substantial reduction of his duties or responsibilities or
assignment of the Executive to a business location more than 20
miles from the regular business location of the Executive prior to
the Change in Control, in each case as determined in good faith by
the Executive;
(ii) A reduction by the Company in the amount of the Executive's salary
as compared to that which was paid immediately prior to the Change
in Control, or any failure to maintain or provide benefit plans
covering the Executive providing benefits at least substantially
equivalent to the level of benefits paid or available to the
Executive under the Company's benefit plans immediately prior to
the Change in Control;
(iii) The failure of the Company to obtain the assumption of the
obligation to perform this Agreement by any successor as required
by Section 10;
(iv) Any material breach by the Company of any of the provisions of this
Agreement or any material failure by the Company to carry out any
of its obligations hereunder.
4. NOTICE OF TERMINATION
Any termination of the Executive's employment with the Company by the
Company as contemplated by Subsection 3(a) or by the Executive as contemplated
by Subsection 3(b) shall be communicated by written Notice of Termination to the
other party. Any Notice of Termination given by the Executive pursuant to
Subsection 3(b) or given by the Company in connection with a termination as to
which the Company believes it is not obligated to provide the Executive with the
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benefits set forth herein shall set forth the effective date of termination (the
"Termination Date"), the specific provision in this Agreement relied upon and,
in reasonable detail, the facts and circumstance claimed to provide a basis for
such termination.
5. TERMINATION BENEFITS
Subject to the conditions set forth in Sections 3 and 10 in the event of
termination of the Executive's employment under the circumstance described in
Section 3, the following benefits (subject to any applicable payroll or similar
taxes required to be withheld) shall be paid on a monthly basis, or in the case
of fringe benefit shall continue to be provided, for a period of 13 months after
the Termination Date to the Executive:
(a) COMPENSATION
Thirteen payments, each equal to (i) one-twelfth times the Executive's
effective annual base salary as of the Termination Date plus (ii) an amount
equal to one-twelfth times the highest annual bonus paid or payable under the
Company's Management Incentive Compensation Plan, or otherwise paid or payable
to the Executive by the Company as a bonus, with respect to any consecutive
12-month period during the three years prior to the Termination Date, will be
paid monthly during the 13 months commencing on the Termination Date. The
Executive, may by notice to the Company at any time during such 13-month period,
elect to receive his remaining compensation in a lump sum payment, subject,
however, to the provisions of Section 6 hereof.
(b) INSURANCE BENEFITS, ETC.
To the extent permitted by law or the terms of such Company plans, the
Executive's participation (including dependent coverage) in the life,
short-term, disability, health and dental insurance plans, vision care plans,
and any other fringe benefits of the Company appropriate to the Executive's
status in effect immediately prior to the Change in Control (including, but not
limited to, executive medical insurance coverage) shall be continued, or
equivalent benefits provided, by the Company, at no additional cost to the
Executive, for a period of 13 months commencing on the Termination Date.
6. STOCK OPTION VESTING AND EXERCISE
In the event that the Executive's employment with the Company is
terminated under the circumstances described in Section 3, all stock options
held by the Executive as of the Termination Date shall remain outstanding and
shall continue to vest until the earlier of (a) 13 months after the Termination
Date or (b) the date on which the Company pays the Executive the balance of his
compensation under Section 5(a) in a lump sum, as provided in the last sentence
of Section 5(a).
7. CONSULTING SERVICES
In the event that the Executive's employment with the Company is
terminated under the circumstances described in Section 3, the Executive shall
at the request of the Company provide up
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to a maximum of six hours per month of consulting services during each of the 13
months following the Termination Date. Such services shall be performed at such
times and places as are mutually agreeable to the Company and the Executive, and
shall continue notwithstanding payment by the Company of the lump sum
compensation payment described in the last sentence of Section 5(a).
Notwithstanding the provisions of this Section 7, the Executive shall be under
no obligation to perform any consulting services if and to the extent that the
performance of such services shall cause him to be in material breach of any
contract with a subsequent employer of the Executive or would otherwise be
inconsistent with his obligations to such an employer.
8. EFFECT OF SUBSEQUENT EMPLOYMENT
None of the benefits provided for or payable pursuant to this Agreement
shall be affected or reduced in the event that the Executive obtains other
employment after the Termination Date.
9. CONTINUING OBLIGATIONS
In order to induce the Company to enter into this Agreement, the Executive
hereby ratifies and confirms his Invention, Non-Disclosure and Non-Competition
Agreement with the Company. Without limiting the generality of the foregoing,
the Executive agrees that all documents, records, techniques, business secrets
and other information which have come into his possession from time to time
during his employment hereunder shall be deemed to be confidential and
proprietary to the Company and that he shall retain in confidence any
confidential information known to him concerning the Company and its
subsidiaries and their respective businesses so long as such information is not
publicly disclosed.
10. SUCCESSORS
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that Company would be
required to perform it if no such transaction had taken place. Failure of the
Company to obtain such agreement prior to the effective date of any such
transaction shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as the
Executive would be entitled hereunder if he were to terminate his employment
pursuant to Subsection 3(b), except that for purposes of implementing the
foregoing, the date on which any such transaction becomes effective shall be
deemed the Termination Date. As used in this Agreement, "Company" shall mean the
Company as defined herein and any successor to its business and/or assets as
aforesaid which executes and delivers that agreement provided for in this
Section 10 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees
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and legatees. If the Executive should die or become disabled as defined in
3(a)(ii) while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to him or to his designee or, if there be no such designee, to
his estate.
11. NOTICES
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt required, postage prepaid, addressed as follows:
If to the Executive: Anand S. Parikh
19 Freedom Farme Road
Acton, MA 01720
If to the Company: Telco Systems, Inc.
63 Nahatan Street
Norwood, MA 02062
Attention: Corporate Secretary
or to such other address as either party may have furnished to the other in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
12. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware.
13. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof shall be settled by arbitration to be conducted in Boston,
Massachusetts in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
14. MISCELLANEOUS
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and on behalf of the Company. No waiver by either party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of the same or any other provisions
or conditions at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
15. SEPARABILITY
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, all of which shall remain in full force and effect.
16. NON-ASSIGNABILITY
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 10. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than to a person or persons designated in
writing by the Executive or a transfer by his will or by the laws of descent or
distribution, and in the event of any attempted assignment or transfer contrary
to this Section the Company shall have no liability to pay any amount so
attempted to be assigned or transferred.
17. TERMINATION
The Company may terminate this Agreement at any time by 30 days written
notice of such termination given to the Executive; EXCEPT THAT such termination
shall not be made, and if made shall have no effect, (a) within eighteen months
after the Change of Control in question or (b) during any period of time when
the Company has knowledge that any third person has taken steps reasonably
calculated to effect a Change in Control until, in the opinion of the Board, the
third person has abandoned or terminated his efforts to effect a Change in
Control. Any decision by the Board that the third person has abandoned or
terminated his efforts to effect a change in control shall be conclusive and
binding on the Executive.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year set forth below.
AGREED: TELCO SYSTEMS, INC.:
/s/ Anand S. Parikh /s/ William B. Smith
- -------------------------------- By: -----------------------------------
Anand S. Parikh President & Chief Executive Officer
Date: September 8, 1997 Date: September 8, 1997
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