<PAGE>   1
                                                                   Exhibit 10.38

                   EXECUTIVE RETENTION AND SEVERANCE AGREEMENT



                                                Effective Date: January 27, 1998


This Executive Retention and Severance Agreement (the "Agreement") is made and
entered into as of the date written above (the "Effective Date"), by and between

               Bay Networks, Inc., a Delaware corporation        (the "Company")
                             4401 Great America Parkway
                             Santa Clara,  California      95052

and

               [name]                                              ("Executive")
residing at    [street address]     
               [city, state, zip]

RECITALS

 A.   The Executive is an Executive Vice President of Bay Networks, Inc. who
      possesses valuable knowledge of the Company, its business and operations
      and the markets in which the Company competes.

 B.   The Company draws upon the knowledge, experience and objective advice of
      Executive in order to manage its business for the benefit of the Company's
      stockholders.

 C.   The Company recognizes that if there occurred a change of control or other
      event that could substantially change the nature and structure of the
      Company, the resulting uncertainty regarding the consequences of such an
      event could adversely affect the Company's ability to attract, retain and
      motivate its key employees, including Executive.

 D.   On January 26, 1998, the Compensation Committee of the Company's Board of
      Directors approved the Executive Retention and Severance Plan, authorizing
      the terms of this Agreement.

 E.   The Company believes that the existence of this Agreement will serve as an
      incentive to Executive to remain in the employ of the Company, and would

<PAGE>   2
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 2

      enhance the Company's ability to call on and rely upon the Executive if a
      change of control event were to occur.

 F.   The Company and the Executive desire to enter into this Agreement in order
      (1) to encourage Executive to continue to devote Executive's full
      attention and dedication to the success of the Company, and (2) to provide
      specified compensation and benefits to the Executive in the event of a
      Termination Upon Change of Control, pursuant to the terms of this
      Agreement.



THE COMPANY AND EXECUTIVE AGREE AS FOLLOWS:

1.      GENERAL

        1.1 Purpose. The purpose of this Agreement is to provide specified
compensation and benefits to the Executive in the event of a Termination Upon
Change of Control.

        1.2 No employment agreement. This Agreement does not obligate the
Company to continue to employ Executive for any specific period of time, or in
any specific role or geographic location. Subject to the terms of any applicable
written employment agreement between Company and Executive, Company may assign
Executive to other duties, and either Executive or Company may terminate
Executive's employment at any time for any reason.

        1.3 Defined terms. Capitalized terms used in this agreement shall have
the meanings set forth in section 4, unless the context clearly requires a
different meaning.

2.      TERMINATION UPON CHANGE OF CONTROL

        2.1 Basic Severance Compensation. In the event of the Executive's
Termination Upon Change of Control, Executive shall be entitled to the basic
severance compensation described below.

               2.1.1 All salary and accrued vacation earned through the date of
Executive's termination shall be paid to Executive.

               2.1.2 Within ten (10) days of submission of proper expense
reports by the Executive, the Company shall reimburse the Executive for all
expenses reasonably and necessarily incurred by the Executive in connection with
the business of the Company prior to Executive's termination of employment.

               2.1.3 Executive shall receive the benefits, if any, under the
Company's 401(k) Plan, nonqualified deferred compensation plan, employee stock
purchase plan and 


<PAGE>   3
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 3


other Company benefit plans to which Executive may be entitled pursuant to the
terms of such plans.

        2.2 Executive Cash Severance Benefits. In the event of the Executive's
Termination Upon Change of Control, Executive shall be entitled to the
additional executive severance benefits described below.

               2.2.1 Prorated bonus payment. Executive shall receive Executive's
target bonus or incentive payment for the year in which termination occurs, pro
rated through the date of termination and less applicable withholding, paid
within thirty (30) days of termination of employment.

               2.2.2 Cash severance payment. Executive shall receive a lump sum
payment in the amount of 200% of Executive's Target Annual Earnings, less
applicable federal and state withholding, paid within thirty (30) days of
termination of employment.

        2.3 Stock option acceleration.

               2.3.1 Acceleration at Termination Upon Change of Control. All
outstanding stock options granted and restricted stock issued by the Company to
the Executive prior to the Change of Control shall have their vesting fully
accelerated so as to be 100% vested on the date of a Termination Upon Change of
Control.

               2.3.2 Acceleration upon non-assumption in a Change of Control. If
there is a Change of Control transaction in which outstanding stock options
granted and restricted stock issued by the Company prior to the transaction are
not fully assumed by the Successor, or replaced by fully equivalent substitute
options or restricted stock, then (1) all such options and restricted stock
shall have their vesting fully accelerated to be 100% vested prior to the
effective date of the Change of Control and (2) the Company shall provide
reasonable prior written notice to Executive of (a) the date such unexercised
options will terminate and (b) the period during which Executive may exercise
the fully vested options. Alternatively, the Company may elect to deliver to
Executive on the effective date of the Change of Control a cash payment equal to
the difference between (i) the aggregate exercise price of Executive's
unexercised options or restricted stock, whether vested unvested, and (ii) the
value of the consideration deliverable for an equivalent number of shares as a
result of the Change of Control transaction.

        2.4 Extended medical and dental benefits.

               2.4.1 Benefit continuation for thirty months. Executive shall
receive continued provision of the Company's standard employee medical and
dental insurance coverages, as elected by the Executive and in effect
immediately prior to the Change of Control, for thirty (30) months following the
date of termination.

               2.4.2 Continued medical coverage for U.S. residents. Thereafter,
if Executive resides in the United States, Executive shall be entitled to elect
continued 

<PAGE>   4
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 4


medical insurance coverage in accordance with the applicable provisions of U.S.
federal law (COBRA). If such coverage included the Executive's dependents
immediately prior to the date of termination, such dependents also shall be
covered at Company expense during the extension period. For purposes of title X
of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the
"qualifying event" for Executive and his dependents shall be the date upon which
the Company-paid coverage terminates.

               2.4.3 Termination upon coverage under another plan.
Notwithstanding the preceding provisions of this section 2.4, in the event
Executive becomes covered as a primary insured (that is, not as a beneficiary
under a spouse's or partner's plan) under another employer's group health plan
during the period provided for herein, Executive promptly shall inform the
Company and the Company shall cease provision of continued group health
insurance for Executive and any dependents.

        2.5 Consulting contract.

               2.5.1 Six-month Consulting Period. Executive shall be engaged as
a consultant to the Company for a period of six (6) months after a Termination
Upon Change of Control (the "Consulting Period") to provide advice and assist in
the transition occasioned by the Change of Control.

               2.5.2 Consulting Fee. During the Consulting Period Executive
shall receive a consulting fee in the amount of fifty percent (50%) of Target
Annual Earnings, payable in six equal monthly installments.

               2.5.3 Option continuation during Consulting Period. Executive's
stock options, if any, shall continue in effect during the Consulting Period, in
accordance with and to the maximum extent permissible under the terms of the
applicable option plans and agreements.

               2.5.4 Other employment not precluded. During the Consulting
Period Executive shall not be precluded from accepting other employment,
provided Executive is available to the Company at such times and for such
consulting matters as the Company may reasonably request.

3.      FEDERAL EXCISE TAX UNDER IRC SECTION 280G

        3.1 Reimbursement of excise tax. If (1) any amounts payable under this
Agreement are characterized as excess parachute payments pursuant to Section
4999 of the Internal Revenue Code, and (2) Executive thereby would be subject to
any United States federal excise tax due to that characterization, then (3) the
Company shall reimburse the Executive for the amount of such excise tax;
provided, however, that, no reimbursement shall be made for any excise tax
payable with respect to the reimbursement made pursuant to this section 3.1. The
excise tax reimbursement made pursuant to this section 3.1 shall be subject to
all applicable withholding. The foregoing 

<PAGE>   5
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 5


shall be conditioned upon the Executive cooperating with the Company in such
manner as may be reasonably requested (other than reducing amounts payable
hereunder) so as to minimize the amount of such excise tax.

        3.2 Determination by independent public accountants. Unless the Company
and Executive otherwise agree in writing, any determination required under this
Section 3 shall be made in writing by independent public accountants agreed to
by the Company and the Executive (the "Accountants"), whose determination shall
be conclusive and binding upon Executive and the Company for all purposes. For
purposes of making the calculations required by this Section 3, the Accountants
may rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and Executive shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make the required determinations. The Company shall bear all
fees and expenses the Accountants may reasonably charge in connection with the
services contemplated by this Section 3.

4.      DEFINITIONS

        4.1 Capitalized terms defined. Capitalized terms used in this Agreement
shall have the meanings set forth in this Section 4, unless the context clearly
requires a different meaning.

        4.2 "Cause" means:

               (a) theft; a material act of dishonesty or fraud; intentional
falsification of any employment or Company records; or the commission of any
criminal act which impairs Executive's ability to perform appropriate employment
duties under this Agreement;

               (b) improper disclosure or use of the Company's confidential,
business or proprietary information by Executive;

               (c) the Executive's conviction (including any plea of guilty or
nolo contendere) for a crime involving moral turpitude causing material harm to
the reputation and standing of the Company, as determined by the Company in good
faith; or

               (d) gross negligence or willful misconduct in the performance of
Executive's assigned duties (but not mere unsatisfactory performance).

        4.3 "Change of Control" means:

               (a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than a trustee or other fiduciary holding securities of the Company under
an employee benefit plan of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of (A) the
outstanding shares of common stock of the 

<PAGE>   6
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 6


Company or (B) the combined voting power of the Company's then-outstanding
securities;

               (b) the Company is party to a merger or consolidation which
results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation;

               (c) the sale or disposition of all or substantially all of the
Company's assets (or consummation of any transaction having similar effect);

               (d) there occurs a change in the composition of the Board of
Directors of the Company within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors; or

               (e) the dissolution or liquidation of the Company.

        4.4 "Company" shall mean Bay Networks, Inc., and, following a Change of
Control, any Successor that agrees to assume, or otherwise becomes bound to by
operation of law, all the terms and provisions of this Agreement.

        4.5 "Effective Date" means, with respect to this Agreement, (1) January
27, 1998 or (2) such later date as Executive first became an officer of the
Company.

        4.6 "Good Reason" means the occurrence of any of the following
conditions following a Change of Control, without Executive's informed written
consent, which condition(s) remain(s) in effect ten (10) days after written
notice to the Company from Executive of such condition(s):

               (a) a material decrease in Executive's base salary or target 
bonus amount;

               (b) assignment of Executive to responsibilities or duties that
are not a Substantive Functional Equivalent of the position which Executive
occupied prior to the Change of Control;

               (c) the relocation of Executive's work place for the Company to a
location more than 50 miles from the location of the work place prior to the
Change of Control; or

               (d) any material breach of this Agreement by the Company.

        4.7 "Incumbent Director" shall mean a director who either (1) is a
director of the Company as of the Effective Date of this Agreement, or (2) is
elected, or nominated for election, to the Board of Directors of the Company
with the affirmative votes of at 

<PAGE>   7
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 7


least a majority of the Incumbent Directors at the time of such election or
nomination, but (3) was not elected or nominated in connection with an actual or
threatened proxy contest relating to the election of directors to the Company.

        4.8 "Permanent Disability" means that:

               (a) the Executive has been incapacitated by bodily injury,
illness or disease so as to be prevented thereby from engaging in the
performance of the Executive's duties;

               (b) such total incapacity shall have continued for a period of
six consecutive months; and

               (c) such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of the Employee's
life.

        4.9 "Substantive Functional Equivalent" means an employment position
occupied by an Executive after a Change of Control that:

               (a) is in a substantive area of competence (such as, accounting;
engineering management; executive management; finance; human resources;
marketing, sales and service; operations and manufacturing; etc.) that is
consistent with Executive's experience and not materially different from the
position occupied prior to the Change of Control;

               (b) requires Executive to serve in a role and perform duties that
are functionally equivalent to those performed prior to the Change of Control
(such as, business unit executive with P&L responsibility; product line manager;
marketing strategist; geographic sales manager; section 16 corporate executive
officer; R&D manager);

               (c) carries a title that does not connote a lesser rank or 
corporate role than the title (such as, Executive Vice President) held by
Executive prior to the Change of Control;

               (d) does not otherwise constitute a material, adverse change in
Executive's responsibilities or duties, as measured against Executive's
responsibilities or duties prior to the Change of Control, causing it to be of
materially lesser rank or responsibility;

               (e) is identified as an executive officer, for purposes of the
rules promulgated under Section 16 of the Securities Exchange Act of 1934, of a
publicly traded Successor having net assets and annual revenues no less than
those of the Company prior to the Change of Control; and

<PAGE>   8
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 8



               (f) reports directly to an executive officer, committee or board
of the Successor that is no less senior than the executive officer, committee or
board, as the case may be, to whom Executive reported at the Company prior to
the Change of Control.

        4.10 "Successor" means the Company as defined above and any successor or
assign to substantially all of its business and/or assets.

        4.11 "Target Annual Earnings" means the sum of annual base salary plus
100% of annual bonus or incentive pay. If different sums would result from
calculations as of (a) the date thirty (30) days prior to the date that the
Company publicly announces it is conducting negotiations leading to a Change of
Control, (b) the date on which a Change of Control occurs or (c) the date of
Executive's Termination Upon Change of Control, then Target Annual Earnings
shall be determined by the calculation as of the specified date that yields the
highest value.

        4.12 "Termination Upon Change of Control" means:

               (a) any termination of the employment of the Executive by the
Company without Cause during the period commencing thirty (30) days prior to the
earlier of (1) the date that the Company first publicly announces it is
conducting negotiations leading to a Change of Control, or (2) the date that the
Company enters into a definitive agreement that would result in a Change of
Control (even though still subject to approval by the Company's stockholders and
other conditions and contingencies); and ending on the date which is twelve (12)
months after the Change of Control; or

               (b) any resignation by the Executive for Good Reason within
twelve (12) months after the occurrence of any Change of Control; but

               (c) "Termination Upon Change of Control" shall not include any
termination of the employment of the Executive (1) by the Company for Cause; (2)
by the Company as a result of the Permanent Disability of the Executive; (3) as
a result of the death of the Executive; or (4) as a result of the voluntary
termination of employment by the Executive for reasons other than Good Reason.

5.      EXCLUSIVE REMEDY

        5.1 Sole remedy for Termination Upon Change of Control. The payments and
benefits provided for in Sections 2 and 3 shall constitute the Executive's sole
and exclusive remedy for any alleged injury or other damages arising out of the
cessation of the employment relationship between the Executive and the Company
in the event of Executive's Termination Upon Change of Control.

        5.2 No other benefits payable. The Executive shall be entitled to no
other compensation, benefits, or other payments from the Company as a result of
any termination of employment with respect to which the payments and/or benefits
described in Sections 2 and 3 have been provided to the Executive, except as
expressly set forth in 

<PAGE>   9
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                               PAGE 9


this Agreement or, subject to the provisions of sections 10 and 14, in a duly
executed employment agreement between Company and Executive.

        5.3 Release of Claims. The Company may condition payment of the cash
severance and consulting benefits described in sections 2.2 and 2.5 of this
Agreement and the stock option acceleration described in section 2.3.1 upon the
delivery by Executive of a signed release of claims in a form reasonably
satisfactory to the Company; provided, however, that Executive shall not be
required to release any rights Executive may have to be indemnified by the
Company.

6.      PROPRIETARY AND CONFIDENTIAL INFORMATION

The Executive agrees to continue to abide by the terms and conditions of the
Company's confidentiality and/or proprietary rights agreement between the
Executive and the Company.

7.      NON-SOLICITATION

        7.1 Agreement not to solicit. If Company performs its obligations to
deliver the severance benefits set forth in sections 2 and 3 of this Agreement,
then for a period of one (1) year after Executive's Termination Upon Change of
Control, Executive will not, directly or indirectly, solicit the services or
business of or in any other manner persuade any employee, distributor, vendor,
representative or customer of the Company to discontinue that person's or
entity's relationship with or to the Company.

        7.2 Other agreements not superseded. This provision shall not supersede
or limit the terms, including more restrictive terms, of any other agreement by
Executive to refrain from competition with or from soliciting the employees or
customers of Company.

8.      ARBITRATION

        8.1 Disputes subject to arbitration. Any claim, dispute or controversy
arising out of this Agreement, the interpretation, validity or enforceability of
this Agreement or the alleged breach thereof shall be submitted by the parties
to binding arbitration by the American Arbitration Association; provided,
however, that (1) the arbitrator shall have no authority to make any ruling or
judgment that would confer any rights with respect to the trade secrets,
confidential and proprietary information or other intellectual property of the
Company upon Executive or any third party; and (2) this arbitration provision
shall not preclude the Company from seeking legal and equitable relief from any
court having jurisdiction with respect to any disputes or claims relating to or
arising out of the misuse or misappropriation of the Company's intellectual
property. Judgment may be entered on the award of the arbitrator in any court
having jurisdiction.

        8.2 Site of arbitration. The site of the arbitration proceeding shall
be, at Executive's election, either (1) Santa Clara County, California or (2)
Middlesex County, Massachusetts or (3) if Executive's primary assigned work
place prior to the Change of 

<PAGE>   10
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                              PAGE 10


Control was in neither California nor Massachusetts, a mutually agreed site
located within 25 miles of that work place.

        8.3 Cost and expenses borne by Company. All costs and expenses of
arbitration or litigation, including but not limited to reasonable attorneys
fees and other costs reasonably incurred by the Executive, shall be paid by the
Company. Notwithstanding the foregoing, if the Executive initiates the
arbitration or litigation, and the finder of fact finds that Executive's claims
were totally without merit or frivolous, then Executive shall be responsible for
Executive's own attorneys' fees.

9.      INTERPRETATION

Executive and the Company agree that this Agreement shall be interpreted in
accordance with and governed by the laws of the State of California as applied
to contracts entered into and entirely to be performed within that state.

10.     CONFLICT IN BENEFITS;  NONCUMULATION OF BENEFITS

        10.1 Effect of Agreement. This Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement and shall be the exclusive agreement for the
determination of any payments and accelerated option vesting due upon
Executive's Termination Upon Change of Control, except as provided in sections
10.2, 10.3 and 14.

        10.2 No limitation of regular benefit plans. This Agreement is not
intended to and shall not affect, limit or terminate any plans, programs, or
arrangements of the Company that are regularly made available to a significant
number of employees or officers of the Company, including without limitation the
Company's stock option plans.

        10.3 Noncumulation of cash benefits. Executive may not cumulate cash
severance payments and excise tax reimbursement benefits under both this
Agreement and another agreement. If Executive has any other binding written
agreement with the Company which provides that upon a Change of Control or
termination of employment the Executive shall receive one or more of the
benefits described in sections 2.2, 2.5 and 3 of this Agreement (i.e., the
payment of cash compensation or prorated bonus, post-termination consulting and
adjustments or payments relating to federal excise tax), then with respect to
each such benefit the amount payable under this Agreement shall be reduced by
the corresponding amount paid or payable under such other agreements.

11.     SUCCESSORS AND ASSIGNS

        11.1 Successors of the Company. The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such 

<PAGE>   11
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                              PAGE 11


succession or assignment had taken place. Failure of the Company to obtain such
agreement shall be a material breach of this Agreement.

        11.2 Acknowledgement by Company. If after a Change of Control the
Company (or any Successor) fails to reasonably confirm that it has performed the
obligation described in section 11.1 within ten (10) days after written notice
from Executive, Executive shall be entitled to terminate Executive's employment
with the Company for Good Reason, and to receive the benefits provided under
this Agreement in the event of Termination Upon Change of Control.

        11.3 Heirs and representatives of Executive. This Agreement shall inure
to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees.

12.     NOTICES

For purposes of this Agreement, notices and all other communications provided
for in the Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid, as follows:

               if to the Company:           Bay Networks, Inc.
                                                   Attention:    General Counsel
                                            4401 Great America Parkway
                                            Santa Clara, CA  95052

and if to the Executive at the address specified on the first page of this
Agreement. Either party may provide the other with notices of change of address,
which shall be effective upon receipt.

13.     NO REPRESENTATIONS

Executive acknowledges that in entering into this Agreement, Executive is not
relying and has not relied on any promise, representation or statement made by
or on behalf of the Company which is not set forth in this Agreement.

14.     MODIFICATION  AND AMENDMENT

This Agreement may be modified, amended or superseded only by a supplemental
written agreement signed with the same formality as this Agreement by Executive
and by the Company. However, the noncumulation of benefits provision of section
10.3 shall apply to any subsequent agreement, unless (1) such provision is
explicitly disclaimed in the subsequent agreement, and (2) the subsequent
agreement has been authorized by the Company's Board of Directors or a committee
thereof.

<PAGE>   12
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT                              PAGE 12


15.     VALIDITY

        15.1 Invalid provisions. If any one or more of the provisions (or any
part thereof) of this Agreement shall be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.

        15.2 Execution by two Company executive officers or directors. This
Agreement and any modifications or amendments shall require the signatures of
two executive officers or members of the Board of Directors of the Company.

        15.3 Consultation with legal and financial advisers. Executive
acknowledges that this Agreement confers significant legal rights, and may also
involve the waiver of rights under other agreements; that Company has encouraged
Executive to consult with Executive's personal legal and financial advisers; and
that Executive has had adequate time to consult with Executive's advisers before
signing this agreement.

16.     SIGNATURES

The parties have executed this Agreement, intending to be legally bound as of
the Effective Date.



        EXECUTIVE                            BAY NETWORKS, INC.

                                      By:                    
--------------------------------          --------------------------------------
        Executive's signature         Printed name:             
                                                    ----------------------------
Printed name:                         Title:           
              ------------------             -----------------------------------


                                      By:                                
                                           -------------------------------------
                                      Printed name:                       
                                                    ----------------------------
                                      Title:           
                                             -----------------------------------