Red Hat, Inc. SEC Form 8-K Filed May 21, 2019: Current report pursuant to Section 13 or 15(d) Last Updated February 3, 2020 at 11:19 AM ST

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Submission Parts

Sequence Document Type File Name Description
1 SEC Form FORM 8-K
2 SEC Form EX-99.1
3 SEC Form EX-99.2
4 SEC Form EX-99.3

FORM 8-K

Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 15, 2019

 

 

Red Hat, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

(State or Other Jurisdiction of Incorporation)

 

001-33162   06-1364380

(Commission

File Number)

 

(IRS Employer

Identification No.)

100 East Davie Street, Raleigh, North Carolina   27601
(Address of Principal Executive Offices)   (Zip Code)

(919) 754-3700

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common stock, $0.0001 par value

 

RHT

 

New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

(e) On May 15, 2019, the Compensation Committee of the Board of Directors (the “Committee”) of Red Hat, Inc. (the “Company”) approved the following actions for the executive compensation program for the Company’s fiscal year ending February 29, 2020 (“FY2020”):

 

   

established the annual base salaries of the Company’s principal executive officer, principal financial officer and other named executive officers (collectively, the “Executive Officers”);

 

   

established the target award amounts for the Executive Officers under the Company’s Executive Variable Compensation Plan (the “EVC Plan”);

 

   

established the performance objectives that will be used to determine the cash award amounts for the Executive Officers for FY2020 under the EVC Plan; and

 

   

approved a new form of award agreement to be used in connection with grants of restricted stock awards (“RSAs”) approved by the Committee.

Additionally, the Committee approved a form of cash retention award agreement to be used in connection with cash retention awards (“Retention Payments”) to certain of the Executive Officers.

Executive Base Salaries

The annual base salaries for the Executive Officers are set forth on Exhibit 99.1 to this Current Report on Form 8-K (this “Form 8-K”).

FY2020 Target Award Amounts under the EVC Plan

The target award amounts under the EVC Plan for FY2020 for the Executive Officers are set forth on Exhibit 99.1 to this Form 8-K. For a discussion of the EVC Plan, see the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on May 16, 2007 (the “May 2007 Form 8-K”).

FY2020 Performance Objectives under the EVC Plan

The financial performance objectives for FY2020 under the EVC Plan are based upon achievement of (a) a specified dollar amount of total revenues, (b) a specified dollar amount of cash flow from operations and (c) a specified percentage of operating margin, excluding the impact of expense related to share-based payment arrangements and the amortization of intangible assets. The operating margin performance objective is considered a non-GAAP financial measure.

The revenue and operating margin performance objectives are based on a Euro/U.S. dollar exchange rate of 1.14 Euro: U.S. $1.00 and a yen/ U.S. dollar exchange rate of 111 yen: U.S. $1.00, and these objectives are subject to adjustment if actual exchange rates for these currencies differ from these assumed rates by 2% or more. Additionally, the following items will be excluded in determining whether any financial performance objective has been satisfied for FY2020: the impact of acquisitions and divestitures approved by the Company’s Board of Directors, including the transaction contemplated by the Agreement and Plan of Merger by and among International Business Machines Corporation (“IBM”), Socrates Acquisition Corp. and the Company, dated as of October 28, 2018 (the “IBM Acquisition”), goodwill write-offs, restructuring charges, litigation and insurance settlement charges, the impact of discontinued operations and the cumulative effect of changes in tax laws or accounting procedures. The Committee has reserved the right to exercise negative discretion to limit or forego any of these exclusions and may adjust any financial performance objective for FY2020 in its discretion as permitted by Section VIII of the EVC Plan. For a discussion of the EVC Plan, see the May 2007 Form 8-K.

The Committee determined that 75% of a participant’s target award amount will be based upon the financial performance objectives discussed above, and 25% of a participant’s target award amount will be based on individual performance objectives or the achievement of individual goals, which may be objectively or subjectively determined (the “Individual Objectives”). Individual Objectives relate to strategy development, planning and/or implementation, corporate initiatives, executive development, operational improvements and the IBM Acquisition. The Committee determined that each of the financial performance objectives discussed above will be weighted equally in calculating the financial component of the award, and, with respect to each financial metric and the Individual Objectives metric payments range from 0 – 50% of the total target award per metric. The target award amounts approved by the Committee for the Executive Officers are set forth on Exhibit 99.1 of this Form 8-K.


The Committee also provided for determination of attainment of the performance objectives and payouts earned (the “Committee Determination”) as of the closing date of the IBM Acquisition (the “Closing Date”) to be made without audited financial statements in the event that the Closing Date occurs prior to the end of FY2020. If this occurs, the Committee may provide for payment of awards to be made at the greater of the target or actual level of performance, which amount shall be pro-rated for the portion of FY2020 which has elapsed as of the Closing Date, promptly after the Committee Determination.

RSAs

The Committee authorized the grant to each Executive Officer of an RSA award, subject to the terms and conditions of the form of RSA Agreement (the “RSA Agreement”) approved by the Committee on May 15, 2019. The new form of RSA Agreement removes the performance condition and modifies the definition of Good Reason to reflect certain aspects of the Executive Officer’s role in the combined business following the closing of the IBM Acquisition. The restricted stock generally vests in three equal increments on each of the first three anniversaries of the grant date over a three–year period, provided that the executive remains continuously employed by the Company through the applicable vesting date.

If a Change in Control occurs, and provided the executive remains continuously employed through the applicable vesting date, the RSAs may be either (i) “continued, assumed, converted or substituted for” immediately following the Change in Control, and if within one year of the Change in Control, the executive’s Business Relationship is terminated by the Company or its successor without Good Cause or by the executive for Good Reason (as all such terms are defined in the RSA Agreement), all of the restricted stock vests, or (ii) all of the restricted stock shall be vested immediately prior to the Change in Control. Any unvested RSAs will be assumed in the IBM Acquisition.

The foregoing description of the terms of the RSA Agreement does not purport to be complete and is qualified in its entirety by the provisions of the form of RSA Agreement filed as Exhibit 99.2 to this Form 8-K and incorporated by reference herein.

Retention Payments

The Committee approved (i) Retention Payments to certain of the Executive Officers under a special bonus program created by the Company to assist in retaining key employees in the period through and after the closing of the IBM Acquisition and (ii) the form of award agreement to be used for such Retention Payments to the Executive Officers. The Retention Payments amounts for each of the Executive Officers who received such awards are set forth on Exhibit 99.1 of this Form 8-K. The award provides for vesting in two installments with the first installment of 75% of the Retention Payment vesting on the Closing Date and the second installment of 25% of the Retention Payment vesting on the six-month anniversary of the Closing Date. In order to receive a Retention Payment installment, the Executive Officer must remain continuously employed by the Company or at an affiliate of the Company through the applicable vesting date. In the event that the Executive Officer is involuntarily terminated without Cause (as such term is defined in the cash retention award agreement) after the Closing Date and prior to payment in full of the Retention Payment, the Executive Officer will receive any unpaid portion of the Retention Payment. The foregoing description of the terms of the award agreement for the Retention Payments does not purport to be complete and is qualified in its entirety by the provisions of the form of cash retention award agreement filed as Exhibit 99.3 to this Form 8-K and incorporated by reference herein.

Capitalized terms not defined in this Form 8-K are defined in the applicable award agreement.

 

Item 9.01.

Financial Statements and Exhibits.

 

Exhibit

    No.    

  

Description

99.1    Executive Base Salaries, Target Award Amounts under Red Hat, Inc.’s Executive Variable Compensation Plan for the Fiscal Year Ending February  29, 2020, RSA Award Amounts and Amounts for Executive Cash Retention Awards
99.2    Form of Restricted Stock Award Agreement adopted May 15, 2019
99.3    Form of Cash Retention Award Agreement adopted May 15, 2019


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: May 21, 2019     RED HAT, INC.
    By:  

/s/ Thomas I. Savage        

    Name:   Thomas I. Savage
    Title:   Assistant Secretary

EX-99.1

EX-99.1

Exhibit 99.1

Executive Base Salaries, Target Award Amounts under Red Hat, Inc.’s Executive Variable Compensation Plan for the Fiscal Year Ending February 29, 2020, RSA Award Amounts and Amounts for Executive Cash Retention Awards

 

Name of Executive

   Base Salary      FY2020 EVC
Plan Target
Award Amount
     FY2020 RSA
Award Amounts
(# of RSAs)
     Aggregate
Amount of
Retention
Payment
 

James Whitehurst

   $ 1,100,000      $ 1,650,000        59,476        N/A  

Eric Shander

   $ 600,000      $ 600,000        27,034       
N/A
 

Paul Cormier

   $ 700,000      $ 700,000        28,656      $ 2,000,000  

Arun Oberoi

   $ 575,000      $ 575,000        20,276      $ 2,000,000  

Michael Cunningham

   $ 500,000      $ 400,000        15,139      $ 2,000,000  

EX-99.2

EX-99.2

Exhibit 99.2

RED HAT, INC.

Red Hat, Inc. 2004 Long-Term Incentive Plan, as amended and restated

Restricted Stock Agreement Form

Cover Sheet

Red Hat, Inc., a Delaware corporation, hereby grants as of the date below (the “Grant Date”) to the person named below (the “Participant”) and the Participant hereby accepts, the number of restricted shares (the “Restricted Stock”) listed below of the Company’s common stock, $.0001 par value per share, with a vesting start date (the “Vesting Start Date”) listed below, such grant to be on the terms and conditions specified in the Red Hat, Inc. 2004 Long-Term Incentive Plan, as amended and restated (the “Plan”), and in this Cover Sheet and the attached Exhibit A and Appendix A thereto.

 

Participant Name:   <PARTICIPANT NAME>
Grant Date:   <Grant Date>
Vesting Start Date:   <Vesting Start Date >
Number of Shares of Restricted Stock:   <Number of shares>

IN WITNESS WHEREOF, the Company and the Participant have caused this instrument to be executed as of the Grant Date set forth above.

 

    RED HAT, INC.

 

(Participant Signature)

     

100 East Davie Street

Raleigh, North Carolina 27601

 

       
      By:  

 

      Name:  

 

      Title:  

By accepting this Award, the Participant hereby (i) acknowledges that a copy of the Plan and a copy of the Plan prospectus have been delivered to the Participant and additional copies thereof are available upon request from the Company’s Equity Compensation Department and can also be accessed electronically, (ii) acknowledges receipt of a copy of this Cover Sheet, and Exhibit A and Appendix A thereto (collectively, the “Agreement”) and accepts the Award subject to all the terms and conditions of the Plan and the Agreement, (iii) represents that the Participant has

 

Form of Executive RSA Agreement (approved May 15, 2019)


read and understands the Plan, the Plan prospectus and the Agreement, and (iv) acknowledges that there are tax consequences related to the Award and that the Participant should consult a tax advisor to determine his or her actual tax consequences. The Participant must accept this Award electronically, within thirty (30) days following notification of the grant, pursuant to the online acceptance procedure established by the Company; otherwise, the Company may, in its sole discretion, rescind the Award in its entirety.

 

2

Form of Executive RSA Agreement (approved May 15, 2019)


EXHIBIT A

RED HAT, INC.

Red Hat, Inc. 2004 Long-Term Incentive Plan, as amended and restated

Restricted Stock Agreement

Terms and Conditions

1. Grant under Red Hat, Inc. 2004 Long-Term Incentive Plan. The Restricted Stock is granted pursuant to and is subject to and governed by the Plan and, unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan or shall be defined as on the cover sheet attached hereto. Determinations made in connection with the Restricted Stock pursuant to the Plan shall be governed by the Plan.

2. Vesting if Business Relationship Continues. All of the shares of Restricted Stock initially shall be unvested shares. The Restricted Stock shall become vested according to the schedule set forth below, subject to Section 3 hereof, for so long as the Participant maintains continuous service to the Company or its subsidiaries or affiliates as an employee, officer, director or consultant (a “Business Relationship”) throughout the period beginning on the Grant Date and ending on the vesting date set forth below (or if such date is not a trading day for the New York Stock Exchange, or such other stock exchange on which the Company’s shares are then listed, on the first trading day following such date):

On each anniversary of the Vesting Start Date, one-third of the Restricted Stock granted shall vest.

Until the Restricted Stock vests, as provided in this Section and in Section 3, the Participant may not sell, assign, transfer, pledge, or otherwise dispose of the Restricted Stock.

3. Termination of Business Relationship. Subject to Appendix A, if the Participant’s Business Relationship is terminated for any reason, the shares of Restricted Stock that were not vested on the date of such termination will be forfeited and the Participant shall have no further rights with respect thereto. The shares of Restricted Stock that are forfeited will be cancelled and returned to the Company. For purposes hereof, a Business Relationship shall not be considered as having terminated during any leave of absence if such leave of absence has been approved in writing by the Company; in the event of such leave of absence, vesting of the Restricted Stock shall be suspended (and the period of the leave of absence shall be added to all vesting dates) unless otherwise determined by the Company. The vesting of the Restricted Stock shall not be affected by any change in the type of Business Relationship the Participant has within or among the Company and its Subsidiaries or Affiliates so long as the Participant continuously maintains a Business Relationship.

4. Legend. Each certificate issued in respect of shares of Restricted Stock under the Agreement shall be registered in the Participant’s name and deposited by the Participant, together with a

 

3

Form of Executive RSA Agreement (approved May 15, 2019)


stock power endorsed in blank, with the Company and shall bear the following (or a similar) legend:

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in an Agreement entered into between the registered owner and Red Hat, Inc.”

When the Restricted Stock vests, the Company shall redeliver to the Participant (or the Participant’s legal representatives, beneficiaries or heirs) from the shares of Restricted Stock deposited with it the number of shares which have then vested. The Participant agrees that any resale of the shares of Restricted Stock received upon vesting shall be made in compliance with the registration requirements of the Securities Act of 1933, as amended, or an applicable exemption therefrom, including without limitation the exemption provided by Rule 144 promulgated thereunder (or any successor rule).

5. No Obligation to Continue Business Relationship. Neither the Plan, this Agreement, nor the grant of the Restricted Stock imposes any obligation on the Company, its Subsidiaries or Affiliates to have a Business Relationship with the Participant.

6. Rights as Stockholder. Except for the restrictions on transfer and vesting provisions in this Agreement, the Participant shall have all of the rights of a stockholder of the Company with respect to the Restricted Stock including but not limited to the right to receive dividends paid on the Restricted Stock and the right to vote the Restricted Stock; provided that the Participant’s right to such dividends is subject to satisfaction of the vesting requirements set forth in Section 2 of this Agreement and the termination of any restrictions on the transferability and forfeitability of the Restricted Stock, and any dividends attributable to the period before such vesting and the termination of such restrictions will be paid within 30 days after vesting occurs, subject to applicable tax withholding.

7. Adjustments for Capital Changes. The Plan contains provisions covering the treatment of restricted stock in a number of contingencies such as stock split and mergers. Provisions in the Plan for such adjustments are hereby made applicable hereunder and are incorporated herein by reference.

8. Change in Control. Provisions regarding a Change in Control are set forth on Appendix A.

9. Withholding. No Restricted Stock will be redelivered pursuant to the vesting thereof unless and until the Participant pays to the Company, or makes satisfactory provision to the Company for payment of, any federal, state or local withholding taxes required by law to be held in respect of this Restricted Stock (the “Tax Amount”). The Participant hereby agrees that the Company may withhold from the Participant’s wages or other remuneration the Tax Amount. At the discretion of the Company, the Tax Amount may be withheld in cash from such wages or from other remuneration, or in kind from the shares or other property otherwise deliverable to the Participant on vesting of this Restricted Stock.

The Participant has reviewed with the Participant’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the

 

4

Form of Executive RSA Agreement (approved May 15, 2019)


Participant (and not the Company) shall be responsible for the Participant’s own tax liability that may arise as a result of the receipt of this Restricted Stock award and/or the transactions contemplated by this Agreement. The Participant understands that it may be beneficial in many circumstances to elect to be taxed at the time the Restricted Stock is granted rather than when and as the Restricted Stock vests by filing an election under Section 83(b) of the Code with the I.R.S. within 30 days from the date of grant.

10. Lock-up Agreement. The Participant agrees that in the event that the Company effects an underwritten public offering of Shares registered under the Securities Act, the Restricted Stock may not be sold, offered for sale or otherwise disposed of, directly or indirectly, without the prior written consent of the managing underwriter(s) of the offering, for such period of time after the execution of an underwriting agreement in connection with such offering that all of the Company’s then directors and executive officers agree to be similarly bound.

11. Provision of Documentation to Participant. By executing this Agreement the Participant acknowledges receipt of a copy of this Agreement (including the cover sheet) and a copy of the Plan.

12. Data Privacy. The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this Agreement and any other Award materials by and among, as applicable, the Employer, the Company, and any Affiliate for the purpose of implementing, administering and managing the Participant’s participation in the Plan.

The Participant understands that the Company and the Employer may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, e-mail address, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company or any Affiliate, details of all Restricted Stock awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor (“Personal Data”), for the purpose of implementing, administering and managing the Plan.

The Participant understands that Personal Data will be transferred to any stock plan service provider which is, presently or in the future, assisting the Company with the implementation, administration and management of the Plan. The Participant understands that these recipients of Personal Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Participant’s country. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of Personal Data by contacting the Participant’s local human resources representative. The Participant authorizes the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer Personal Data, in electronic or other form, for the purpose of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer of such Personal Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares received upon vesting of

 

5

Form of Executive RSA Agreement (approved May 15, 2019)


the Restricted Stock awards. The Participant understands that Personal Data will be held as long as is necessary to implement, administer and manage the Participant’s participation in the Plan. The Participant understands that he or she may, at any time, view Personal Data, request additional information about the storage and processing of Personal Data, require any necessary amendments to Personal Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Participant’s local human resources representative. Further, the Participant understands that he or she is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to withdraw his or her consent, his or her employment status or service with the Company or the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant’s consent is that the Company would not be able to grant the Participant Restricted Stock awards or other equity awards or to administer or maintain Restricted Stock awards or other equity awards granted to the Participant prior or subsequent to such refusal or withdrawal. Therefore, the Participant understands that refusal or withdrawal of consent may affect the Participant’s ability to participate in the Plan. For more information on the consequences of the Participant’s refusal to consent or withdrawal of consent, the Participant understands that he or she may contact his or her local human resources representative.

13. Miscellaneous.

(a)    Notices. All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Participant, to the address set forth on the cover sheet or at the most recent address shown on the records of the Company, and if to the Company, to the Company’s principal office, attention of the Corporate Secretary.

(b)    Entire Agreement; Modification. This Agreement (including the cover sheet) and the Plan constitute the entire agreement between the parties relative to the subject matter hereof, and supersede all other communications between the parties relating to the subject matter of this Agreement. This Agreement may be modified, amended or rescinded by the Company as it shall deem advisable, subject to any requirement for stockholder approval imposed by applicable law, the Plan or other applicable rules, including, without limitation, the rules of the stock exchange on which the Shares are listed; provided that, no amendment or modification of this Agreement shall materially impair the rights of any Participant without such Participant’s consent. Notwithstanding the foregoing provision, no such consent shall be required with respect to any amendment or modification if the Committee determines in its sole discretion that (i) such amendment or modification is not reasonably likely to significantly reduce the benefits provided under the Award or that the Participant has received adequate compensation for any such reduction, or (ii) such amendment or modification, including cancellation of the Award granted under this Agreement, is necessary or advisable in order to comply with, or avoid adverse consequences due to changes in the laws or rules applicable to the Company or the Participant that the Company considers significant. Notwithstanding the foregoing, in the event of a Change in Control, amendments or modifications, including cancellation of the Award granted under this Agreement pursuant to 13(b)(ii), shall not be permitted except as provided for in Appendix A of this Agreement.

 

6

Form of Executive RSA Agreement (approved May 15, 2019)


(c)    Severability. The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

(d)    Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the heirs, legatees, distributees, executors and administrators of the Participant and the successors and assigns of the Company.

(e)    Governing Law/Choice of Venue. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware, without giving effect to the principles of the conflicts of laws thereof. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties, evidenced by this Award or the Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of North Carolina and agree that such litigation shall be conducted only in the courts of Wake County, North Carolina, or the federal courts for the United States for the Tenth District of North Carolina, and no other courts, where this Award is made and/or to be performed.

 

7

Form of Executive RSA Agreement (approved May 15, 2019)


APPENDIX A

Restricted Stock Award

Change in Control Provisions

Notwithstanding anything contained herein to the contrary, if (i) this grant of Restricted Stock is continued, assumed, converted or substituted for immediately following the Change in Control and (ii) within one year after a Change in Control the Participant’s Business Relationship is terminated by the Company or its successor without Good Cause or by the Participant for Good Reason, all of the Restricted Stock shall become vested upon the date of such termination of Business Relationship. Furthermore and notwithstanding anything contained herein to the contrary, if this grant of Restricted Stock is not continued, assumed, converted or substituted for in connection with the Change in Control, all of the Restricted Stock shall be treated as vested immediately prior to the Change in Control. This grant of Restricted Stock shall be considered to be continued, assumed, converted or substituted for:

(A)    if there is no change in the number of outstanding Shares and the Change in Control does not result from the consummation of a merger, consolidation, statutory share exchange, reorganization or similar form of corporate transaction and there are no changes to the terms and conditions of this grant that materially and adversely affect this grant; or

(B)    if there is a change in the number of outstanding Shares and/or the Change in Control does result from the consummation of a merger, consolidation, statutory share exchange, reorganization or similar form of corporate transaction:

(1)    the number of shares of Restricted Stock is adjusted (x) if the Shares are exchanged solely for the common stock of the Parent Corporation or, if there is no Parent Corporation, the Surviving Corporation (as such terms are defined in the Plan) in a manner which is not materially less favorable than the adjustments made in such transaction to the other outstanding Shares, or (y) otherwise, based on the ratio on the day immediately prior to the date of the Change in Control of the fair market value of one share of common stock of the Parent Corporation or, if there is no Parent Corporation, the Surviving Corporation, to the Fair Market Value of one Share,

(2)    if applicable, the shares of Restricted Stock are converted into the common stock of the Parent Corporation or, if there is no Parent Corporation, the Surviving Corporation (as such terms are defined in the Plan) and

(3)    there are no other changes to the terms and conditions of this grant that materially and adversely affect this grant.

For purposes of this Agreement:

“Good Cause” means conduct involving one or more of the following:

(i)    the conviction of Participant of, or plea of guilty or nolo contendere by the Participant to, a felony;

 

8

Form of Executive RSA Agreement (approved May 15, 2019)


(ii)    the willful misconduct by Participant resulting in material harm to the Company;

(iii)    fraud, embezzlement, theft or dishonesty by Participant against the Company or any Affiliate or repeated and continued failure to perform Participant’s duties with the Company after written notice of such failure to perform resulting in any case in material harm to the Company; or

(iv)    the Participant’s material breach of any term of confidentiality and/or non-competition agreements.

“Good Reason” means:

(i)    a reduction by the Company or its successor of more than 10% in Participant’s rate of annual base salary as in effect immediately prior to such Change in Control;

(ii)    a reduction by the Company or its successor of more than 10% of the Participant’s individual annual target bonus opportunity;

(iii)    a significant and substantial reduction of the Participant’s responsibilities and authority, as compared with the Participant’s responsibilities and authority in effect immediately preceding the Change in Control or a material adverse change in Participant’s reporting relationship as compared with the Participant’s reporting relationship in effect immediately prior to the Change in Control; provided, however, that a change in the Participant’s responsibilities or authority due to the fact that the Company or its successor becomes a subsidiary of International Business Machines Corporation (“IBM”) as a result of the closing of the transaction contemplated by the Agreement and Plan of Merger by and among IBM, Socrates Acquisition Corp. and the Company, dated as of October 28, 2018, shall not constitute “Good Reason” so long as Participant continues in a substantially similar role within the Company’s business substantially as conducted immediately prior to the time that the Company becomes a subsidiary of IBM, and there is no material diminution in authority, duties or responsibilities, disregarding reporting line and the Company having become a subsidiary of IBM; or

(iv)    any requirement of the Company that Participant be based anywhere more than fifty (50) miles from Participant’s primary office location at the time of the Change in Control and in a new office location that is a greater distance from Participant’s principal residence at the time of the Change in Control than the distance from Participant’s principal residence to the Participant’s primary office location at the time of the Change in Control.

 

9

Form of Executive RSA Agreement (approved May 15, 2019)

EX-99.3

EX-99.3

Exhibit 99.3

MONTH DATE YEAR

NAME

Dear [NAME],

We appreciate your hard work and contributions to Red Hat’s success, and look forward to continuing to build an organization that’s the default choice for next-generation IT, delivering an open hybrid cloud, powered by an open organization. As an important part of this journey, we are offering you the opportunity to earn an exceptional special retention bonus in the amount of $[AMOUNT] (the “Retention Payment”) in accordance with the terms and conditions described below.

This letter (this “Letter Agreement”) sets forth Red Hat’s agreement with you regarding the Retention Payment. Throughout the remainder of this document you and Red Hat, Inc. (“Red Hat”) may be collectively referred to as the “Parties.” Certain other definitions are set forth at the end of this Letter Agreement.

 

  1.

Retention Payment

 

  (a)

As an incentive to remain employed by Red Hat or an Affiliate, you are entitled to receive the Retention Payment, which shall vest in two (2) installments. The first installment of seventy-five percent (75%) of the total Retention Payment shall vest on the Closing Date and the second installment of the remaining twenty-five percent (25%) of the total Retention Payment shall begin to vest on the Closing Date and shall vest on the six-month anniversary of the Closing Date (each installment individually, a “Retention Payment Installment”). Red Hat will pay you the applicable Retention Payment Installment on the first administratively feasible payroll date following each applicable vesting date. Subject to 1(b) below, in order to receive a Retention Payment Installment, you must remain continuously employed by Red Hat or an Affiliate through the applicable vesting date.

 

Form of Cash Retention Agreement


  (b)

Involuntary Termination Without Cause. If, after the Closing Date and prior to payment in full of the Retention Payment, your employment with Red Hat or an Affiliate is involuntarily terminated by Red Hat or an Affiliate without Cause (as defined below), Red Hat will pay you the unpaid portion of the Retention Payment on the first administratively feasible payroll date following the date of employment termination.

 

  (c)

Cause. For purposes of this agreement only, “Cause” means conduct involving one or more of the following:

(i)    your conviction of, or plea of guilty or nolo contendere to, a felony;

(ii)    your willful misconduct resulting in material harm to Red Hat;

(iii)    fraud, embezzlement, theft or dishonesty by you against Red Hat or any Affiliate resulting in material harm to Red Hat;

(iv)    your repeated and continuing failure to follow the proper and lawful directions of Red Hat or the officer to whom you report after a written demand is delivered to you that specifically identifies the manner in which Red Hat or the officer to whom you report believes that you have failed to follow such instructions;

(v)    your current alcohol or prescription drug abuse affecting work performance, or current illegal use of drugs regardless of the effect on work performance;

 

Form of Cash Retention Agreement


(vi)    a material violation of Red Hat’s Code of Conduct by you that causes harm to Red Hat; or

(vii)    your material breach of any term of this Letter Agreement or any other confidentiality and/or non-competition agreements.

 

  2.

Withholding; Other Tax Matters. The Retention Payment(s) payable hereunder are subject to income tax and other required tax withholding. Amounts payable under this Letter Agreement are intended to be treated as a separate “payment” for purposes of Section 409A of the Internal Revenue Code and the guidance issued thereunder (“Section 409A”). Red Hat makes no representation that such payment(s) will be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying to any such payment(s). Amounts payable hereunder are intended to be exempt from Section 409A but to the extent subject thereto are intended to comply with Section 409A and accordingly, to the maximum extent permitted, shall be interpreted and administered to be in compliance therewith. To the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A, amounts that would otherwise be payable during the six-month period immediately following your separation from service shall instead be paid on the first business day after the date that is six months following such separation from service (or upon your death, if earlier).

 

  3.

Confidentiality. Unless required by law, you agree to keep the existence and terms of this Letter Agreement, including the amount of the Retention Payment(s), the timing of the Retention Payment(s), and the vesting date(s) confidential. You further agree that you will not disclose the existence or terms of this Letter Agreement to any third party other than your spouse, significant other, or tax planning professional and only then with the instruction that the excepted individual meet the confidentiality and disclosure requirements described in this Paragraph. Nothing in this Letter Agreement or elsewhere prohibits you from communicating with government agencies about possible violations of federal, state, or local laws or otherwise providing information to government agencies, filing a complaint with government agencies, or participating in government agency investigations or proceedings. You are not required to notify Red Hat or an Affiliate of any such communications; provided, however, that nothing herein authorizes you to disclose information you obtained through a communication that was subject to the attorney-client privilege.

 

  4.

No Right to Employment or Other Status; Non-Alienation. Nothing in this Letter Agreement shall be construed as giving you the right to continued employment or any other relationship with Red Hat or an Affiliate. The Retention Payment(s) will not be funded, set aside, or otherwise segregated prior to payment and shall only be earned by you upon a good faith

 

Form of Cash Retention Agreement


  determination by Red Hat or an Affiliate that all eligibility requirements have been successfully met. The obligation to pay the Retention Payment shall at all times be an unfunded and unsecured obligation of Red Hat.

 

  5.

Entire Agreement; Amendment. This Letter Agreement constitutes the entire agreement between the Parties regarding any retention payment associated with your ongoing employment with Red Hat or an Affiliate, and supersedes all proposals, written or oral, and all other communications between the Parties relating to the Retention Payment(s). Nothing in this Letter Agreement alters the at-will nature of your employment.

 

  6.

Governing Law. This agreement shall be governed by and construed in accordance with the laws of the State of North Carolina (without reference to the conflicts of laws provisions thereof).

 

  7.

Definitions.

 

  (a)

Affiliate” means any person or entity that directly, or through one or more intermediaries, controls, or is controlled by, or is under common control with, Red Hat.

 

  (b)

“Closing Date” refers to the date of the closing of the merger transaction agreed to by and among Red Hat, International Business Machines Corporation and Socrates Acquisition Corp. pursuant to the Agreement and Plan of Merger dated October 28, 2018 (the “Merger Transaction”). All payments hereunder are subject to the occurrence of the Closing Date.

 

  8.

Miscellaneous.

 

  (a)

The Retention Payment is in addition to and not in lieu of any salary, bonus, benefits, or severance to which you may otherwise be entitled. You may not assign your rights under this Letter Agreement. This Agreement may be executed in two or more counterparts, and by the different parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

 

  (b)

Retention payments to be paid in currencies other than U.S. dollars will be converted using the applicable foreign exchange rate on the Closing Date as determined by Red Hat.

 

  (c)

Nothing in this Letter Agreement limits, or is intended to limit, any right to concerted activity you have under the National Labor Relations Act.

 

Form of Cash Retention Agreement


  9.

Headings. The headings of the sections of this agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this agreement.

 

EMPLOYEE   Red Hat, Inc.
Signature:  

 

  By:  

 

Date:  

 

  Date:  

 

 

Form of Cash Retention Agreement

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