CHANGE OF CONTROL AND RETENTION
AGREEMENT
This Change of
Control and Retention Agreement (the “ Agreement
”) is made and entered into by and between David G. DeWalt
(the “ Employee ”) and McAfee, Inc. (the “
Company ”), effective as of December 12, 2008
(the “ Effective Date ”).
It is possible
that the Company may from time to time receive acquisition
proposals by other entities. The Compensation Committee of the
Board of Directors of the Company (the “ Committee
”) recognizes that consideration of any such proposals can be
a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Committee has
determined that it is in the best interests of the Company and its
stockholders 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 herein) of the Company.
The Committee
believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue
his or her employment and to motivate the Employee to maximize the
value of the Company upon a Change of Control for the benefit of
its stockholders.
The Committee
believes that it is imperative to provide the Employee with certain
benefits upon the Employee’s termination of employment
following a Change of Control. These benefits will provide the
Employee with enhanced financial security and incentive and
encouragement to remain with the Company notwithstanding the
possibility of a Change of Control.
This Agreement
also consolidates the documentation of severance benefits to which
the Employee may be entitled in the event of the Employee’s
termination of employment with the Company under specified
circumstances not in connection with a Change of
Control.
Certain
capitalized terms used in the Agreement are defined in
Section 6 below.
NOW, THEREFORE, in
consideration of the mutual covenants contained herein, the parties
hereto agree as follows:
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1.
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Term of Agreement
. The term of this
Agreement shall commence on the Effective Date and continue through
February 15, 2010. If a Potential Change in Control Date has
occurred prior to the expiration of this Agreement, this Agreement
shall remain in effect until the earliest of:
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(a)
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eighteen (18) months after the
Change of Control Date, if a Change of Control has been completed,
and automatically terminate following the eighteen month
anniversary of the Change of Control Date, so long as all payments
due under Section 3(c) and 4 of this Agreement have been made;
or
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(b)
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twelve (12) months after the
Potential Change of Control Date if no Change of Control has been
completed; provided, however, that in the event of a protracted
regulatory clearance
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process with
respect to a Potential Change of Control, such term shall be
extended so long as the Company is pursuing the Potential Change of
Control in good faith.
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2.
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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,
except as otherwise may be provided specifically under the terms of
any written formal employment agreement or offer letter between the
Company and the Employee (an “ Employment Agreement
”). 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
other than any Employment Agreement. To the extent the Employee has
entered into an employment agreement or other written employment
related document with the Company, its applicability will not be
changed by this Agreement, except with respect to any provisions
that provide for payments or other benefits upon termination of
employment.
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3.
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Severance Benefits
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(a)
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In
addition to the benefits described below, the Employee will be
entitled to receive payment for:
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(i)
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Accrued Salary and
Vacation .
All salary and accrued vacation earned through the Termination
Date, less applicable federal and state withholding.
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(ii)
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Expense Reimbursement
. Within thirty
(30) days of submission of proper expense reports by the
Employee, the Company shall reimburse the Employee for all expenses
incurred by the Employee, consistent with past practices, in
connection with the business of the Company prior to the
Employee’s termination of employment.
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(iii)
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Employee Benefits
. Benefits, if any,
under any 401(k) plan, nonqualified deferred compensation plan,
employee stock purchase plan and other Company benefit plans under
which the Employee may be entitled to benefits, payable pursuant to
the terms of such plans.
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(b)
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Involuntary Termination other than
for Cause or Resignation for Good Reason OTHER THAN During
the Change of Control Period . If (i) the Employee resigns
his or her employment with the Company (or any parent or subsidiary
of the Company) for “ Non-Change of Control Period Good
Reason ” (as defined herein), or (ii) the Company
(or any parent or subsidiary of the Company) terminates the
Employee’s employment for other than “ Cause
” (as defined herein), such termination is not within the
period ending eighteen (18) months following a Change of
Control Date (the “ Change of Control Period ”)
and, the Employee (X) complies with the Company’s
sub-certification requirements that have been implemented to ensure
compliance with the Sarbanes Oxley Act 2002 in form and substance
determined by the Company in its complete discretion, and
(Y) signs and does not revoke a standard release of claims
with the Company in a form substantially similar to that attached
hereto as Exhibit A (a “ Release ”),
then the Employee shall receive the following severance benefits
from the Company:
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(i)
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Severance Payment
. The Employee shall
receive a lump-sum severance payment (less applicable tax
withholding) equal to twelve (12) months of the
Employee’s Base Salary plus a pro rata fraction of 110% of
the Employee’s Base Salary with the
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fraction
determined as the number of days in the year to the date of
termination divided by 365.
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(ii)
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Additional Severance
Payment . If
the Employee is covered by the Company health care plan, the
Employee shall receive a lump sum cash payment equal to twelve
(12) multiplied by the cost of a single month of COBRA
coverage at the rates in effect on the date of termination. If such
coverage included the Employee’s dependents immediately prior
to the Employee’s termination of employment with the Company,
such payment shall also include the cost of COBRA coverage for the
Employee’s dependents.
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(iii)
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Initial Restricted Stock Unit
Acceleration . Employee’s restricted stock
unit granted on February 11, 2008 with respect to 125,000
shares of the Company’s stock shall have its vesting
accelerated as of the date of termination so that it is vested to
the extent that it would have been vested if Employee had remained
employed through the one-year anniversary of the date of
termination.
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(c)
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Involuntary Termination Other than
for Cause or Resignation for Good Reason DURING the Change
of Control Period . If within the Change of Control
Period, (i) the Employee resigns his or her employment with the
Company (or any parent or subsidiary of the Company) for “
Change of Control Period Good Reason ” (as defined
herein), or (ii) the Company (or any parent or subsidiary of
the Company) terminates the Employee’s employment for other
than “ Cause ” (as defined herein), the
Employee’s death or the Employee’s Disability (as
defined herein), and, the Employee (X) complies with the
Company’s sub-certification requirements that have been
implemented to ensure compliance with the Sarbanes Oxley Act 2002
in form and substance determined by the Company in its complete
discretion, and (Y) signs and does not revoke a Release, then
the Employee shall receive the following severance benefits from
the Company:
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(i)
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Severance Payment
. The Employee shall
receive a lump-sum severance payment (less applicable tax
withholding) equal to twenty four (24) months of the
Employee’s Base Salary plus an amount equal to 200% of his
Target Bonus for the fiscal year in which the Change of Control or
the Employee’s termination occurs, whichever is
greater.
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(ii)
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Equity Awards
. All of the
Employee’s then-outstanding equity awards covering shares of
the Company’s common stock (“ Equity Awards
”) shall vest one hundred percent (100%) as of the date of
termination.
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(iii)
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Additional Severance
Payment . If
the Employee is covered by the Company health care plan, the
Employee shall receive a cash payment equal to twelve
(12) multiplied by the cost of a single month of COBRA
coverage at the rates in effect on the date of termination. If such
coverage included the Employee’s dependents immediately prior
to the Employee’s termination of employment with the Company,
such payment shall also include the cost of COBRA coverage for the
Employee’s dependents.
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(iv)
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Special Termination
. Notwithstanding the
foregoing, if the Employee’s employment is terminated by the
Company without Cause prior to the Change of Control Date but on or
after a Potential Change of Control Date, then the Company will
provide to the Employee the payments and benefits as provided in
Section 3(c), in lieu of Section 3(b); provided ,
however, that if the Company reasonably demonstrates that the
Employee’s termination of employment (X) was not at the
request of a third party who has taken steps reasonably calculated
to effect a Change of Control, and (Y) would have occurred
absent the Change of Control, then Section 3(b) shall apply in lieu
of Section 3(c). Solely for purposes of determining the timing of
payments and the provision of benefits under the circumstances
described in this Section 3(c)(iv), the Employee’s date of
termination shall be deemed to be the Change of Control
Date.
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(d)
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Timing of Severance
Payments .
Other than with respect to the payments made under
Section 3(a), the severance payments to which the Employee is
entitled will be subject to the Employee signing and not revoking
the Release and provided that such Release is effective within
sixty (60) days following the termination of employment. Such
payments will be made to the Employee in cash and in full, not
later than seven (7) calendar days after the effective date of
any Release. In the event the termination occurs at a time during
the calendar year where it would be possible for the Release to
become effective in the calendar year following the calendar year
in which the Employee’s termination occurs, any severance
that would be considered Deferred Compensation Separation Benefits
(as defined in Section 3(g)) will be paid on the first payroll
date to occur during the calendar year following the calendar year
in which such termination occurs, or such later time as required by
the payment schedule applicable to each payment or benefit, or
Section 3(g).
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(e)
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Voluntary Resignation; Termination
for Cause, Death or Disability . If the Employee’s employment
with the Company terminates (i) voluntarily by the Employee
other than for Good Reason or Disability, (ii) for Cause by
the Company, or (iii) pursuant to the Employee’s death or
Disability, 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 written
agreements with the Company.
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(f)
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Exclusive Remedy
. In the event of a
termination of the Employee’s employment, the provisions of
this Section 3 are intended to be and are exclusive and in
lieu of any other rights or remedies to which the Employee or the
Company may otherwise be entitled, whether at law, tort or
contract, in equity, or under this Agreement. The Employee shall be
entitled to no benefits, compensation or other payments or rights
upon termination of employment other than those benefits expressly
set forth in this Section 3.
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(g)
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Code Section 409A
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(i)
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Notwithstanding anything to the
contrary in this Agreement, if the Employee is a “specified
employee” within the meaning of Section 409A of the
Internal Revenue Code of 1986, as amended (the “ Code
”) and the final regulations and any guidance promulgated
thereunder (“ Section 409A ”) at the time
of the Employee’s termination (other than due to death) or
resignation, then the severance payable to the Employee, if any,
pursuant to this Agreement, when considered together with any other
severance payments or separation benefits that are considered
deferred compensation under Section 409A (together, the
“ Deferred Compensation Separation Benefits
”)
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that are
payable within the first six (6) months following the
Employee’s termination of employment, will become payable on
the first payroll date that occurs on or after the date six
(6) months and one (1) day following the date of the
Employee’s termination of employment. All subsequent Deferred
Compensation Separation Benefits, if any, will be payable in
accordance with the payment schedule applicable to each payment or
benefit. Notwithstanding anything herein to the contrary, if the
Employee dies following his or her termination but prior to the six
(6) month anniversary of his or her termination, then any
payments delayed in accordance with this paragraph will be payable
in a lump sum as soon as administratively practicable after the
date of the Employee’s death and all other Deferred
Compensation Separation Benefits will be payable in accordance with
the payment schedule applicable to each payment or benefit. Each
payment and benefit payable under this Agreement is intended to
constitute a separate payment for purposes of
Section 1.409A-2(b)(2) of the Treasury Regulations.
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(ii)
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Any
amount paid under this Agreement that satisfies the requirements of
the “short-term deferral” rule set forth in Section
1.409A-1(b)(4) of the Treasury Regulations shall not constitute
Deferred Compensation Separation Benefits for purposes of clause
(i) above.
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(iii)
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Any
amount paid under this Agreement that qualifies as a payment made
as a result of an involuntary separation from service pursuant to
Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that do not
exceed the Section 409A Limit shall not constitute Deferred
Compensation Separation Benefits for purposes of clause
(i) above. “ Section 409A Limit ” will
mean the lesser of two (2) times: (i) the
Employee’s annualized compensation based upon the annual rate
of pay paid to the Employee during the Employee’s taxable
year preceding the Employee’s taxable year of the
Employee’s termination of employment as determined under, and
with such adjustments as are set forth in, Treasury
Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue
Service guidance issued with respect thereto; or (ii) the
maximum amount that may be taken into account under a qualified
plan pursuant to Section 401(a)(17) of the Code for the year
in which the Employee’s employment is terminated.
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(iv)
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The
foregoing provisions are intended to comply with the requirements
of Section 409A so that none of the severance payments and
benefits to be provided hereunder will be subject to the additional
tax imposed under Section 409A, and any ambiguities herein
will be interpreted to so comply. The Company and the Employee
agree to work together in good faith to consider amendments to this
Agreement and to take such reasonable actions which are necessary,
appropriate or desirable to avoid imposition of any additional tax
or income recognition prior to actual payment to the Employee under
Section 409A.
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4.
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Treatment of Performance-Based
Equity . Upon
the occurrence of a Change of Control, all of the Employee’s
outstanding Equity Awards scheduled to vest based on performance
shall convert to be awards with time-based vesting. As of the date
of the Change of Control, the awards will be vested as to the
extent that they would have been vested if they had been granted
originally with a four year time-based vesting schedule with annual
vesting. The vesting of such Equity Awards will continue after the
Change of Control, assuming continuous service, based upon the same
time-based vesting schedule. To the extent that such Equity Awards
are not fully vested at the 18-month anniversary of the Change of
Control, on such 18 month anniversary they will be 100% vested. The
acceleration
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provisions of
Section 3 will govern any terminations of employment prior to
the 18-month anniversary of the Change of Control.
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5.
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Golden Parachute Excise Tax Best
Results . In
the event that the severance and other benefits provided for in
this agreement or otherwise payable to the Employee
(X) constitute “parachute payments” within the
meaning of Code Section 280G, and (Y) would be subject to
the excise tax imposed by Section 4999 of the Code, then such
benefits shall be either:
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(a)
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delivered in full, or
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(b)
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delivered as to such lesser extent
which would result in no portion of such severance benefits being
subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the
applicable federal, state and local income and employment taxes and
the excise tax imposed by Section 4999, results in the receipt
by the Employee, on an after-tax basis, of the greatest amount of
benefits, notwithstanding that all or some portion of such benefits
may be taxable under Section 4999 of the Code. Unless the
Company and the Employee otherwise agree in writing, the
determination of the Employee’s excise tax liability and the
amount required to be paid under this Section 5 shall be made
in writing by a nationally-recognized independent accounting firm
selected by the Company (the “ Accountants ”).
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
reasonable, good faith interpretations concerning the application
of Sections 280G and 4999 of the Code. 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 Section. The Company shall bear all
costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5. Any reduction in
payments and/or benefits required by this Section 5 shall
occur in the following order: (1) reduction of cash payments;
(2) reduction of acceleration of vesting of equity awards; and
(3) reduction of other benefits paid to the Employee. In the event
that acceleration of vesting of equity awards is to be reduced,
such acceleration of vesting shall be cancelled in the reverse
order of the date of grant for the Employee’s equity
awards.
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6.
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Definition of Terms
. The following terms
referred to in this Agreement shall have the following
meanings:
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(a)
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Base Salary . Base Salary means:
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(i)
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with respect to payments set forth
in Section 3(c) above, the rate of annual base salary paid to the
Employee immediately prior to a Change of Control, provided that
such amount shall in no event be less than the highest rate of
annual base salary paid to the Employee during the one
(1) year period immediately prior to the Change of Control;
or
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(ii)
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with respect to payments set forth
in Section 3(b) above, the rate of annual base salary paid to the
Employee immediately prior to the termination of the
Employee’s employment, provided that such amount shall in no
event be less than the highest rate of annual base salary paid to
the Employee during the one (1) year period immediately prior
to the termination of employment.
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(i)
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The
Employee’s commission of an act of material fraud or
dishonesty against the Company;
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(ii)
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Any
intentional refusal or willful failure to carry out the reasonable
instructions of the Chief Executive Officer or the Board of
Directors;
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(iii)
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The
Employee’s conviction of, guilty plea or “n
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