ANTHONY LEY

 

                                  HARMONIC INC.

 

                      CHANGE OF CONTROL SEVERANCE AGREEMENT

 

 

     This Change of Control Severance Agreement (the "Agreement") is made and

entered into by and between ANTHONY LEY, (the "Employee") and Harmonic, Inc.

(the "Company"), effective as of the latest date set forth by the signatures of

the parties hereto below.

 

RECITALS

 

     A.   It is expected that the Company from time to time will consider the

possibility of an acquisition by another company or other Change of Control. The

Board of Directors of the Company (the "Board ") recognizes that such

consideration can be a distraction to the Employee and can cause the Employee to

consider alternative employment opportunities. The Board has determined that it

is in the best interests of the Company and its shareholders 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 below) of the Company.

 

     B.   The Board believes that it is in the best interests of the Company and

its shareholders to provide the Employee with an incentive to continue his

employment and to motivate the Employee to maximize the value of the Company

upon a Change of Control for the benefit of its shareholders.

 

     C.   The Board believes that it is imperative to provide the Employee with

certain severance benefits upon Employee's termination of employment following a

Change of Control which provides the Employee with enhanced financial security

and provides incentive and encouragement to the Employee to remain with the

Company notwithstanding the possibility of a Change of Control.

 

     D.   Certain capitalized terms used in the Agreement are defined in Section

6 below.

 

     The parties hereto agree as follows:

 

     1.   Term of Agreement. This Agreement shall terminate upon the date that

all obligations of the parties hereto with respect to this Agreement have been

satisfied.

 

     2.   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. 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 and

practices or pursuant to other agreements with the Company.

 

     3.   Severance Benefits.

 

          (a)  Termination Following a Change of Control. If the Employee's

employment terminates at any time within eighteen (18) months following a Change

of Control, then, subject to Section 5, the Employee shall be entitled to

receive the following severance benefits:

 

               (i)  Involuntary Termination. If the Employee's employment is

terminated as a result of Involuntary Termination other than for Cause, then the

Employee shall receive the following severance benefits from the Company:

 

                    (1)  Severance Payment. A cash payment in an amount equal to

two hundred percent (200%) of the Employee's Annual Compensation;

<PAGE>

 

                    (2)  Bonus Payment. A cash payment in an amount equal to

twice either: a) 50% of the established annual target bonus or b) the average of

the actual bonuses paid in each of the two prior years, whichever is greater.

 

                    (3)  Continued Employee Benefits. One hundred percent (100%)

Company-paid health, dental and life insurance coverage at the same level of

coverage as was provided to such employee immediately prior to the Change of

Control (the "Company-Paid Coverage"). If such coverage included the Employee's

dependents immediately prior to the Change of Control, such dependent shall also

be covered at Company expense. Company- Paid Coverage shall continue until the

earlier of (i) two years from the date of the Change of Control, or (ii) the

date that the Employee and his dependents become covered under another

employer's group health, dental or life insurance plans. For purposes of Title X

of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the

"qualifying event" for Employee and his dependent shall be the date upon which

the Company-Paid Coverage terminates.

 

                    (4)  Option and Restricted Stock Accelerated Vesting. One

hundred percent (100%) of the unvested portion of any outstanding stock option

or restricted stock held by the Employee shall automatically be accelerated in

full so as to become completely vested and all such outstanding stock options

shall be exercisable for a period of one year after such termination.

 

                    (5)  Outplacement Assistance. If desired by Employee,

Company will pay up to five thousand dollars ($5,000.00) for outplacement

assistance selected by Company and approved by Employee.

 

          (b)  Timing of Severance Payments. Any severance payment to which

Employee is entitled under Section 3(a)(i)(1) shall be paid by the Company to

the Employee (or to the Employee's successors in interest pursuant to Section

7(b)) in cash and in full, not later than thirty (30) calendar days following

the Termination Date or within twelve (12) months of Termination Date at the

election of the Employee.

 

          (c)  Voluntary Resignation; Termination For Cause. If the Employee's

employment terminates by reason of the Employee's voluntary resignation (and is

not an Involuntary Termination), or if the Employee is terminated for Cause,

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

agreements with the Company.

 

          (d)  Disability; Death. If the Company terminates the Employee's

employment as a result of the Employee's Disability or such Employee's

employment is terminated due to the death of the Employee 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 agreements with the

Company.

 

          (e)  Termination Apart from Change of Control. In the event the

Employee's employment is terminated for any reason, either prior to the

occurrence of a Change of Control or after the eighteen (18) -month period

following a Change of Control, then the Employee shall be entitled to receive

severance and any other benefits only as may then be established under the

Company's existing severance and benefits plans and practices or pursuant to

other agreements with the Company.

 

     4.   Attorney Fees; Costs and Expenses. The Company shall promptly

reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs

and expenses incurred by the Employee in connection with any action brought by

Employee to enforce his rights hereunder, regardless of the outcome of the

action.

 

     5.   Limitation on Payments. In the event that the severance and other

benefits provided for in this Agreement or otherwise payable to the Employee (i)

constitute "parachute payments" within the meaning of Section 280G of the

Internal Revenue Code of 1986 as amended (the "Code") and (ii) but for this

Section 5, would be subject to the excise tax imposed by Section 4999 of the

Code, then the Employee's severance benefits under Section 3(a)(i) shall be

either

 

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<PAGE>

          (a)  delivered in full, or

 

          (b)  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 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 severance benefits, notwithstanding that all or some

portion of such severance benefits may be taxable under Section 4999 of the

Code. Unless the Company and the Employee otherwise agree in writing, any

determination required under this Section 5 shall be made in writing by the

Company's Accountants immediately prior to Change of Control, whose

determination shall be conclusive and binding upon the Employee and the Company

for all purposes. 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.

 

     6.   Definition of Terms. The following terms referred to in this Agreement

shall have the following meanings:

 

          (a)  Annual Compensation. "Annual Compensation" means an amount equal

to Employee's Company base salary for the twelve months preceding the Change of

Control.

 

          (b)  Cause. "Cause" shall mean (i) any act of personal dishonesty

taken by the Employee in connection with his responsibilities as an employee and

intended to result in substantial personal enrichment of the Employee, (ii) the

conviction of a felony) (iii) a willful act by the Employee which constitutes

gross misconduct and which is injurious to the Company, and (iv) following

delivery to the Employee of a written demand for performance from the Company

which describes the basis for the Company's belief that the Employee has not

substantially performed his duties, continued violations by the Employee of the

Employee's obligations to the Company which are demonstrably willful and

deliberate on the Employee's part.

 

          (c)  Change of Control. "Change of Control" means the occurrence of

any of the following events:

 

               (i)  Any "person" (as such term is used in Sections 13(d) and

14(d) of the Securities Exchange Act of 1934, as amended) becomes the

"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or

indirectly, of securities of the Company representing fifty percent (50%) or

more of the total voting power represented by the Company's then outstanding

voting securities;

 

               (ii) A change in the composition of the Board occurring within a

two-year period, as a result of which fewer than a majority of the directors are

Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)

are directors of the Company as of the date hereof, or (B) are elected, or

nominated for election, to the Board with the affirmative votes of at least a

majority of the Incumbent Directors at the time of such election or nomination

(but shall not include an individual whose election or nomination is in

connection with an actual or threatened proxy contest relating to the election

of directors to the Company);

 

               (iii) The consummation of a merger or consolidation of the

Company with any other corporation, other than a merger or consolidation which

would result in the voting securities of the Company outstanding immediately

prior thereto continuing to represent (either by remaining outstanding or by

being converted into voting securities of the surviving entity) at least fifty

percent (50%) of the total voting power represented by the voting securities of

the Company or such surviving entity outstanding immediately after such merger

or consolidation;

 

               (iv) The consummation of the sale or disposition by the Company

of all or substantially all the Company's assets.

 

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<PAGE>

 

          (d)  Disability. "Disability" shall mean that the Employee has been

unable to perform his Company duties as the result of his incapacity due to

physical or mental illness, and such inability, at least 26 weeks after its

commencement, is determined to be total and permanent by a physician selected by

the Company or its insurers and acceptable to the Employee or the Employee's

legal representative (such Agreement as to acceptability not to be unreasonably

withheld). Termination resulting from Disability may only be effected after at

least 30 days written notice by the Company of its intention to terminate the

Employee's employment. In the event that the Employee resumes the performance of

substantially all of his duties hereunder before the termination of his

employment becomes effective, the notice of intent to terminate shall

automatically be deemed to have been revoked.

 

          (e)  Involuntary Termination. "Involuntary Termination" shall mean (i)

without the Employee's express written consent, the significant reduction of the

Employee's duties authority or responsibilities relative to the Employee's

duties, authority or responsibilities as in effect immediately prior to such

reduction, or the assignment to Employee of such reduced duties, authority or

responsibilities; (ii) without the Employee's express written consent, a

substantial reduction, without good business reasons, of the facilities and

perquisites (including office space and location) available to the Employee

immediately prior to such reduction; (iii) a reduction by the Company in the

base salary of the Employee as in effect immediately prior to such reduction;

(iv) a material reduction by the Company in the kind or level of employee

benefits, including bonuses, to which the Employee was entitled immediately

prior to such reduction with the result that the Employee's overall benefits

package is significantly reduced; (v) the relocation of the Employee to a

facility or a location more than twenty-five (25) miles from the Employee's then

present location, without the Employee's express written consent; (vi) any

purported termination of the Employee by the Company which is not effected for

Disability or for Cause, or any purported termination for which the grounds

relied upon are not valid; (vii) the failure of the Company to obtain the

assumption of this Agreement by any successors contemplated in Section 7(a)

below; or (viii) any act or set of facts or circumstances which would, under

California case law or statute constitute a constructive termination of the

Employee.

 

          (f)  Termination Date. "Termination Date" shall mean (i) if this

Agreement is terminated by the Company for Disability, thirty (30) days after

notice of termination is given to the Employee (provided that the Employee shall

not have returned to the performance of the Employee's duties on a full-time

basis during such thirty (30)-day period), (ii) if the Employee's employment is

terminated by the Company for any other reason, the date on which a notice of

termination is given, provided that if within thirty (30) days after the Company

gives the Employee notice of termination, the Employee notifies the Company that

a dispute exists concerning the termination or the benefits due pursuant to this

Agreement, then the Termination Date shall be the date on which such dispute is

finally determined, either by mutual written agreement of the parties, or by a

final judgment, order or decree of a court of competent jurisdiction (the time

for appeal therefrom having expired and no appeal having been perfected), or

(iii) if the Agreement is terminated by the Employee, the date on which the

Employee delivers the notice of termination to the Company.

 

     7.   Successors.

 

          (a)  Company's Successors. Any successor to the Company (whether

direct or indirect and whether by purchase, merger, consolidation, liquidation

or otherwise) to all or substantially all of the Company's business and/or

assets shall assume the obligations under this Agreement and agree expressly to

perform the obligations under this Agreement in the same manner and to the same

extent as the Company would be required to perform such obligations in the

absence of a succession. For all purposes under this Agreement, the term

"Company" shall include any successor to the Company's business and/or assets

which executes and delivers the assumption agreement described in this Section

7(a) or which becomes bound by the terms of this Agreement by operation of law.

 

          (b)  Employee's Successors. The terms of this Agreement and all rights

of the Employee hereunder shall inure to the benefit of, and be enforceable by,

the Employee's personal or legal representatives, executors, administrators,

successors, heirs, distributees, devisees and legatees.

 

     8.   Notice.

 

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<PAGE>

 

          (a)  General. Notices and all other communications contemplated by

this Agreement shall be in writing and shall be deemed to have been duly given

when personally delivered or when mailed by U.S. registered or certified mail,

return receipt requested and postage prepaid. In the case of the Employee,

mailed notices shall be addressed to him at the home address which he most

recently communicated to the Company in writing. In the case of the Company,

mailed notices shall be addressed to its corporate headquarters, and all notices

directed shall be to the attention of its Secretary.

 

          (b)  Notice of Termination. Any termination by the Company for Cause

or by the Employee as a result of a voluntary resignation or an Involuntary

Termination shall be communicated by a notice of termination to the other party

hereto given in accordance with Section 8(a) of this Agreement. Such notice

shall indicate the specific termination provision in this Agreement relied upon,

shall set forth in reasonable detail the facts and circumstances claimed to

provide a basis for termination under the provision so indicated, and shall

specify the termination date (which shall be not more than 30 days after the

giving of such notice). The failure by the Employee to include in the notice any

fact or circumstance which contributes to a showing of Involuntary Termination

shall not waive any right of the Employee hereunder or preclude the Employee

from asserting such fact or circumstance in enforcing his rights hereunder.

 

     9.   Miscellaneous Provisions.

 

          (a)  No Duty to Mitigate. The Employee shall not be required to

mitigate the amount of any payment contemplated by this Agreement, nor shall any

such payment be reduced by any earnings that the Employee may receive from any

other source.

 

          (b)  Waiver. No provision of this Agreement shall be modified, waived

or discharged unless the modification, waiver or discharge is agreed to in

writing and signed by the Employee and by an authorized officer of the Company

(other than the Employee). No waiver by either party of any breach of, or of

compliance with, any condition or provision of this Agreement by the other party

shall be considered a waiver of any other condition or provision or of the same

condition or provision at another time.

 

          (c)  Whole Agreement. No agreements, representations or understandings

(whether oral or written and whether express or implied) which are not expressly

set forth in this Agreement have been made or entered into by either party with

respect to the subject matter hereof. This Agreement represents the entire

understanding of the parties hereto with respect to the subject matter hereof

and supersedes all prior arrangements and understandings regarding same.

 

          (d)  Choice of Law. This Agreement shall be deemed to have been

executed and delivered within the State of California and the validity,

interpretation, construction and performance of this Agreement shall be governed

by the laws of the State of California, without regard to choice of law

principles.

 

          (e)  Severability. The invalidity or unenforceability of any provision

or provisions of this Agreement shall not affect the validity or enforceability

of any other provision hereof, which shall remain in full force and effect.

 

          (f)  Withholding. All payments made pursuant to this Agreement will be

subject to withholding of applicable income and employment taxes.

 

          (g)  Counterparts. This Agreement may be executed in counterparts,

each of which shall be deemed an original but all of which together will

constitute one and the same instrument.

 

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<PAGE>

[HARMONIC LOGO]

 

 

     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the

case of the Company by its duly authorized officer, as of the day and year set

forth below.

 

 

COMPANY                   HARMONIC, INC.

 

 

                          By: /s/ David R. Van Valkenburg

                              -------------------------------------------------

 

                          Title: Chairperson, Harmonic Compensation and Equity

                                 Ownership Committee

                                 ----------------------------------------------

 

                          Date:  March 1, 2004

                               ------------------------------------------------

 

 

 

EMPLOYEE                  Name: /s/ Anthony J. Ley

                                -----------------------------------------------

 

                          Date: March 1, 2004

                               ------------------------------------------------

 

 

 

 

 

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