EXHIBIT 10.3
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of January 1, 1997 (the
"Agreement"), by and between DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC., a
South Dakota cooperative association (the "Corporation"), and XXXXXX X.
XXXXX ("Employee").
Employee currently serves as the General Manger/Chief Executive
Officer of the Corporation, and upon conversion to a business corporation
will serve as President/Chief Executive Officer of the Corporation. To
provide Employee certain financial and job security as an inducement to
securing the continued services and employment of Employee, the Board of
Directors of the Corporation believes the interests of the Corporation are
best served by entering into this Agreement with Employee.
ACCORDINGLY, the parties agree as follows:
SECTION 1. EMPLOYMENT AND DUTIES. The Corporation hereby employs
Employee, and Employee hereby accepts employment, on the terms and subject
to the conditions set forth in this Agreement. Employee shall be employed
as an executive officer of the Corporation. If by reason of a
consolidation, merger, combination or other reorganization of the
Corporation the business of the Corporation is continued under another
corporate entity, Employee shall be employed in substantially the same
capacity with that other entity with the same authority and responsibility
as he enjoyed at the time of the transaction. During the period of his
employment by the Corporation, Employee shall devote substantially his
entire business time and energy to the business and affairs of the
Corporation and shall use his reasonable best efforts to perform his duties
as an executive officer of the Corporation.
SECTION 2. EFFECTIVE DATE AND TERM OF EMPLOYMENT. The term of
Employee's employment under this Agreement shall begin on January 1, 1997
(the "Effective Date") and continue until the Expiration Date, unless
terminated earlier pursuant to Section 4 of this Agreement. The initial
Expiration Date shall be the third anniversary of the Effective Date,
provided, however, that:
(a) On each anniversary of the Effective Date, the Expiration
Date shall automatically be extended one (1) year, to restore the
unexpired term to three (3) years, unless either the Corporation or
the Employee shall notify the other in writing, not less than 30 days
before such anniversary date, that it or he does not choose to further
extend the term of Employment under this Agreement. Once such notice
is given, Employee's Employment under this Agreement shall continue
until the Expiration Date (subject to Section 4), but there shall be
no further extensions of the Expiration Date, except under
Subparagraph 2(b) below or by written agreement of the parties.
(b) If a Change in Control (as defined in Section 6 of this
Agreement) occurs before the initial or any extended Expiration Date,
the Expiration Date shall be automatically extended until the end of
the thirty-sixth (36th) month following that in which the Change of
Control occurs, if the Employee is still employed on the date of the
Change in Control or if the Corporation, in contemplation of a Change
in Control, has terminated the Employee's Employment or taken actions
constituting "Good Reason" (under Section 4(d)).
SECTION 3. COMPENSATION. In consideration for his services, Employee
shall be paid a monthly salary, annual bonuses and other fringe benefits
during his Employment under this Agreement, as determined from time to time
by the Board of Directors, but in at least the following minimum amounts.
(a) Employee's salary shall be at least $135,000 per year, less
normal withholding. The Board of Directors shall consider Employee
for a salary increase annually, but shall not be required to increase
Employee's salary.
(b) Employee shall be entitled to an Annual Bonus in the amount
provided in Appendix A to this Agreement, less normal withholding.
(c) Employee shall be entitled to the normal fringe benefits
provided to the Corporation's salaried employees, and shall be
entitled at a minimum to comprehensive employee and dependent health
coverage and to short- and long-term disability coverage.
(d) Employee shall be entitled to 25 days' vacation leave with
pay continuation each year.
(e) Employee shall be entitled to reimbursement for all
reasonable business and travel expenses (including transportation,
lodging, meals, entertainment and other incidental expenses) related
to his activities for the benefit of the Corporation, including but
not limited to professional licensing and professional and business
organization or association fees and dues, expenses incurred in
attending professional association and business functions and
meetings, and seminar or other educational activities. Mileage shall
be paid at the Internal Revenue Service (IRS) rate for all business
miles driven; no mileage shall be paid, however, for normal home to
office commuting.
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SECTION 4. TERMINATION.
(a) DEATH. If Employee, while in the employ of the Corporation,
dies before the Expiration Date, the Corporation shall continue to pay
compensation at the rate then in effect pursuant to Section 3 above
until the end of the third month following the date of death, after
which no further compensation will be paid except for any vested
benefits accrued under Appendix A or under the terms of any fringe
benefit programs.
(b) DISABILITY. If Employee is unable to substantially perform
the duties described in Section 1 above for a period of nine (9)
successive months by reason of illness or other similar incapacity or
disability, Employee's Employment under this Agreement may be
terminated as of the end of any calendar month following the 9-month
period (i) by the Corporation based upon a determination that Employee
is disabled and by notice in writing to that effect to Employee, or
(ii) by Employee by his resignation in writing to the Corporation.
Any determination as to whether Employee is disabled shall be made by
a licensed physician selected by agreement of the Corporation and
Employee or, if they cannot agree upon a physician, then by a majority
of a panel of three (3) licensed physicians, one selected by the
Corporation, one selected by Employee, and the third selected by the
first two. If Employee's Employment under this Agreement is
terminated pursuant to this Subsection 4(b), the Corporation shall
continue to pay compensation at the rate then in effect pursuant to
Section 3 above until the end of the month following the date of
termination, after which no further compensation will be paid except
for any vested benefits accrued under Appendix A or under the terms of
any fringe benefit programs.
(c) TERMINATION FOR CAUSE. The Corporation shall have the right
to terminate Employee's employment for "Cause." For purposes of this
Agreement, "Cause" shall be limited to (i) the willful and continued
failure by Employee to substantially perform the duties described in
Section 1 above (other than any failure resulting from an illness or
other similar incapacity or disability), after a demand for
substantial performance is delivered to Employee on behalf of the
Board of Directors of the Corporation that specifically identifies the
manner in which it is alleged that Employee has not substantially
performed his duties, or (ii) the willful engaging by Employee in
misconduct that is materially injurious to the Corporation, monetarily
or otherwise. For purposes of this subsection, no act or failure to
act on Employee's part shall be considered "willful" unless done, or
omitted to be done, by Employee not in good faith and without
reasonable belief that his action or omission was in the best
interests of the Corporation. Notwithstanding the foregoing, Employee
shall not be deemed to have been terminated for Cause unless and until
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there has been delivered to him a copy of a notice of termination on
behalf of the Board of Directors of the Corporation after reasonable
notice to him and an opportunity for him, together with counsel, to be
heard before the board, finding that in the reasonable opinion of at
least two-thirds (2/3) of the entire Board of Directors, Employee was
guilty of conduct set forth above in clauses (i) or (ii) of the second
sentence of this Subsection 4(c) and describing the board's findings
in detail. If the Employee's Employment is terminated under this
Subsection 4(c), no further compensation will be paid, except for
salary accrued through the date of termination and any vested benefits
accrued under the terms of any fringe benefit program.
(d) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee shall
have the right to terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with Employee's
present positions, responsibilities and status with the
Corporation or a change in Employee's reporting responsibilities,
titles or offices as presently in effect, or any removal of
Employee from or any failure to reelect Employee to any of those
positions, except in connection with the termination of
Employee's employment by the Corporation due to the death of
Employee, the disability of Employee as determined under
Subsection 4(b) above, or Cause as determined under
Subsection 4(c) above, or by Employee other than for Good Reason;
(ii) any material breach by the Corporation of this
Agreement or any other agreement between the Employee and the
Corporation;
(iii) the relocation of the Corporation's principal
executive offices to a location outside a 60-mile radius from
Irene, South Dakota, or the Corporation's requiring Employee to
be based anywhere other than the Corporation's principal
executive offices except for required travel on the Corporation's
business to an extent substantially consistent with Employee's
present business travel obligations; or
(iv) the failure of the Corporation to obtain the agreement
of any successor to assume and perform this Agreement as
contemplated in Section 9 below.
Provided, however, that Employee shall not be entitled to
terminate his Employment for Good Reason under this Section 4(d)
unless the Employee has first given the Corporation written notice of
the occurrence constituting "Good Reason" and the Corporation has
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failed to remedy such occurrence within a reasonable time not to
exceed ten (10) days. If Employee terminates his Employment under
this Agreement for Good Reason, Employee will be entitled to Severance
Pay as provided under Section 5.
(e) TERMINATION BY NOTICE. The Corporation and Employee shall
each have the right to terminate their employment relationship for
reasons other than those provided in this Section 4 by giving thirty
(30) days' written notice to the other party specifying the date of
termination; provided, however, that if the Corporation terminates
Employee's employment other than as allowed under Subsection 4(a), (b)
or (c) above, the Corporation will pay Employee Severance Pay as
provided in Section 5 below.
Termination of Employee's employment shall not affect Employee's
rights under Sections 7 and 8 of this Agreement.
SECTION 5. SEVERANCE PAY. If Employee's Employment under this
Agreement is terminated by the Corporation before the Expiration Date other
than as provided under Subsection 4(a), (b) or (c) above, or if Employee's
Employment under this Agreement is terminated by Employee before the
Expiration Date for "Good Reason" under Subsection 4(d) above, the Employee
shall be entitled to receive Severance Pay for the "Compensation Period,"
defined as the period beginning on the employment termination date and
ending on the Expiration Date. "Severance Pay" means the following:
(a) monthly severance payments that shall continue for the term
of the Compensation Period. The amount of each monthly payment shall
be equal to:
(i) one-twelfth (1/12th) of Employee's annual salary for
the last full month immediately preceding his termination plus;
(ii) one-twelfth (1/12) of Employee's Annual Bonus for the
year immediately preceding that in which the termination occurs,
adjusted upward at each year end during the Compensation Period
if the actual Annual Bonus would be greater than such monthly
payments in lieu of bonus.
If the termination of Employment entitling Employee to Severance
Pay occurs after a Change in Control (as defined in Section 6), or if
the Corporation fails to timely pay any Severance Pay, then instead of
monthly payments under (i) and (ii) above, the Corporation shall
immediately pay Employee the sum of all of such monthly payments for
the entire Compensation Period, in one lump sum).
(b) reasonable outplacement services selected by Employee;
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(c) during the Compensation Period, the Corporation shall
maintain in full force and effect for the continued benefit of
Employee each employee welfare benefit plan (as such term is defined
in the Employment Retirement Income Security Act of 1974, as amended)
in which Employee was entitled to participate immediately before the
date of termination. If Employee's participation in any plan is
barred or otherwise prevented, the Corporation shall provide Employee
with benefits substantially similar to and not less favorable than the
benefits that Employee would otherwise be entitled to receive under
the plan; and
(d) any restricted stock previously granted to Employee shall be
immediately fully vested, and the Corporation shall enable Employee to
immediately exercise in full all stock options, stock appreciation
rights, or similar rights or options, notwithstanding the fact that
the options might not be exercisable in full at that time under their
terms, or under the terms of any plan, agreement or similar
arrangement under which they were granted.
Employee shall not be required to mitigate the amount of any
payments of severance benefits provided in this Section 5 by seeking
other employment or otherwise, nor shall the amount of any payment
provided in this Section 5 be reduced by any compensation earned by
Employee as a result of his employment with another employer after
termination, or otherwise. If Employee dies after a termination of
employment entitling Employee to Severance Pay, Severance Pay will
continue, but will be paid to Employee's estate.
SECTION 6. CHANGE IN CONTROL. For purposes of this Agreement, the
following definitions shall apply:
(a) "Change in Control" shall mean (i) the failure of the
Continuing Directors at any time to constitute at least a majority of
the members of the Corporation's Board of Directors; (ii) the
acquisition by any Person (as defined in Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 (the "Act")) other than an
Excluded Holder of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Act) of twenty percent (20%) or more of
the outstanding Common Stock or the combined voting power of the
Corporation's outstanding securities entitled to vote generally in the
election of directors; (iii) the approval by the shareholders of the
Corporation of a reorganization, merger or consolidation, unless with
or into a Permitted Successor; or (iv) the approval by the
shareholders of the Corporation of a complete liquidation or
dissolution of the Corporation or the sale or disposition of all or
substantially all of the assets of the Corporation other than to a
Permitted Successor.
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(b) "Continuing Directors" mean the individuals constituting the
Corporation's Board of Directors as of the date of this Agreement and
any subsequent directors whose election or nomination for election by
the Corporation's shareholders was approved by a vote of two-thirds
(2/3) of the individuals who are then Continuing Directors, but
specifically excluding any individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as the term is used in Rule 14a-11 of Regulation 14A
promulgated under the Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the
Corporation's Board of Directors.
(c) "Excluded Holder" means the Corporation, a Subsidiary or any
employee benefit plan (i.e., any plan or program established by the
Corporation or a Subsidiary for the compensation or benefit of
employees of the Corporation or any of its Subsidiaries) of the
Corporation or a Subsidiary or any trust holding Common Stock or other
securities pursuant to the terms of an employee benefit plan.
(d) "Permitted Successor" means a corporation which, immediately
following the consummation of a transaction specified in clauses (iii)
and (iv) of the definition of "Change in Control" above, satisfies
each of the following criteria: (A) sixty percent (60%) or more of
the outstanding common stock of the corporation and the combined
voting power of the outstanding securities of the corporation entitled
to vote generally in the election of directors (in each case
determined immediately following the consummation of the applicable
transaction) is beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners of the
Corporation's outstanding Common Stock and outstanding securities
entitled to vote generally in the election of directors (respectively)
immediately prior to the applicable transaction, (B) no Person other
than an Excluded Holder beneficially owns, directly or indirectly,
twenty percent (20%) or more of the outstanding common stock of the
corporation or the combined voting power of the outstanding securities
of the corporation entitled to vote generally in the election of
directors (for these purposes the term Excluded Holder shall include
the corporation, any Subsidiary of the corporation and any employee
benefit plan of the corporation or any such Subsidiary or any trust
holding common stock or other securities of the corporation pursuant
to the terms of any such employee benefit plan), and (C) at least a
majority of the Board of Directors is comprised of Continuing
Directors.
(e) "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization or other entity or governmental body.
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(f) "Subsidiary" means any corporation or other entity of which
fifty percent (50%) or more of the outstanding voting stock or voting
ownership interest is directly or indirectly owned or controlled by
the Corporation or by one or more Subsidiaries of the Corporation.
SECTION 7. EXCISE TAX - AFTER TAX REIMBURSEMENT. Notwithstanding any
other provision of this Agreement, if Employee is required to pay any
excise tax under 4999 of the Internal Revenue Code, or any successor
provision, by reason of his receipt of any payments or benefits from the
Corporation or any Subsidiary (including, but not limited to, any payments
under this Agreement, any payments made to Employee as a director, officer
or employee or former director, officer or employee of the Corporation or
any subsidiary, and any amounts attributable to the grant, exercise or
vesting of stock options granted by the Corporation), then the Corporation
will make an additional payment or payments to Employee sufficient to
reimburse Employee, after all federal, state and local income or excise
taxes, for the amount of excise tax under 4999, and any interest or
penalties incurred with regard to such excise tax. Such payment will be
made to Employee using the principles and procedures in Appendix B to this
Agreement. Employee shall be entitled to the payments provided by this
Subsection 7 notwithstanding any other provision of this Agreement, and
whether the events giving rise to Employee's right to payment under this
Subsection occur before or after the Expiration Date, or before or after
any termination of Employee's employment.
SECTION 8. LEGAL FEES AND EXPENSES. The Corporation shall reimburse
Employee for all reasonable legal fees and expenses incurred by Employee,
regardless of Employee's choice of counsel, in seeking to enforce any right
or benefit provided by this Agreement, provided that the Employee prevails
in his contentions. If Employee prevails in some contentions but not
others, or prevails in part or not completely, reimbursement shall be in
proportion to the degree of success. Upon the request of Employee, the
Corporation shall establish an irrevocable letter of credit drawn on a bank
reasonably acceptable to Employee for the contemporaneous payment of fees
and expenses as provided in this Section 8. This payment shall be made to
Employee or, at Employee's option, directly to his counsel. If, however,
Employee is ultimately found entitled to reimbursement in less than the
amount paid contemporaneously, Employee shall immediately repay the balance
to the Corporation. The Corporation's obligations under this paragraph
shall continue regardless of whether such fees and expenses are incurred
before or after the Expiration Date, or before or after any termination of
Employee's employment.
SECTION 9. SUCCESSORS; BINDING AGREEMENT.
(a) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Corporation,
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by agreement in form and substance satisfactory to Employee, to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required
to perform it if no succession had taken place. Failure of the
Corporation to obtain the agreement before the effectiveness of any
succession shall be a breach of this Agreement and shall entitle
Employee to compensation from the Corporation in the same amount and
on the same terms as Employee would be entitled under this Agreement
if Employee terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
succession becomes effective shall be deemed the date of termination.
As used in this Agreement, "The Corporation" shall mean the
Corporation and any successor to the Corporation's business and/or
assets as described above which executes and delivers the agreement
provided for in this Section 8 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Employee should die while any amount would still be
payable to him under this Agreement if he had continued to live, all
of those amounts, unless otherwise provided in this Agreement, shall
be paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee or, if there is no designee, to his estate.
SECTION 10. RESTRICTIONS ON COMPETITION. Employee will not, while
employed under this Agreement or while receiving Severance Pay and before a
Change in Control, compete with the Corporation or become employed by or
render services or advice to any competitor of the Corporation, defined as
any person or entity selling any product or offering any service sold or
offered by the Corporation in any market area where the Corporation is
providing such goods or services or planning to do so (or any person or
entity seeking Employee's services in contemplation of doing so). This
restriction, however, shall not prohibit Employee, after any termination of
his Employment with the Corporation, from rendering professional legal or
accounting services as part of an independent law or accounting practice,
nor shall this provision apply after the date that Employee notifies the
Corporation in writing that he waives any right to further Severance Pay
under Section 5.
SECTION 11. NOTICE. Notices and all other communications provided
for in this 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, addressed to Employee at his
last address on file with the Corporation, or to the Corporation at its
principal executive offices to the attention of the Board of Directors of
the Corporation, or to any other address that either party furnishes to the
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other in writing in accordance with this section, except that notice of
change of address shall be effective only upon receipt.
SECTION 12. MISCELLANEOUS. This Agreement supersedes all prior
employment agreements between Employee and the Corporation, which shall be
of no further effect except that this Agreement does not affect the
Corporation's obligation to pay any accrued compensation, bonus or benefit.
No provisions of this Agreement may be modified, waived or discharged
unless the waiver, modification or discharge is agreed to in writing signed
by Employee and any officer specifically designated by the Board of
Directors of the Corporation. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by that other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
time or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the specific subject
matter of this Agreement have been made by either party that are not set
forth expressly in this Agreement. The headings of the sections and
subsections of this Agreement have been inserted for convenience of
reference only and shall not restrict or modify any of the terms or
provisions of this Agreement. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect. If any provision of this Agreement is unenforceable as written
under applicable law, it is the intent of the parties that such provision
shall be modified by narrowing it sufficiently to allow its enforcement.
All provisions of this Agreement shall be enforced to the full extent
permitted by law. This Agreement may be signed in identical counterparts,
each of which shall be deemed to be an original, and the counterparts shall
together constitute one document. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Dakota, as
applicable to contracts made and to be performed in that State.
The parties have executed this Agreement as of the date stated in
the first paragraph of this Agreement.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By _________________________________________
Its ____________________________________
_____________________________________________
Xxxxxx X. Xxxxx, Employee
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APPENDIX A
TO AGREEMENT BETWEEN
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
XXXXXX X. XXXXX
ANNUAL BONUS CALCULATION
Employee's Annual Bonus under Section 3(b) of the Agreement shall be
computed as set forth below.
1. AMOUNT. The amount of the Annual Bonus shall be fifteen percent
(15%) of any increase in the Corporation's Adjusted Earnings (as defined
below) each year over the prior year's Adjusted Earnings, beginning with
the year 1997 (compared to 1996) and continuing each year thereafter.
2. PAYMENT. The Annual Bonus shall be paid each year in monthly
installments (payable by the 20th day of the following month) computed at
fifteen percent (15%) of any increase in each month's Adjusted Earnings
compared to Adjusted Earnings for the same month in the prior year.
Provided, however, that the final amount of the Annual Bonus shall be
computed based on the Corporation's audited financial statements for the
year, compared to the audited financial statements for the prior year. If
the Annual Bonus computed based on the audited financial statements is
greater than the sum of the monthly payments for the year, the Corporation
will pay the Employee the difference within seventy (70) days after year-
end. If the Annual Bonus computed based on the audited financial
statements is less than the sum of the monthly payments for the year, the
Employee will repay the difference to the Corporation within seventy (70)
days after year-end. The Corporation agrees to continue to cause
preparation of monthly unaudited and annual audited statements and to
compute Adjusted Earnings on a timely basis, to allow computation and
payment of the Annual Bonus. The Annual Bonus may not be reduced by a
change in the Company's fiscal year without Employee's written consent.
3. ADJUSTED EARNINGS. The Corporation's Adjusted Earnings for a
year shall be the Corporation's Net Income before provision for income
taxes, adjusted as follows:
(a) add back all non-cash expenses, including but not
limited to depreciation and/or amortization expense;
(b) add back any Annual Bonus payable under this Agreement, and
any Annual Bonus payable under the agreement between the Corporation
and XXXXX X. XXXXXXXX;
(c) eliminate the effect of any "extraordinary item," as defined
by Generally Accepted Accounting Principles.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION COVERED BY SECTION 5 OF AGREEMENT. If
Employee's employment is terminated under circumstances entitling
Employee to Severance Pay under Section 5 of the Agreement, Employee
will not receive any further monthly payments under paragraph 2 above
after the month of termination, but will be entitled to payments under
Subsection 5(a) of the Agreement.
(b) TERMINATION FOR CAUSE. If Employee's Employment is
terminated for Cause under Subsection 4(c) of the Agreement, Employee
shall not be entitled to any further payments of Annual Bonus, except
any unpaid installment from any year prior to that in which the
termination of Employment occurs.
(c) TERMINATION DUE TO DEATH, DISABILITY, RESIGNATION. If
Employee's employment terminates due to Employee's death, disability or
resignation (other than for Good Reason), Employee shall not receive
further monthly payments under paragraph 2, but shall be entitled to a
prorated Annual Bonus for the year in which the Employment terminates.
The prorated bonus will be computed at year end as the Annual Bonus
the Employee would have received had the Employment terminated after
the end of the year, multiplied by a fraction, the numerator of which
is the number of months in the year through the month in which the
Employment terminates, and the denominator of which is 12.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By /S/ XXXXX X. XXXXXX
Its PRESIDENT
/S/ XXXXXX X. XXXXX
Xxxxxx X. Xxxxx, Employee
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APPENDIX B
TO AGREEMENT BETWEEN
DAKOTA COOPERATIVE TELECOMMUNICATIONS, INC.
and
XXXXXX X. XXXXX
CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION
(a) If any payment or distribution by the Corporation or its
affiliated companies to or for the benefit of Employee (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Appendix B (a "Payment")) would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code, or any
successor Code provision, or any interest or penalties are incurred by
Employee with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Employee of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment,
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Appendix B, all determinations
required to be made under this Appendix B, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by the public accounting firm that is retained by The Corporation as
of the date immediately prior to the change in control (the "Accounting
Firm") which shall provide detailed supporting calculations both to the
Corporation and Employee within fifteen (15) business days of the receipt
of notice from Employee that there has been a Payment, or such earlier time
as is requested by the Corporation (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity, or group affecting the change in control, Employee
shall appoint another nationally recognized public accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up
Payment, as determined pursuant to this Appendix B, shall be paid by the
Corporation to Employee within five (5) days of the receipt of the
Determination. If the Accounting Firm determines that no Excise Taxes are
payable by Employee, it shall furnish Employee with a written opinion that
failure to report the Excise Tax on Employee's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be binding upon
the Corporation and Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the Determination,
it is possible that Gross-Up Payments which will not have been made by the
Corporation should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the
Corporation exhausts its remedies pursuant to subparagraph (c) below and
Employee thereafter is required to make payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the
Corporation to or for the benefit of Employee.
(c) Employee shall notify the Corporation in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Corporation of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten (10) business days after
Employee is informed in writing of such claim and shall apprise the
Corporation of the nature of such claim and the date on which such claim is
requested to be paid. Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which Employee gives
such notice to the Corporation (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the
Corporation notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(1) give the Corporation any information reasonably requested by
the Corporation relating to such claim,
(2) take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Corporation,
(3) cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(4) permit The Corporation to participate in any proceeding
relating to such claim; provided, however, that the Corporation shall
bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and
shall indemnify and hold Employee harmless, on an after-tax basis, for
any Excise Tax or income or employment tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation
on the foregoing provisions of this Appendix B, the Corporation shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
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direct Employee to pay the tax claimed and xxx for a refund or contest
the claim in any permissible manner, and Employee agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Corporation shall determine; provided further, that if the
Corporation directs Employee to pay such claim and xxx for a refund,
the Corporation shall advance the amount of such payment to Employee
on an interest-free basis and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income or
employment tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of Employee with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Corporation's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and Employee shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by Employee of an amount advanced by the
Corporation pursuant to this Appendix B, Employee becomes entitled to
receive, and receives, any refund with respect to such claim, Employee
shall (subject to the Corporation's complying with its contractual
obligations to Employee) promptly pay to the Corporation the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Employee of an amount
advanced by the Corporation pursuant to Appendix B, a determination is made
that Employee shall not be entitled to any refund with respect to such
claim and the Corporation does not notify Employee in writing of its intent
to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
DAKOTA COOPERATIVE
TELECOMMUNICATIONS, INC.
By _____________________________________
Its _________________________________
________________________________________
Xxxxxx X. Xxxxx, Employee
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