Document:

Exhibit 10.1

 

AMENDMENT TO LETTER
AGREEMENT

 

This Amendment to Letter Agreement (the “Amendment”)
is made and entered into as of December 15, 2008 (the “Effective Date”),
by and between Ditech Networks, Inc., a Delaware corporation (the “Company”)
and Todd Simpson (“Executive”).

 

RECITALS

 

A.            The
Company retains the services of Executive pursuant to that certain letter
agreement dated September 24, 2007 (the “Letter Agreement”).

 

B.            The
Company and Executive wish to amend the Letter Agreement to comply with the
requirements of Section 409A of the Internal Revenue Code of 1986, as
amended.

 

AGREEMENT

 

A new Section of the Letter Agreement is hereby
added to read in its entirety as follows:

 

Compliance with Internal Revenue Code Section 409A.

 

All payments provided under this agreement are intended to constitute
separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2).  If you are a “specified employee” of the
Company or any affiliate thereof (or any successor entity thereto) within the
meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code of
1986, as amended (the “Code”) on the date of a termination without Cause that
constitutes a “separation from service” with the Company within the meaning of
Treasury Regulation Section 1.409A-1(h) (without regard to any
permissible alternative definition there under) (a “Covered Termination”), then
the severance pay in the form of continuation of base salary (the “Payments”)
shall be delayed until the earlier of: (i) the date that is six (6) months
after the date of the Covered Termination, or (ii) the date of your death
(such date, the “Delayed Payment Date”), and the Company (or the successor
entity thereto, as applicable) shall (A) pay to you a lump sum amount
equal to the sum of the Payments that otherwise would have been paid to you on
or before the Delayed Payment Date, without any adjustment on account of such
delay, and (B) continue the Payments in accordance with any applicable
payment schedules set forth for the balance of the period specified
herein.  Notwithstanding the foregoing, (i) Payments
scheduled to be paid from the date of a Covered Termination through March 15th
of the calendar year following such termination shall be paid as scheduled
pursuant to the “short-term deferral” rule set forth in Treasury
Regulation Section 1.409A-1(b)(4); (ii) Payments scheduled to be paid
following such March 15th shall be paid as scheduled to the maximum extent
permitted pursuant to an “involuntary separation from service” as permitted by
Treasury Regulation Section 1.409A-1(b)(9)(iii), but in no event later
than the last day of the second taxable year following the taxable year of the
Covered Termination; and (iii) any excess Payments shall be subject to
delay as provided in the previous sentence. 
Amounts paid to 

 

 

reimburse for COBRA premiums are intended to be paid pursuant to the
exception provided by Treasury Regulation Section 1.409A-1(b)(9)(v)(B).

 

Other
than as set forth herein, the terms of the Letter Agreement remain unaffected
hereby.

 

In Witness
Whereof, the Company and Executive have executed this Amendment on the dates
set forth below, to be effective immediately as of the Effective Date.

 

	
  Ditech
  Networks, Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/William J. Tamblyn

  	
   

  
	
   

  	
   

  
	
  Its:

  	
  Executive Vice
  President and Chief Financial Officer

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  December 15, 2008

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Todd
  Simpson

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/Todd G. Simpson

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  December 15, 2008Exhibit 10.2

 

DITECH
NETWORKS, INC.

 

AMENDED
AND RESTATED CHANGE IN CONTROL SEVERANCE BENEFIT PLAN

 

SECTION 1.         INTRODUCTION.

 

The Ditech
Networks, Inc. Amended and Restated Change in Control Severance Benefit
Plan (the “Plan”) is hereby established
effective December 12, 2008 (the
“Effective Date”), which Plan amends
and restates the Ditech Networks, Inc. Change in Control Severance Benefit
Plan adopted September 24, 2007
(the “Prior Plan”), which Prior Plan is
hereby superseded by this Plan.  The
purpose of the Plan is to provide for the payment of severance benefits to
certain eligible employees of Ditech Networks, Inc. and its wholly owned
subsidiaries (the “Company”) in the event that
such employees are subject to qualifying employment terminations in connection
with a Change in Control.  This Plan
shall supersede any severance benefit plan, policy or practice previously
maintained by the Company, other than an individually negotiated written
contract or written agreement with the Company relating to severance or change
in control benefits that is in effect on an employee’s termination date, in
which case such employee’s severance benefit, if any, shall be governed by the
terms of such individually negotiated written contract or written agreement and
shall be governed by this Plan only to the extent that the reduction pursuant
to Section 6(b) below does not entirely eliminate benefits under this
Plan.  This document also is the Summary
Plan Description for the Plan.

 

SECTION 2.         DEFINITIONS.

 

For purposes of the Plan, the following terms are
defined as follows:

 

(a)           “Base Salary” means the Participant’s annual base pay
(excluding incentive pay, premium pay, commissions, overtime, bonuses and other
forms of variable compensation), at the rate in effect during the last
regularly scheduled payroll period immediately preceding the date of the
Participant’s Covered Termination.

 

(b)           “Board” means the Board of Directors of Ditech
Networks, Inc.

 

(c)           “Change in Control” means one of the following events or a
series of more than one of the following events that are related, wherein the
stockholders of the Company immediately before the transaction do not retain
immediately after the transaction, in substantially the same proportions as
their ownership of shares of the Company’s voting stock immediately before the
transaction, direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the outstanding voting stock of the
Company, the resulting entity in a merger or, in the case of an asset sale, the
corporation or corporations to which the assets of the Company were transferred
(the “Transferee Corporation(s)”), as the
case may be:

 

(i)            the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the
Company of more than fifty percent (50%) of the voting stock of the Company;

 

(ii)           a merger or consolidation in which the
Company is a party; or

 

(iii)         the sale, exchange, or transfer of all or
substantially all of the assets of the Company.

 

For
purposes of this Section 2(c), indirect beneficial ownership shall
include, without limitation, an interest resulting from ownership of the voting
stock of one or more corporations, which as a result of the transaction, own
the Company, the resulting entity or the Transferee Corporation(s), as the case
may be, either directly or through one or more subsidiary corporations.  Prior to the Change in Control, the Board
shall have the right to determine whether 

 

 

multiple
sales or exchanges of the voting stock of the Company or more than one of the
preceding events are related, and its determination shall be final, binding and
conclusive.

 

(d)           “Code”  means the Internal Revenue Code of 1986, as amended.

 

(e)           “Company” means Ditech Networks, Inc. and its
wholly owned subsidiaries or, following a Change in Control, the surviving
entity resulting from such transaction.

 

(f)            “Constructive Termination” means a resignation by a Participant of
employment with the Company after one of the following is undertaken without
the Participant’s express written consent:

 

(i)            a substantial reduction in the
Participant’s duties or responsibilities (and not simply a change in title or
reporting relationships) in effect immediately prior to the effective date of
the Change in Control; provided, however,
that it shall not be a “Constructive Termination” if, following the effective
date of the Change in Control, either (a) the Company is retained as a
separate legal entity or business unit and the Participant holds the same
position in such legal entity or business unit as the Participant held before
such effective date, or (b) the Participant holds a position with duties
and responsibilities comparable (though not necessarily identical, in view of
the relative sizes of the Company and the entity involved in the Change in
Control) to the duties and responsibilities of the Participant prior to the
effective date of the Change in Control;

 

(ii)           a material reduction in the Participant’s
base salary (except for salary decreases
generally applicable to the Company’s other similarly situated employees);

 

(iii)         a change in the Participant’s business
location of more than 40 miles from the business location prior to such change,
except for required travel for the Company’s business to an extent
substantially consistent with Participant’s prior business travel obligations;

 

(iv)          a material breach by the Company of any
provisions of the Plan or any enforceable written agreement between the Company
and the Participant, and the Company fails to rescind or cure the conduct
giving rise to the event constituting such material breach within thirty (30)
days of receipt by the Company of written notice from the Participant informing
the Company of such material breach; or

 

(v)            any failure by the Company to obtain
assumption of the Plan by any successor or assign of the Company.

 

Notwithstanding
the foregoing, a resignation shall not be deemed a Constructive Termination
unless (x) the Participant provides the Company with written notice (the “Constructive Termination Notice”)
that the Participant believes that an event described in this Section 2(f) has
occurred, (y) the Constructive Termination Notice is given within ninety
(90) days following the date of the initial occurrence of the event, and (z) the
Company does not rescind or cure the conduct giving rise to the event described
in this Section 2(f) within thirty (30) days of receipt by the
Company of the Constructive Termination Notice.

 

(g)           “Covered Termination” means an Involuntary Termination Without
Cause or a Constructive Termination, either of which results in a “separation
from service” with the Company within the meaning of Treasury Regulation Section 1.409A-1(h) (without
regard to any permissible alternative definition thereunder) and occurs within
one (1) month prior to the effective date of a Change in Control or within
twelve (12) months following the effective date of a Change in Control.  Termination of employment of a Participant
due to death or disability shall not constitute a Covered Termination unless (i) a
resignation of employment by the Participant immediately prior to the
Participant’s death or disability would have qualified as a Constructive
Termination, and (ii) Participant shall have given the Company written
notice, prior to such resignation, of the event(s) that occurred or
circumstance(s) that existed that would have qualified as a Constructive
Termination.

 

(h)           “ERISA”  means the Employee Retirement Income
Security Act of 1974, as amended.

 

 

(i)            “Involuntary Termination
Without Cause”
means an involuntary termination of employment by the Company other than for
one of the following reasons:

 

(i)            the Participant’s
violation of any material provision of the Company’s standard agreement
relating to proprietary rights;

 

(ii)           the Participant participates in any act of theft or
dishonesty;

 

(iii)         the Participant participates in any immoral or illegal
act which has had or could reasonably be expected to have or had a detrimental
effect on the business or reputation of the Company; or

 

(iv)          any material failure by the Participant to use reasonable efforts to
perform reasonably requested tasks after written notice and a reasonable
opportunity to comply with such notice.

 

(j)            “Participant” means each of: Todd Simpson, the Company’s
President and Chief Executive Officer; William J. Tamblyn, the Company’s
Executive Vice President and Chief Financial Officer; and Lowell B. Trangsrud,
the Company’s Executive Vice President and Chief Operating Officer.

 

(k)           “Plan
Administrator”
means the Board or any committee duly authorized by the Board to administer the
Plan.  The Plan Administrator may, but is
not required to be, the Compensation Committee of the Board.  The Board may at any time administer the
Plan, in whole or in part, notwithstanding that the Board has previously
appointed a committee to act as the Plan Administrator.

 

SECTION 3.         ELIGIBILITY
FOR BENEFITS.

 

(a)           General Rules. 
Subject to the provisions set forth in this Section and Section 6,
in the event of a Covered Termination, the Company will provide the severance
benefits described in Section 4 of the Plan to the affected
Participant.  Nothing in the Plan is
intended to convey any benefit on a Participant prior to the occurrence of a
Change in Control.

 

(b)           Exceptions to Benefit
Entitlement.  A Participant, will not receive benefits
under the Plan (or will receive reduced benefits under the Plan) in the
following circumstances, as determined by the Company in its sole discretion:

 

(i)            The Participant has executed an individually
negotiated written contract or written agreement with the Company relating to
severance or change in control benefits that is in effect on his termination
date, in which case such Participant’s severance benefit, if any, shall be
governed by the terms of such individually negotiated written contract or
written agreement, whether or not such individually negotiated written contract
or written agreement expressly states that it is meant to supersede the Plan,
and shall be governed by this Plan only to the extent that the reduction
pursuant to Section 6(b) or Section 6(d) below does not
entirely eliminate benefits under this Plan.

 

(ii)           The Participant is offered immediate
reemployment by a successor to the Company or by a purchaser of its assets, as
the case may be, following a change in ownership of the Company or a sale of
all or substantially all the assets of a division or business unit of the
Company.  For purposes of the foregoing, “immediate reemployment” means that
the Participant’s employment with the successor to the Company or the purchaser
of its assets, as the case may be, results in uninterrupted employment such
that the Participant does not suffer a lapse in pay as a result of the change
in ownership of the Company or the sale of its assets; provided,
however, that reemployment in a role that would constitute a
Constructive Termination shall not constitute “immediate
reemployment” for purposes hereof.

 

(iii)         The Participant does not confirm in
writing that he or she shall be subject to the proprietary information or
confidentiality agreement previously entered into between Participant and the
Company.

 

 

(c)           Termination of Benefits.  A
Participant’s right to receive the payment of benefits under this Plan shall
terminate immediately if, at any time prior to or during the period for which
the Participant is receiving benefits hereunder, the Participant, without the
prior written approval of the Company:

 

(i)            willfully breaches a material provision
of the Participant’s proprietary information or confidentiality agreement with
the Company, as referenced in Section 3(b)(iii);

 

(ii)           owns, manages, operates, joins, controls
or participates in the ownership, management, operation or control of, is
employed by or connected in any manner with, any person, enterprise or entity
which is engaged in any business competitive with that of the Company; provided, however, that such restriction
will not apply to any passive investment representing an interest of less than
two percent (2%) of an outstanding class of publicly-traded securities of any
corporation or other entity or enterprise;

 

(iii)         encourages or solicits any of the Company’s
then current employees to leave the Company’s employ for any reason or
interferes in any other manner with employment relationships at the time
existing between the Company and its then current employees; or

 

(iv)          induces any of the Company’s then current
clients, customers, suppliers, vendors, distributors, licensors, licensees or
other third party to terminate their existing business relationship with the
Company or interferes in any other manner with any existing business
relationship between the Company and any then current client, customer,
supplier, vendor, distributor, licensor, licensee or other third party.

 

SECTION 4.         AMOUNT OF
BENEFITS.

 

(a)           Cash Severance Benefits. 
Each Participant who incurs a Covered Termination and was employed by
the Company at the position or level set forth below within one (1) month
immediately prior to such Covered Termination shall be entitled to receive,
subject to Section 6(c), a cash
severance benefit equal to the number of months of Base Salary plus the
Pro Rata Portion of Expected Executive Bonus set forth below.  Any cash severance benefits provided under
this Section 4(a) shall be paid pursuant to the provisions of Section 5.

 

	
  Participant

  	
   

  	
  Amount of Base Salary
  Cash Severance

  Benefit

  
	
  Todd Simpson,
  the Company’s President and

  Chief Executive Officer

  	
   

  	
  12 months

  
	
  William J.
  Tamblyn, the Company’s

  Executive Vice President and Chief Financial

  Officer

  	
   

  	
  12 months

  
	
  Lowell B.
  Trangsrud, the Company’s

  Executive Vice President and Chief Operating

  Officer

  	
   

  	
  12 months

  

 

“Pro
Rata Portion of Expected Executive Bonus” shall mean, with respect to a Participant, the pro
rata portion, calculated based upon the fraction obtained by subtracting from
365 the number of days remaining in the fiscal year and dividing that amount by
365, of the expected variable cash bonus for such Participant, as determined by
the Compensation Committee of the Board, pursuant to the Company’s variable
cash compensation plan established by the Compensation Committee of the Board
for the fiscal year in which the Covered Termination occurs, based upon the
Participant’s and the Company’s performance during such fiscal year up to the date
of the Covered Termination.

 

(b)           Accelerated Stock Award
Vesting of Stock Options.  If a Participant incurs a
Covered Termination, then effective as of the date of the Participant’s Covered
Termination, (i) the vesting and exercisability 

 

 

of all outstanding options to purchase the Company’s
common stock and other stock awards that were granted to the Participant on or
after September 1, 2003 but before a Change in Control, and are held by
the Participant on such date shall be accelerated in full, and (ii) any
reacquisition or repurchase rights held by the Company in respect of common
stock issued pursuant to any other stock award granted to the Participant by
the Company on or after September 1, 2003 but before a Change in Control
shall lapse.

 

(c)           Continued Medical Benefits. 
If a Participant incurs a Covered Termination and the Participant was
enrolled in a health, dental, or vision  plan sponsored
by the Company immediately prior to such Covered Termination, the Participant
may be eligible to continue coverage under such health, dental, or vision plan
(or to convert to an individual policy), at the time of the Participant’s
termination of employment, under the Consolidated Omnibus Budget Reconciliation
Act of 1985 (“COBRA”).  The Company will notify the Participant of
any such right to continue such coverage at the time of termination pursuant to
COBRA.  No provision of this Plan will
affect the continuation coverage rules under COBRA, except that the
Company’s payment, if any, of applicable insurance premiums will be credited as
payment by the Participant for purposes of the Participant’s payment required
under COBRA.  Therefore, the period
during which a Participant may elect to continue the Company’s health, dental,
or vision plan coverage at his or her own expense under COBRA, the length of
time during which COBRA coverage will be made available to the Participant, and
all other rights and obligations of the Participant under COBRA (except the
obligation to pay insurance premiums that the Company pays, if any) will be
applied in the same manner that such rules would apply in the absence of
this Plan.

 

If a Participant timely elects continued coverage
under COBRA, the Company shall pay the full amount of the Participant’s COBRA
premiums on behalf of the Participant for the Participant’s continued coverage
under the Company’s health, dental and vision plans, including coverage for the
Participant’s eligible dependents, during the twelve (12) months following a
Covered Termination (the “Severance Period”);  provided, however,
that if the Severance Period exceeds the length of time that the Participant is
entitled to coverage under COBRA (including any additional period under
analogous provisions of state law), the resulting or acquiring entity or
Transferee Corporation involved in the Change in Control, as applicable, shall
be required to provide health, dental and vision insurance coverage for the
Participant and his or her eligible dependents for any portion of the Severance
Period that exceeds the length of time that the Participant is entitled to
coverage under COBRA (including any additional period under analogous
provisions of state law), at a level of coverage that is substantially similar
to the continued coverage that the Participant and his or her eligible
dependents received under the Company’s health, dental and vision plans; provided, further, however, that no such
premium payments (or any other payments for medical, dental or vision coverage
by the Company) shall be made following the Participant’s death or the
effective date of the Participant’s coverage by a medical, dental or vision
insurance plan of a subsequent employer. 
Each Participant shall be required to notify the Company immediately if
the Participant becomes covered by a medical, dental or vision insurance plan
of a subsequent employer.  Upon the
conclusion of such period of insurance premium payments made by the Company,
the Participant will be responsible for the entire payment of premiums required
under COBRA for the duration of the COBRA period.

 

(d)           Other Employee Benefits.  All other benefits (such as health coverage, dental
coverage, vision coverage, life insurance, disability coverage, and 401(k) plan
coverage) shall terminate as of the Participant’s termination date (except to
the extent that a conversion privilege may be available thereunder).

 

SECTION 5.         TIME AND
FORM OF SEVERANCE PAYMENTS.

 

(a)           General Rules. 
Subject to Section 5(b), any cash severance benefit provided under Section 4(a) shall
be paid ratably over 12 months in installments pursuant to the Company’s
regularly scheduled payroll periods commencing as soon as practicable following
the effective date of a Participant’s Covered Termination and shall be subject
to all applicable withholding for federal, state and local taxes.  In the event of a Participant’s death prior
to receiving all installment payments of his or her cash severance benefit
under Section 4(a), any remaining installment payments shall be made to
the Participant’s estate on the same payment schedule as would have occurred
absent the Participant’s death.  In no
event shall payment of any Plan benefit be made prior to the effective date of
the Participant’s Covered Termination or prior to the effective date of the
release described in Section 6(a).

 

 

(b)           Application of Section 409A. 
All payments provided under this Plan are intended to constitute
separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2).  If Participant is a “specified employee” of
the Company or any affiliate thereof (or any successor entity thereto) within
the meaning of Section 409A(a)(2)(B)(i) of the Code on the date of a
Covered Termination, then the cash severance paid pursuant to Section 4(a) (the
“Payments”) shall be delayed until
the earlier of: (i) the date that is six (6) months after the date of
the Covered Termination, or (ii) the date of Participant’s death (such
date, the “Delayed Payment Date”), and
the Company (or the successor entity thereto, as applicable) shall (A) pay
to Participant a lump sum amount equal to the sum of the Payments that
otherwise would have been paid to Participant on or before the Delayed Payment
Date, without any adjustment on account of such delay, and (B) continue
the Payments in accordance with any applicable payment schedules set forth for
the balance of the period specified herein. 
Notwithstanding the foregoing, (i) Payments scheduled to be paid
from the date of a Covered Termination through March 15th of the calendar
year following such termination shall be paid as scheduled pursuant to the “short-term
deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)(4);
(ii) Payments scheduled to be paid following such March 15th shall be
paid as scheduled to the maximum extent permitted pursuant to an “involuntary
separation from service” as permitted by Treasury Regulation Section 1.409A-1(b)(9)(iii),
but in no event later than the last day of the second taxable year following
the taxable year of the Covered Termination; and (iii) any excess Payments
shall be subject to delay as provided in the previous sentence.  Benefits provided pursuant to Section 4(b) are
intended to be paid pursuant to the exception provided by Treasury Regulation Section 1.409A-1(b)(5)(v)(E).  Amounts paid pursuant to Section 4(c) are
intended to be paid pursuant to the exception provided by Treasury Regulation Section 1.409A-1(b)(9)(v)(B).

 

(c)           Parachute Payments.  Except as otherwise provided in an agreement between a
Participant and the Company, if any payment or benefit the Participant would receive
in connection with a Change in Control from the Company or otherwise (a “Payment”) would (i) constitute
a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but
for this sentence, be subject to the excise tax imposed by Section 4999 of
the Code (the “Excise Tax”), then such
Payment shall be equal to the Reduced Amount. 
The “Reduced Amount” shall be
either (x) the largest portion of the Payment that would result in no
portion of the Payment being subject to the Excise Tax, or (y) the largest
portion, up to and including the total, of the Payment, whichever amount, after
taking into account all applicable federal, state and local employment taxes,
income taxes, and the Excise Tax (all computed at the highest applicable marginal
rate), results in the Participant’s receipt, on an after-tax basis, of the
greater amount of the Payment notwithstanding that all or some portion of the
Payment may be subject to the Excise Tax. If a reduction in payments or
benefits constituting “parachute payments” is necessary so that the Payment
equals the Reduced Amount, reduction shall occur in a manner necessary to
provide the Participant with the greatest economic benefit.  If more than one manner of reduction of
payments or benefits necessary to arrive at the Reduced Amount yields the
greatest economic benefit, the payments and benefits shall be reduced pro rata.

 

SECTION 6.         LIMITATIONS
ON BENEFITS.

 

(a)           Release. 
In order to be eligible to receive benefits under the Plan, a
Participant also must execute a general waiver and release in substantially the
form attached hereto as Exhibit A or Exhibit B, as appropriate,
within the time frame (21 or 45 days) as is set forth in such release, and such
release must become effective in accordance with its terms.  The Company, in its sole discretion applying
reasonable business terms, may modify the form of the required release to
comply with applicable law and shall determine the form of the required
release, which may be incorporated into a termination agreement or other
agreement with the Participant.

 

(b)           Certain Reductions. 
The Company, in its sole discretion, shall have the authority to reduce
a Participant’s severance benefits, in whole or in part, by any other severance
benefits, pay in lieu of notice, or other similar benefits payable to the
Participant by the Company that become payable in connection with the
Participant’s termination of employment pursuant to (i) any applicable
legal requirement, including, without limitation, the Worker Adjustment and
Retraining Notification Act (the “WARN Act”),
(ii) a written employment or severance agreement with the Company, or (iii) any
Company policy or practice providing for the Participant to remain on the
payroll for a limited period of time after being given notice of the
termination of the Participant’s employment. 
The benefits provided under this Plan are intended to satisfy, in whole
or in part, any and all statutory obligations and other contractual obligations
of the Company that may arise out of a Participant’s termination of employment,
and the Plan Administrator shall so construe and implement the terms of the
Plan.  The Company’s decision to apply
such reductions to the severance benefits of one Participant and the amount of
such reductions shall in no way 

 

 

obligate the Company to apply the same reductions in
the same amounts to the severance benefits of any other Participant, even if
similarly situated.  In the Company’s
sole discretion, such reductions may be applied on a retroactive basis, with
severance benefits previously paid being recharacterized as payments pursuant
to the Company’s statutory or other contractual obligations.

 

(c)           Mitigation. 
Except as otherwise specifically provided herein, a Participant shall
not be required to mitigate damages or the amount of any payment provided under
this Plan by seeking other employment or otherwise, nor shall the amount of any
cash severance payments provided for under Section 4(a) of this Plan
be reduced by any compensation earned by a Participant as a result of
employment by another employer or any retirement benefits received by such
Participant after the date of the Participant’s termination of employment with
the Company.

 

(d)           Non-Duplication of Benefits. 
Except as otherwise specifically provided for herein, no Participant is
eligible to receive benefits under this Plan or pursuant to other contractual
obligations more than one time.  This
Plan is designed to provide certain severance pay and change in control
benefits to Participants pursuant to the terms and conditions set forth in this
Plan.  The payments pursuant to this Plan
are in addition to, and not in lieu of, any unpaid salary, bonuses or benefits
to which a Participant may be entitled for the period ending with the
Participant’s Covered Termination.

 

(e)           Indebtedness of
Participants.  If a Participant is indebted to the
Company on the effective date of his or her Covered Termination, the Company
reserves the right to offset any severance payments under the Plan by the
amount of such indebtedness.

 

SECTION 7.         RIGHT TO
INTERPRET PLAN; AMENDMENT AND TERMINATION.

 

(a)           Exclusive Discretion. 
The Plan Administrator shall have the exclusive discretion and authority
to establish rules, forms, and procedures for the administration of the Plan and
to construe and interpret the Plan and to decide any and all questions of fact,
interpretation, definition, computation or administration arising in connection
with the operation of the Plan, including, but not limited to, the eligibility
to participate in the Plan and amount of benefits paid under the Plan.  The rules, interpretations, computations and
other actions of the Plan Administrator shall be binding and conclusive on all
persons.

 

(b)           Amendment or Termination. 
This Plan shall terminate automatically on September 24, 2010,
unless extended by action of the Board or the Compensation Committee of the
Board.  The Company reserves the right to
amend or terminate this Plan or the benefits provided hereunder at any earlier
time; provided, however, that no
such amendment or termination shall occur following (i) the date three (3) months
prior to a Change in Control or (ii) a Covered Termination as to any
Participant who would be adversely affected by such amendment or termination
unless such Participant consents in writing to such amendment or
termination.  Any action amending or
terminating the Plan pursuant to the immediately preceding sentence shall be in
writing and executed by a duly authorized officer of the Company.  Unless
otherwise required by law, no approval of the shareholders of the Company shall
be required for any amendment or termination including any amendment that
increases the benefits provided under any option or other stock award.

 

SECTION 8.         NO IMPLIED
EMPLOYMENT CONTRACT.

 

The Plan shall not
be deemed (i) to give any employee or other person any right to be
retained in the employ of the Company or (ii) to interfere with the right
of the Company to discharge any employee or other person at any time, with or
without cause, which right is hereby reserved.

 

SECTION 9.         LEGAL
CONSTRUCTION.

 

This Plan shall be
governed by and construed under the laws of the State of California (without
regard to principles of conflict of laws), except to the extent preempted by
ERISA.

 

 

SECTION 10.       CLAIMS, INQUIRIES
AND APPEALS.

 

(a)                                  Applications for Benefits and
Inquiries.  Any application for benefits, inquiries about
the Plan or inquiries about present or future rights under the Plan must be
submitted to the Plan Administrator in writing by an applicant (or his or her
authorized representative).  The address
of the Plan Administrator is:

 

Ditech Networks, Inc.

Attn:  Vice President, Human Resources

825 E. Middlefield
Road

Mountain View, CA
94043

 

(b)                                  Denial of Claims. 
In the event that any application for benefits is denied in whole or in
part, the Plan Administrator must provide the applicant with written or
electronic notice of the denial of the application, and of the applicant’s
right to review the denial.  Any
electronic notice will comply with the regulations of the U.S. Department of
Labor.  The notice of denial will be set
forth in a manner designed to be understood by the applicant and will include
the following:

 

(1)           the specific reason or reasons for the denial;

 

(2)           references to the specific Plan
provisions upon which the denial is based;

 

(3)           a description of any additional
information or material that the Plan Administrator needs to complete the
review and an explanation of why such information or material is necessary; and

 

(4)           an explanation of the Plan’s review
procedures and the time limits applicable to such procedures, including a
statement of the applicant’s right to bring a civil action under Section 502(a) of
ERISA following a denial on review of the claim, as described in Section 10(d) below.

 

This notice of
denial will be given to the applicant within ninety (90) days after the Plan
Administrator receives the application, unless special circumstances require an
extension of time, in which case, the Plan Administrator has up to an additional
ninety (90) days for processing the application.  If an extension of time for processing is
required, written notice of the extension will be furnished to the applicant
before the end of the initial ninety (90) day period.

 

This notice of
extension will describe the special circumstances necessitating the additional
time and the date by which the Plan Administrator is to render its decision on
the application.

 

(c)                                  Request for a Review. 
Any person (or that person’s authorized representative) for whom an
application for benefits is denied, in whole or in part, may appeal the denial
by submitting a request for a review to the Plan Administrator within sixty
(60) days after the application is denied. 
A request for a review shall be in writing and shall be addressed to:

 

Ditech Networks, Inc.

Attn:  Vice President, Human Resources

825 E. Middlefield
Road

Mountain View, CA
94043

 

A request for
review must set forth all of the grounds on which it is based, all facts in
support of the request and any other matters that the applicant feels are
pertinent.  The applicant (or his or her
representative) shall have the opportunity to submit (or the Plan Administrator
may require the applicant to submit) written comments, documents, records, and
other information relating to his or her claim. 
The applicant (or his or her representative) shall be provided, upon
request and free of charge, reasonable access to, and copies of, all documents,
records and other 

 

 

information
relevant to his or her claim.  The review
shall take into account all comments, documents, records and other information
submitted by the applicant (or his or her representative) relating to the
claim, without regard to whether such information was submitted or considered
in the initial benefit determination.

 

(d)           Decision on Review. 
The Plan Administrator will act on each request for review within sixty
(60) days after receipt of the request, unless special circumstances require an
extension of time (not to exceed an additional sixty (60) days), for processing
the request for a review.  If an
extension for review is required, written notice of the extension will be
furnished to the applicant within the initial sixty (60) day period.  This notice of extension will describe the
special circumstances necessitating the additional time and the date by which
the Plan Administrator is to render its decision on the review.  The Plan Administrator will give prompt,
written or electronic notice of its decision to the applicant. Any electronic
notice will comply with the regulations of the U.S. Department of Labor.  In the event that the Plan Administrator
confirms the denial of the application for benefits in whole or in part, the
notice will set forth, in a manner calculated to be understood by the applicant,
the following:

 

(1)           the specific reason or reasons for the denial;

 

(2)           references to the specific Plan provisions upon which
the denial is based;

 

(3)           a statement that the applicant is entitled to receive,
upon request and free of charge, reasonable access to, and copies of, all
documents, records and other information relevant to his or her claim; and

 

(4)           a statement of the applicant’s right to bring a civil
action under Section 502(a) of ERISA.

 

(e)           Rules and Procedures. 
The Plan Administrator will establish rules and procedures,
consistent with the Plan and with ERISA, as necessary and appropriate in
carrying out its responsibilities in reviewing benefit claims.  The Plan Administrator may require an
applicant who wishes to submit additional information in connection with an
appeal from the denial of benefits to do so at the applicant’s own expense.

 

(f)            Exhaustion of Remedies. 
No legal action for benefits under the Plan may be brought until the
applicant (i) has submitted a written application for benefits in
accordance with the procedures described by Section 10(a) above, (ii) has
been notified by the Plan Administrator that the application is denied, (iii) has
filed a written request for a review of the application in accordance with the
appeal procedure described in Section 10(c) above, and (iv) has
been notified that the Plan Administrator has denied the appeal.  Notwithstanding the foregoing, if the Plan
Administrator does not respond to an applicant’s claim or appeal within the
relevant time limits specified in this Section 10, the applicant may bring
legal action for benefits under the Plan pursuant to Section 502(a) of
ERISA.

 

SECTION 11.       BASIS OF
PAYMENTS TO AND FROM PLAN.

 

All benefits under
the Plan shall be paid by the Company. 
The Plan shall be unfunded, and benefits hereunder shall be paid only
from the general assets of the Company.

 

SECTION 12.       OTHER PLAN
INFORMATION.

 

(a)                                  Employer and Plan Identification
Numbers.  The Employer Identification Number assigned
to the Company (which is the “Plan Sponsor” as that term is used in ERISA) by
the Internal Revenue Service is 94-2935531. 
The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the
instructions of the Internal Revenue Service is 520.

 

(b)                                  Ending Date for Plan’s Fiscal
Year.  The date of the end of the fiscal year for
the purpose of maintaining the Plan’s records is April 30.

 

 

(c)                                  Agent for the Service of Legal
Process.  The agent for the service of legal process
with respect to the Plan is:

 

Ditech Networks, Inc.

Attn:  Vice President, Human Resources

825 E. Middlefield
Road

Mountain View, CA
94043

 

(d)                                  Plan Sponsor and Administrator. 
The “Plan Sponsor” and the “Plan Administrator” of the Plan is:

 

Ditech Networks, Inc.

825 E. Middlefield
Road

Mountain View, CA
94043

 

The
Plan Sponsor’s and Plan Administrator’s telephone number is (650)
623-1300.  The Plan Administrator is the
named fiduciary charged with the responsibility for administering the Plan.

 

SECTION 13.       STATEMENT
OF ERISA RIGHTS.

 

Participants in this Plan
(which is a welfare benefit plan sponsored by Ditech Networks, Inc.) are
entitled to certain rights and protections under ERISA.  If you are a Participant, you are considered
a participant in the Plan for the purposes of this Section 13 and, under
ERISA, you are entitled to:

 

Receive
Information About Your Plan and Benefits

 

(a)                                  Examine,
without charge, at the Plan Administrator’s office and at other specified
locations, such as worksites, all documents governing the Plan and a copy of
the latest annual report (Form 5500 Series), if applicable, filed by the
Plan with the U.S. Department of Labor and available at the Public Disclosure Room of
the Employee Benefits Security Administration;

 

(b)                                  Obtain,
upon written request to the Plan Administrator, copies of documents governing
the operation of the Plan and copies of the latest annual report (Form 5500
Series), if applicable, and an updated (as necessary) Summary Plan
Description.  The Administrator may make
a reasonable charge for the copies; and

 

(c)                                  Receive a summary of the Plan’s annual
financial report, if applicable.  The
Plan Administrator is required by law to furnish each participant with a copy
of this summary annual report.

 

Prudent
Actions By Plan Fiduciaries

 

In
addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit
plan.  The people who operate the Plan,
called “fiduciaries” of the Plan, have a duty to do so prudently and in the
interest of you and other Plan participants and beneficiaries.  No one, including your employer, your union
or any other person, may fire you or otherwise discriminate against you in any
way to prevent you from obtaining a Plan benefit or exercising your rights
under ERISA.

 

Enforce
Your Rights

 

If your claim for a Plan
benefit is denied or ignored, in whole or in part, you have a right to know why
this was done, to obtain copies of documents relating to the decision without
charge, and to appeal any denial, all within certain time schedules.

 

Under ERISA, there are
steps you can take to enforce the above rights. 
For instance, if you request a copy of Plan documents or the latest
annual report from the Plan, if applicable, and do not receive them within 30
days, you may file suit in a Federal court. 
In such a case, the court may require the Plan Administrator to provide
the 

 

 

materials and pay you up
to $110 a day until you receive the materials, unless the materials were not
sent because of reasons beyond the control of the Plan Administrator.

 

If you have a claim for
benefits which is denied or ignored, in whole or in part, you may file suit in
a state or Federal court.

 

If you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in a Federal court.  The court will decide who should pay court
costs and legal fees.  If you are
successful, the court may order the person you have sued to pay these costs and
fees.  If you lose, the court may order
you to pay these costs and fees, for example, if it finds your claim is
frivolous.

 

Assistance
With Your Questions

 

If you have any questions
about the Plan, you should contact the Plan Administrator.  If you have any questions about this
statement or about your rights under ERISA, or if you need assistance in
obtaining documents from the Plan Administrator, you should contact the nearest
office of the Employee Benefits Security Administration, U.S. Department of
Labor, listed in your telephone directory or the Division of Technical
Assistance and Inquiries, Employee Benefits Security Administration, U.S.
Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.  You may also obtain certain publications about
your rights and responsibilities under ERISA by calling the publications
hotline of the Employee Benefits Security Administration.

 

SECTION 14.       GENERAL PROVISIONS.

 

(a)                                  Notices.  Any notice, demand or request required or permitted to
be given by either the Company or a Participant pursuant to the terms of this
Plan shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties, in the case of the Company, at the address set forth
in Section 10(a) and, in the case of a Participant, at the address as
set forth in the Company’s employment file maintained for the Participant as
previously furnished by the Participant or such other address as a party may
request by notifying the other in writing.

 

(b)                                  Transfer and Assignment.  The rights and obligations of a Participant under this
Plan may not be transferred or assigned without the prior written consent of
the Company.  This Plan shall be binding
upon any surviving entity resulting from a Change in Control and upon any other
person who is a successor by merger, acquisition, consolidation or otherwise to
the business formerly carried on by the Company without regard to whether or
not such person or entity actively assumes the obligations hereunder.

 

(c)                                  Waiver.  Any Party’s failure to enforce any provision or
provisions of this Plan shall not in any way be construed as a waiver of any
such provision or provisions, nor prevent any Party from thereafter enforcing
each and every other provision of this Plan. 
The rights granted the Parties herein are cumulative and shall not
constitute a waiver of any Party’s right to assert all other legal remedies
available to it under the circumstances.

 

(d)                                  Severability.  Should any provision of this Plan be declared or
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired.

 

(e)                                  Section Headings.  Section headings in this Plan are included for
convenience of reference only and shall not be considered part of this Plan for
any other purpose.

 

 

SECTION 15.       EXECUTION.

 

To record the adoption of the Plan as set forth
herein, Ditech Networks, Inc. has caused its duly authorized officer to
execute the same as of the Effective Date.

 

	
   

  	
  DITECH
  NETWORKS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William J. Tamblyn

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice
  President and Chief Financial Officer

  
				

 

 

EXHIBIT A

 

RELEASE AGREEMENT

 

I understand and agree completely to the terms set
forth in the Ditech Networks, Inc. Amended and Restated Change in Control
Severance Benefit Plan (the “Plan”).

 

I understand that
this Release, together with the Plan, constitutes the complete, final and
exclusive embodiment of the entire agreement between the Company and me with
regard to the subject matter hereof.  I
am not relying on any promise or representation by the Company that is not
expressly stated therein.  Certain
capitalized terms used in this Release are defined in the Plan.

 

I hereby confirm
my obligations under the Company’s proprietary information and inventions
agreement.

 

Except as
otherwise set forth in this Release, I hereby generally and completely release
the Company and its parents, subsidiaries, successors, predecessors, affiliates
and assigns, and its and their current and former partners, members, directors,
officers, employees, shareholders, agents, attorneys, accountants, insurers,
affiliates and assigns, from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related to events,
acts, conduct, or omissions occurring at any time prior to and including the
date I sign this Release.  This general
release includes, but is not limited to: (a) all claims arising out of or
in any way related to my employment with the Company or the termination of that
employment; (b) all claims related to my compensation or benefits,
including salary, bonuses, commissions, vacation pay, expense reimbursements,
severance pay, fringe benefits, stock, stock options, or any other ownership
interests in the Company; (c) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing;
(d) all tort claims, including claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (e) all
federal, state, and local statutory claims, including claims for
discrimination, harassment, retaliation, attorneys’ fees, or other claims
arising under the federal Civil Rights Act of 1964 (as amended), the federal
Americans with Disabilities Act of 1990 (as amended), the federal Age
Discrimination in Employment Act (as amended) (“ADEA”), the federal Employee
Retirement Income Security Act of 1974 (as amended), and the California Fair
Employment and Housing Act (as amended); provided, however, that nothing in this paragraph shall be
construed in any way to release the Company from its obligation to indemnify me
pursuant to agreement or applicable law.

 

I acknowledge that
I am knowingly and voluntarily waiving and releasing any rights I may have
under the ADEA, and that the consideration given under the Plan for the waiver
and release in the preceding paragraph hereof is in addition to anything of
value to which I was already entitled.  I
further acknowledge that I have been advised by this writing, as required by
the ADEA, that:  (a) my waiver and release
do not apply to any rights or claims that may arise after the date I sign this
Release; (b) I
should consult with an attorney prior to signing this Release (although I may
choose voluntarily not do so);
(c) I have twenty-one (21) days to consider this Release
(although I may choose voluntarily to sign this Release earlier); (d) I have seven
(7) days following the date I sign this Release to revoke the Release by providing
written notice to an officer of the Company; and (e) this Release shall not be
effective until the date upon which the revocation period has expired, which
shall be the eighth day after I sign this Release.

 

I acknowledge that
I have read and understand Section 1542 of the California Civil Code which
reads as follows: “A general release does
not extend to claims which the creditor does not know or suspect to exist in
his favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.”  I hereby expressly waive and relinquish all
rights and benefits under that section and any law of any jurisdiction of
similar effect with respect to my release of any claims hereunder.

 

I acknowledge that
to become effective, I must sign and return this Release to the Company so that
it is received not later than twenty-one (21) days following the date it is
provided to me.

 

	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  
				

 

 

EXHIBIT B

 

RELEASE AGREEMENT

 

I understand
and agree completely to the terms set forth in the Ditech Networks, Inc.
Amended and Restated Change in Control Severance Benefit Plan (the “Plan”).

 

I understand that
this Release, together with the Plan, constitutes the complete, final and
exclusive embodiment of the entire agreement between the Company and me with
regard to the subject matter hereof.  I
am not relying on any promise or representation by the Company that is not
expressly stated therein.  Certain
capitalized terms used in this Release are defined in the Plan.

 

I hereby confirm
my obligations under the Company’s proprietary information and inventions
agreement.

 

Except as
otherwise set forth in this Release, I hereby generally and completely release
the Company and its parents, subsidiaries, successors, predecessors, affiliates
and assigns, and its and their current and former partners, members, directors,
officers, employees, shareholders, agents, attorneys, accountants, insurers,
affiliates and assigns, from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related to events,
acts, conduct, or omissions occurring at any time prior to and including the
date I sign this Release.  This general
release includes, but is not limited to: (a) all claims arising out of or
in any way related to my employment with the Company or the termination of that
employment; (b) all claims related to my compensation or benefits,
including salary, bonuses, commissions, vacation pay, expense reimbursements,
severance pay, fringe benefits, stock, stock options, or any other ownership
interests in the Company; (c) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing;
(d) all tort claims, including claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (e) all
federal, state, and local statutory claims, including claims for
discrimination, harassment, retaliation, attorneys’ fees, or other claims arising
under the federal Civil Rights Act of 1964 (as amended), the federal Americans
with Disabilities Act of 1990 (as amended), the federal Age Discrimination in
Employment Act (as amended) (“ADEA”), the federal Employee Retirement Income
Security Act of 1974 (as amended), and the California Fair Employment and
Housing Act (as amended); provided, however, that nothing in this paragraph shall be
construed in any way to release the Company from its obligation to indemnify me
pursuant to agreement or applicable law.

 

I acknowledge that
I am knowingly and voluntarily waiving and releasing any rights I may have
under the ADEA, and that the consideration given under the Plan for the waiver
and release in the preceding paragraph hereof is in addition to anything of
value to which I was already entitled.  I
further acknowledge that I have been advised by this writing, as required by
the ADEA, that:  (a) my waiver and release
do not apply to any rights or claims that may arise after the date I sign this
Release; (b) I
should consult with an attorney prior to signing this Release (although I may
choose voluntarily not to do so); (c) I have forty-five (45) days to
consider this Release (although I may choose voluntarily to sign this Release
earlier); (d) I
have seven (7) days following the date I sign this Release to revoke the
Release by providing written notice to an office of the Company; (e) this Release
shall not be effective until the date upon which the revocation period has
expired, which shall be the eighth day after I sign this Release; and (f) I
have received with this Release a detailed list of the job titles and ages of
all employees who were terminated in this group termination and the ages of all
employees of the Company in the same job classification or organizational unit
who were not terminated.

 

I acknowledge that
I have read and understand Section 1542 of the California Civil Code which
reads as follows: “A general release does
not extend to claims which the creditor does not know or suspect to exist in
his favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.”  I hereby expressly waive and relinquish all
rights and benefits under that section and any law of any jurisdiction of similar
effect with respect to my release of any claims hereunder.

 

I acknowledge that
to become effective, I must sign and return this Release to the Company so that
it is received not later than forty-five (45) days following the date it is
provided to me.

 

	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

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