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Exhibit
10.40
EXECUTIVE TRANSITION
AGREEMENT
1. This Executive Transition Agreement
(hereinafter “Agreement”) is entered into between
Matthew J. Szulik (hereinafter “Executive”) and Red
Hat, Inc., a Delaware corporation (hereinafter the
“Company”) as of February 28, 2008
(“Effective Date”).
WHEREAS, Executive has been
employed by the Company as the Company’s Chief Executive
Officer and President;
WHEREAS, Executive and the
Company are parties to an employment agreement dated as of
July 24, 2002, as it may have been amended from time to time
(the “Employment Agreement”);
WHEREAS, Executive currently
holds the equity incentive awards listed on Exhibit A
(the “Equity Awards”);
WHEREAS, Executive is
currently serving as the Chairman of the Company’s Board of
Directors (“Board”);
WHEREAS, Executive has
previously tendered his resignation from his employment with the
Company but continues to provide services as a Director and
Chairman of the Board and the Company has accepted and publicly
communicated that resignation; and
WHEREAS, the Chairman and the
Company are parties to that certain Non-Executive Chairman
Agreement dated as of even date herewith (the “Non-Executive
Chairman Agreement”).
NOW THEREFORE, in
consideration for the mutual promises and undertakings of the
parties as set forth below, Executive and the Company hereby enter
into this Agreement.
2. Resignation . Effective as of
January 1, 2008 (the “Transition Date”) Executive
resigned his employment with the Company. Executive has previously
tendered his resignation, which has been accepted and publicly
communicated by the Company, in the form substantially the same as
that attached to this Agreement as Exhibit B .
Executive and the Company agree that as of the Transition Date,
Executive will cease to be an employee of the Company and shall
serve as the Chairman of the Board.
3. Executive’s Compensation
. On and after the Transition Date, in addition to the compensation
to which Executive shall be entitled for his service as a
non-employee member of the Board pursuant to the Non-Executive
Chairman Agreement, Executive shall be entitled to receive the
following compensation from the Company:
(a) Fiscal Year 2008
Bonus . Executive shall be paid a bonus for the Company’s
fiscal year ending February 29, 2008 as determined pursuant to
Section 4.2 of the Employment Agreement and the
Company’s Executive Variable Compensation Plan (“EVC
Plan”) as if Executive had remained employed as an executive
of the Company through the end of the Company’s 2008 fiscal
year and the subsequent date of payment. Such bonus shall be paid
to Executive at the time specified in Section 4.2 of the
Employment Agreement, but in no event
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later than May 15, 2008. This bonus
shall be composed of two portions, the first of which shall be paid
under the terms of the Company’s EVC Plan under which
Executive’s resignation shall be treated as a retirement and
the second of which shall be that amount necessary to provide a
total cash incentive bonus set forth in this Section 3(a) and
shall not be paid under the EVC Plan.
(b) Equity Awards .
The vesting and (as applicable) exercisability of each of the
Equity Awards shall continue to be governed by the terms of the
plan pursuant to which the Equity Award was granted and the
associated award agreement with the following
adjustments:
First, the vesting of any
Performance Share Units (“PSUs”) listed on
Exhibit A shall not be based on the achievement of
performance criteria, but solely on continued service with the
Company through the applicable vesting dates as if that number of
PSUs equal to the number of Target Performance Share Units (as set
forth in the relevant PSU agreements) had originally been granted
as a Restricted Stock Award using the Company’s standard
four-year vesting schedule currently in effect for grants of
Restricted Stock to the Company’s executive
officers.
Second, upon a Change of
Control (as defined in the Employment Agreement) during the term of
this Agreement, all of Executive’s Equity Awards will
immediately become vested. This provision shall supersede any term
to the contrary in any compensatory stock award agreement entered
into between the Company and Employee, whether now existing or
hereinafter executed. The treatment of Mr. Szulik’s
Equity Awards in the event of the application of the provisions of
Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”), as set forth in Section 6 of
the Non-Executive Chairman Agreement, shall also continue while
this Agreement is in effect.
For the avoidance of doubt,
continued service as a member of the Company’s Board of
Directors shall be treated as continued service with the Company
for purposes of vesting and (as applicable) exercisability of such
Equity Awards. Other than as expressly set forth in this Agreement
and/or the Non-Executive Chairman Agreement, including but not
limited to the terms of Sections 3 and 4 hereof and
Section 5.2 of the Non-Executive Chairman Agreement, Executive
agrees that as of the Transition Date all of his rights under his
Employment Agreement and any agreement between Executive and the
Company or its predecessors, successors or assigns shall terminate,
other than his rights as specified in this Transition Agreement and
the Non-Executive Chairman Agreement, such as the continuation of
Sections 4.4B and 8.2 of his Employment Agreement for so long as
Executive continues to serve as a member of the Board.
4. Indemnification . The Company
shall continue to indemnify and hold harmless Executive to the
extent set forth in that Indemnification Agreement entered into by
and between the Company and Executive in connection with
Executive’s employment, as such agreement may be amended from
time to time.
5. Confidential Information .
Executive acknowledges that, as a result of his employment with the
Company, he has had access to confidential and proprietary
information of the Company, that he will hold such confidential and
proprietary information in strictest confidence, and that he will
not make use of such information on behalf of anyone other than
with the approval of or for the benefit of the Company. Executive
further confirms that he has delivered to the Company all documents
and data of any nature containing or pertaining to such
confidential and proprietary information and that he has not taken
with him any such documents
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or date or any reproduction thereof,
except for those materials that will be necessary for him to
discharge competently his continuing duties and responsibilities as
a member of the Board. Executive agrees that he will continue to
comply with the provisions of any non-disclosure, confidential
information or similar agreement to which he is a party according
to the terms of such agreement.
6. Release of Claims; Legal and
Equitable Remedies . In consideration for and as a condition to
the receipt of the payments and benefits provided to Executive
under this Agreement, Executive agrees to execute the form of
release of claims set forth as Exhibit C to this
Agreement. The Company shall have the right to change the terms of
such release as the Company may reasonably determine in order to
comply with applicable law. The parties agree that Executive and
the Company have the right to enforce this Agreement and any of its
provisions by injunction, specific performance or other equitable
relief without prejudice to any other rights or remedies any party
might have at law or in equity for breach of this
Agreement.
7. Arbitration . Except for any
claim for injunctive relief arising out of a breach of a
party’s obligations under this Agreement, in the event that
the parties hereto have any dispute under this Agreement, the
parties shall first attempt in good faith amicably to settle the
matter by mutual negotiations or mediation. If such negotiations
are unsuccessful, the parties agree that all disputes that may
arise between them arising out of, relating to, or in connection
with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof shall be settled by
binding arbitration to be held in Raleigh, North Carolina, or such
other location agreed by the parties hereto, in accordance with the
National Rules for the Resolution of Employment Disputes then in
effect of the American Arbitration Association. The arbitrator may
grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered
on the arbitrator’s decision in any court having
jurisdiction. The arbitrators shall apply North Carolina law to the
merits of dispute or claim, without reference to rules of conflicts
of law. Executive and the Company hereby expressly consent to the
personal jurisdiction of the state and federal courts located in
North Carolina for any action or proceeding arising from or
relating to this Agreement or relating to any arbitration in which
the parties are participants. The Company shall pay all costs and
expenses of such arbitration (unless Executive requests that each
party pay one-half of the costs and expenses of such arbitration or
unless otherwise required by law). Unless otherwise required by law
or pursuant to an award by the arbitrator, the Company and
Executive shall each pay separately its counsel fees and expenses.
Notwithstanding the foregoing, the arbitrator may, but need not,
award the prevailing party in any dispute its or his legal fees and
expenses.
8. Complete and Voluntary
Agreement . This Agreement along with the Non-Executive
Chairman Agreement constitutes the entire understanding of the
parties on the subjects covered. Executive expressly warrants that
he has read and fully understands this Agreement; that he has had
the opportunity to consult with legal counsel of his own choosing
and to have the terms of the Agreement fully explained to him; that
he is
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