Continental Information Systems Corporation
One Northern Concourse
Post Office Box 4785
Syracuse, New York 13221-4785
(000) 000-0000
FAX: 000-000-0000
Internet: xxxx@xxx.xxxxxxx.xxx
May 20, 1997
Xx. Xxxxxx X. Xxxxxxxx
0000 Xxxxxxxx Xxx
Xxxxxxx, XX 00000
Dear Xx. Xxxxxxxx:
This letter sets forth the agreement between Continental
Information Systems Corporation (the "Company") and Xxxxxx X. Xxxxxxxx
("Xxxxxxxx") with respect to the terms on which Xxxxxxxx will serve as President
of the CIS Air Group, effective June 1, 1997.
The Company and Xxxxxxxx mutually agree as follows:
1. Employment
(a) The Company hereby employs Xxxxxxxx, and Xxxxxxxx agrees
upon the terms and conditions herein set forth herein to serve as President of
the CIS Air Group, and in such capacity Xxxxxxxx will have overall
responsibility for the management and operations of the CIS Air Group (CIS Air,
CIS Aircraft Partners, Inc. and all other aircraft assets owned or managed by
the Company or its subsidiaries), subject to the additional provisions set forth
in Schedule 1. Xxxxxxxx shall report to the Chief Executive Officer of the
Company. For so long as the Company employs Xxxxxxxx, he shall, except as the
Company may otherwise agree from time to time in writing pursuant to authority
granted by a Board resolution, devote his full time and attention to the
performance of his duties hereunder, shall faithfully serve the Company, shall
in all respects conform to and comply with the lawful and good faith directions
and instructions given to him by the Chief Executive Officer and the Board, and
shall use his best efforts to promote and serve the interests of the Company.
(b) The term of employment under this Agreement shall begin on
June 1, 1997 and end on May 31, 1999 (the "Term"), unless earlier terminated in
accordance with Exhibit A.
2. Compensation.
Effective June 1, 1997, and during the Term, Xxxxxxxx shall
receive compensation determined in accordance with, and subject to the
conditions of, Schedule 1 of this Agreement.
3. Severance; Non-competition.
(a) Upon the occurrence of a Severance Event (as defined in
Exhibit A), Xxxxxxxx shall be entitled to receive until the earlier of eighteen
(18) months from the date of the Severance Event or the commencement by Xxxxxxxx
of full time employment by another employer, the following: (1) a monthly
severance payment equal to the greater of (A) $18,750, and (B) one-eighteenth of
the difference between (i) the Compensation Amount (as defined in Schedule 1),
calculated from the beginning of the fiscal year in which the Severance Event
occurs through the end of the calendar month preceding the Severance Event, and
(ii) the total amount of compensation paid to Xxxxxxxx by the Company from the
beginning of the fiscal year in which the Severance Event occurs through the
Severance Event, and (2) Continued Benefits (as defined in Exhibit A).
(b) Upon the occurrence of an Alternative Severance Event (as
defined in Exhibit A), Xxxxxxxx shall be entitled to receive until the earlier
of six (6) months from the date of the Alternative Severance Event or the
commencement by Xxxxxxxx of full time employment by another employer, the
following: (1) a monthly severance payment of $18,750, and (2) Continued
Benefits (as defined in Exhibit A).
(x) Xxxxxxxx agrees that, during the Restriction Period, he
will not engage, directly or indirectly, whether as principal or as director,
officer, employee, agent, consultant, beneficial owner of an excess of three
percent (3%) of any outstanding class of publicly-traded equity securities, or
otherwise, alone or in association with any other person, corporation, or other
entity, in any Competing Business. "Competing Business" means any person,
corporation, or other entity that is engaged, in direct competition with the CIS
Air Group, in the sale of any products or services that are the same as or
similar to the products and services sold by the CIS Air Group. "Restriction
Period" means the period beginning on June 1, 1997 and ending on the earlier of
(i) May 31, 1999, or (ii) if Xxxxxxxx'x employment is terminated as a result of
a Severance Event or an Alternative Severance Event, the date of such Severance
Event or Alternative Severance Event. Xxxxxxxx further agrees that, during the
Restriction Period, he will not, directly or indirectly, in competition with the
CIS Air Group, solicit the trade of, or trade with, any customer of the CIS Air
Group, and will not, without the consent of the Company, directly or indirectly,
solicit or induce, or attempt to solicit or induce, any employee of the Company
or CIS Air Group to leave its employ for any reason whatsoever nor hire any such
employee away from the Company, CIS Air Group and their affiliates. Without
limiting the remedies available to the CIS Air Group or the Company, Xxxxxxxx
acknowledges that any breach of these covenants may result in material
irreparable injury to the Company and its affiliates for which there is no
adequate remedy at law, and that it will not be possible to measure damages for
such injuries precisely. Xxxxxxxx agrees that, in the event of such a breach or
threat thereof, the Company will be entitled to obtain a temporary restraining
order and/or a preliminary or permanent injunction restraining you from engaging
in activities prohibited by any those covenants or such other relief as may be
required to specifically enforce any of those covenants.
(d) If Xxxxxxxx dies or becomes disabled after a Severance
Event or Alternative Severance Event, he or his estate shall continue to receive
the remaining benefits to which he is entitled, subject to the terms of any plan
included in the Continued Benefits.
4. General Provisions
(a) Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any successors to or assigns of the
Company and Xxxxxxxx'x heirs and the personal representatives of Xxxxxxxx'x
estate.
(b) Arbitration. Any disputes, controversies, or claims
arising out of or related to this Agreement ("Disputes") shall be resolved by
binding arbitration in accordance with the provisions of Exhibit B.
(c) Amendment; Waiver. This Agreement may not be modified,
amended or waived in any manner except by an instrument in writing signed by
both parties hereto; provided, however, that any such modification, amendment or
waiver on the part of the Company shall have been previously approved by the
Board. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement or of any subsequent breach by such party
of a provision of this Agreement.
(d) Tax Withholding. Payments to Xxxxxxxx of all compensation
contemplated under this Agreement shall be subject to all applicable legal
requirements with respect to the withholding of taxes and social security
contributions.
(e) Governing Law. All matters affecting this Agreement,
including the validity thereof, are to be governed by, and interpreted and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
(f) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Xxxxxxxx, the notice shall be delivered or mailed to
Xxxxxxxx at the address first set forth above, or if addressed to the Company,
the notice shall be delivered or mailed to Continental Information Systems
Corporation, One Northern Concourse, North Syracuse, New York 13212, Attention:
Chief Executive Officer, or such other address as the Company or Xxxxxxxx may
designate by written notice at any time or from time to time to the other party.
A notice shall be deemed given, if by personal delivery, on the date of such
delivery or, if by certified mail, on the date shown on the applicable return
receipt.
(g) Effect on Previous Agreements. Effective June 1, 1997,
this Agreement supersedes all prior oral or written employment agreements
between Xxxxxxxx and the Company, and all prior or contemporaneous negotiations,
commitments, agreements, and writings with respect to the subject matter hereof;
all such other negotiations, commitments, agreements, and writings will have no
further force or effect; and the parties to any such other negotiation,
commitment, agreement, or writing will have no further rights or obligations
thereunder.
(h) Counterparts. Either of the parties hereto may execute
this Agreement in counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
(i) Headings. The headings of sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
If you are in agreement with the foregoing, please execute in
the space provided below for your signature, whereupon this Agreement shall
constitute a binding Agreement between Xxxxxxxx and the Company.
CONTINENTAL INFORMATION SYSTEMS CORPORATION
By: /s/ XXXXX X. XXXXXXX
--------------------
Name: Xxxxx X. Xxxxxxx, Chairman
Authorized Signatory
ACCEPTED AND AGREED:
/s/ XXXXXX X. XXXXXXXX
----------------------
Xxxxxx X. Xxxxxxxx
Date: 5/21/97
EXHIBIT A
Definitions
1. Severance Event: During the Term, termination by the
Company of Xxxxxxxx'x employment other than for Cause or upon an Alternative
Severance Event, or resignation by Xxxxxxxx from the Company for Good Reason.
2. Alternative Severance Event: After November 30, 1997 and
prior to the expiration of the Term, termination by the Company of Xxxxxxxx'x
employment if the aggregate Air Group Net Earnings (as defined in Schedule 1 and
calculated in accordance therewith) for the three most-recently completed fiscal
quarters, does not, on an annualized basis, yield a return on equity invested by
the Company in the CIS Air Group of at least 15%.
3. Cause: Termination by the Company of Xxxxxxxx'x employment
upon (a) Xxxxxxxx'x willful and continued failure to substantially perform his
duties with the Company (other than any such failure resulting from his
incapacity due to physical or mental illness), or (b) Xxxxxxxx'x willfully
engaging in misconduct that is materially injurious to the Company, monetarily
or otherwise. For purposes of this paragraph, no act, or failure to act, on
Xxxxxxxx'x part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
Xxxxxxxx shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Xxxxxxxx a copy of a Notice of Termination
from the Board, after reasonable notice to Xxxxxxxx and an opportunity for him
and his counsel to be heard before the Board, finding that in the good faith
opinion of the Board he has engaged in conduct warranting termination for cause
under clauses (a) and (b) above.
4. Good Reason: Xxxxxxxx'x resignation of his employment with
the Company within 120 days following the occurrence of any of the following
events:
(a) Reduction of Xxxxxxxx'x compensation below that
determined in accordance with Schedule 1;
(b) Without Xxxxxxxx'x written consent and measured
against his status as of June 1, 1997, a reduction in
his reporting responsibilities, titles, or offices,
or any removal of him from or any failure to re-elect
him to any such positions (other than as a member of
the Company's Board of Directors), except in
connection with the termination of his employment for
Cause, disability, or retirement or as a result of
his death, or by him other than for Good Reason;
(c) The Company does not allow Xxxxxxxx to participate in
any employee benefit plan on the same terms and
conditions made available to other senior executive
personnel; provided, that the foregoing shall not
restrict the Board's discretion to award bonuses,
stock options or other incentive compensation in such
amounts as it determines; or
(d) The Company fails to comply with its obligations
under section 3 of Schedule 1.
In the event that Xxxxxxxx does not resign within 120 days of the occurrence of
any of the foregoing events, his rights with respect to such Good Reason shall
be deemed waived by Xxxxxxxx.
5. Notice of Termination: A written notice which shall
indicate the specific termination provision in this Agreement that is relied
upon by the party terminating Xxxxxxxx'x employment and which shall summarize
the basis for termination of Xxxxxxxx'x employment. Any purported termination by
the Company for Cause, or Xxxxxxxx'x resignation for Good Reason shall be
communicated by Notice of Termination to the other party hereto.
6. Date of Termination: (a) if Xxxxxxxx'x employment is
terminated for Cause, the date specified by the Company in the Notice of
Termination, and (b) if Xxxxxxxx'x employment is terminated by Xxxxxxxx for Good
Reason, the date on which the Notice of Termination is given.
7. Continued Benefits: The following benefits, which shall be
maintained in full force and effect by the Company for the benefit of Xxxxxxxx
and his surviving dependents for the applicable period: all life insurance,
medical, health and accident, and disability plans, programs or arrangements in
which Xxxxxxxx was entitled to participate immediately prior to the Severance
Event or Alternative Severance Event, as the case may be, provided that
Xxxxxxxx'x continued participation is possible under the general terms and
provisions of such plans and programs. In the event that Xxxxxxxx'x
participation in any such plan or program is barred, the Company shall make
reasonable efforts to obtain insurance for Xxxxxxxx that would provide him with
benefits substantially similar to those which Xxxxxxxx is entitled to receive
under such plans and programs, but the Company shall not provide those benefits
directly if they cannot be obtained through insurance and shall not be obligated
to pay premiums in excess of two (2) times the group rate previously paid on his
behalf. Xxxxxxxx agrees that any such coverage will reduce the applicable period
for which coverage might have to be offered under applicable federal or state
laws. Nothing in this provision shall provide eligibility for bonuses, vacation,
or pension or profit-sharing programs after the Severance Event or Alternative
Severance Event, as the case may be, except as otherwise required by the
generally-applicable terms of those programs.
EXHIBIT B
Arbitration Provisions
1. Any arbitration required under Section 3(b) of this
Agreement shall be administered by the American Arbitration Association ("AAA"),
and shall be conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "Rules"), as such Rules may be amended
from time to time, with the hearing locale to be the state and county in which
the Company's headquarters are located, unless some other location and/or
arbitrator are chosen by mutual consent of the Company and Xxxxxxxx.
2. A single neutral arbitrator shall preside over the
arbitration and decide the Dispute (the "Decision"). The AAA shall use its
normal procedures pursuant to the Rules for selection of an arbitrator.
3. The Decision shall be binding, and the prevailing party may
enforce such decision in any court of competent jurisdiction.
4. The parties shall cooperate with each other in causing the
arbitration to be held in as efficient and expeditious a manner as practicable
and in this connection to furnish such documents and make available such persons
as the Arbitrator may request.
5. The parties have selected arbitration in order to expedite
the resolution of Disputes and to reduce the costs and burdens associated with
litigation. The parties agree that the Arbitrator should take these concerns
into account when determining whether to authorize discovery and, if so, the
scope of permissible discovery and other hearing and pre-hearing procedures.
6. Without limiting any other remedies that may be available
under applicable law, the Arbitrator shall have no authority to award punitive
damages.
7. The Arbitrator shall render a Decision within ninety (90)
days after accepting an appointment to serve as Arbitrator unless the parties
otherwise agree or the Arbitrator makes a finding that a party has carried the
burden of showing good cause for a longer period.
8. All proceedings and decisions of the Arbitrator shall be
maintained in confidence, to the extent legally permissible, and shall not be
made public by any party or any Arbitrator without the prior written consent of
all parties to the arbitration, except as may be required by law.
9. Each party shall bear its own costs and attorneys' fees,
and the parties shall equally bear the fees, costs, and expenses of the
Arbitrator and the arbitration proceedings; provided, however, that the
Arbitrator may exercise discretion to award costs, but not attorneys' fees, to
the prevailing party.
Schedule 1
Compensation Plan
1. Definitions. For purposes of this schedule,
"Compensation Amount" means, for any fiscal period, .33 times
the difference between (1) Air Group Net Earnings, and (2)
Minimum Return on Equity.
"Air Group Net Earnings" means, for any period, (i) net
earnings before taxes of the Company's Air Group, after
payment of all expenses attributable to the Air Group (other
than corporate overhead and Xxxxxxxx'x compensation),
including interest on funds borrowed for purposes of financing
the Air group's business, plus (ii) any fees received which
are earned for managing the Jetstream income funds in
conjunction with Xxxxxx Brothers and which are not included in
pretax income. Air Group Net Earnings shall be calculated
based on Air Group financial statements prepared using
methodology consistent with that employed in calculating net
earnings before taxes of the Air for purposes of the Company's
audited financial statements for the fiscal year ended May 31,
1997.
"Minimum Return on Equity" means, for any period, an amount
equal to a cumulative return on equity invested in the Air
Group of 20% per annum, subject to adjustment as set forth
below. Provided that Xxxxxxxx satisfies the requirements of
section 3 of this schedule prior to September 1, 1997, then
for purposes of determining the Compensation Amount, for the
period June 1, 1997 to August 31, 1997, the Company will be
deemed to have invested equity equal to $5 million in the Air
Group and the remaining equity invested in the Air Group will
be treated as debt bearing an interest rate equal to the Prime
Rate (as reported in the "Money Rates" column of the Wall
Street Journal) plus 75 basis points. If the Air Group Net
Earnings for any fiscal year during the Term is less than the
Minimum Return on Equity as calculated pursuant to the
foregoing formula, then an amount equal to the difference
between the Minimum Return on Equity for such fiscal year and
Air Group Net Earnings, then Minimum Return on Equity for the
next fiscal year shall also include such difference plus a
rate of return of 20% per annum.
2. Payment of Compensation. (a) During the Term, Xxxxxxxx will
receive a non-refundable advance against the Compensation Amount of $225,000 per
year ("Base Compensation Advance"), payable periodically in accordance with the
Company's standard payroll procedures. For each fiscal year during the Term,
Xxxxxxxx will be entitled to receive compensation ("Compensation") equal to the
greater of the Base Compensation Advance for such fiscal year and the
Compensation Amount for the period from June 1, 1997 to the end of such fiscal
year.
(b) With respect to each of the first three quarters of any
fiscal year, if the Compensation Amount for the fiscal year through the end of
such quarter exceeds $225,000, then Xxxxxxxx will receive a refundable advance
(an "Interim Compensation Advance") equal to (i)
50% of (ii) the amount by which the Compensation Amount for the fiscal year
through the end of such quarter, minus any payments of Interim Compensation
Advances for prior quarters of the fiscal year, exceeds $225,000. Any Interim
Compensation Advances payable under this section will be calculated and paid to
Xxxxxxxx within 5 days after the filing of the Company's quarterly financial
statements with the Securities and Exchange Commission, but in any event no
later than 50 days after the end of the quarter.
(c) Following the end of any fiscal year, Xxxxxxxx will be
paid an amount equal to the excess, if any, of the Compensation Amount for for
the fiscal year over all Base and Interim Compensation Advances paid to him
pursuant to this schedule. If the amounts of Compensation Advances received by
Xxxxxxxx during the fiscal year exceed the Compensation Amount for such fiscal
year minus the Base Compensation Advance, Xxxxxxxx will repay the excess to the
Company, or the Company may offset such amounts due against any other payments
due to Xxxxxxxx. Any payments due to or from Xxxxxxxx pursuant to this section
will be calculated and paid within 5 days after completion of the audit of the
Company's financial statements for the fiscal year in question.
(d) Annex 1.1 to this schedule contains examples illustrating
the application of the foregoing formulas.
3. Capitalization of Air Group. The Company presently has
approximately $11 million in equity invested in the Air Group. The Company and
Xxxxxxxx intend that the capitalization of the Air Group will consist of $5
million in equity contributed by the Company, and up to $10 million in debt
financing. Accordingly, the Company will maintain throughout the Term an
investment of equity capital in the Air Group of at least $5 million, but may
withdraw capital from the Air Group in excess of that amount. Xxxxxxxx will seek
to obtain debt financing in replacement of the remaining equity over $5 million
now invested in the Air Group, and additional debt financing as he deems
necessary to achieve the Air Group's financial goals. Xxxxxxxx shall be deemed
to have satisfied this requirement if he presents to the Company a commitment
for debt financing described in the preceding sentence on market terms for
comparable loans and containing customary non-financial terms and conditions.
The Company will take such actions as are reasonably required to consummate up
to $10 million in debt financing meeting the foregoing requirements.
4. Oversight. Any proposed Air Group transaction, or series of
related transaction, involving the expenditure of more than $1 million, shall be
subject to the approval of the Chief Executive Officer of the Company. If the
Chief Executive Officer does not approve such a proposed transaction, Xxxxxxxx
shall have the right to request that the full Board of Directors review and
approve or disapprove the proposed transaction.
ANNEX 1.1 to Schedule 1
Examples of Compensation Formula
Example 1:
Assumptions:
Equity $5 million
FY 1998 Minimum Return on Equity = $1 million per year,
$250,000 per quarter FY 1998 Quarterly Air Group Net Earnings
as follows:
1st Q = $ 500,000
2nd Q = $ 500,000
3rd Q = $ 500,000
4th Q = $ 500,000
Total = $2,000,000
Analysis:
FY 1998 Compensation Amount is $330,000, calculated
as .33 times Air Group Net Earnings of $2,000,000
minus Minimum Return on Equity of $1,000,000.
Compensation is paid as follows:
Base Compensation Advance of $225,000, paid
periodically Interim Advances and Final Payment Paid
as follows:
Minimum Interim
Air Group Net Return on Compensation Advance/Final
FY 1998 Earnings Equity Amount (1) Payment (2)
------- -------- ------ ---------- -----------
3 months $ 500,000 $ 250,000 $ 82,500 $ 0
6 months $1,000,000 $ 500,000 $165,000 $ 0
9 months $1,500,000 $ 750,000 $247,500 $11,250
Full Year $2,000,000 $1,000,000 $330,000 $93,750
Notes:
(1) .33 times cumulative excess of Air Group Net Earnings over
Minimum Return on Equity
(2) For first 3 quarters, 50% of cumulative excess, if any, of
Compensation Amount over $225,000. Final Payment equals
Compensation Amount minus $225,000 and all Interim Advances.
Example 2:
Assumptions:
Equity $5 million
FY 1998 Minimum Return on Equity= $1,000,000 or $250,000 per
quarter FY 1998 Quarterly Air Group Net Earnings as follows:
1st Q = $200,000
2nd Q = $200,000
3rd Q = $200,000
4th Q = $200,000
Total = $800,000
FY 1999 Minimum Return on Equity = $1,240,000 (20% on
$5 million + $200,000 FY 1998 shortfall + 20% on
shortfall) or $310,000 per quarter
FY 1999 Quarterly Air Group Net Earnings as follows:
1st Q = $ 600,000
2nd Q = $ 600,000
3rd Q = $ 600,000
4th Q = $ 600,000
Total = $2,400,000
Analysis:
FY 1998 Compensation is $225,000, equal to
non-refundable compensation advance
FY 1999 Compensation Amount is $382,800, calculated
as .33 times Air Group Net Earnings of $2,400,000
minus Minimum Return on Equity of $1,240,000.
Compensation is paid as follows:
Base Compensation Advance of $225,000, paid
periodically Interim Advances and Final Payment Paid
as follows:
Minimum Interim
Air Group Net Return on Compensation Advance/Final
FY 1999 Earnings Equity Amount (1) Payment (2)
------- -------- ------ ----------- -----------
3 months $ 600,000 $ 310,000 $ 95,700 $ 0
6 months $1,200,000 $ 620,000 $191,400 $ 0
9 months $1,800,000 $ 930,000 $287,100 $ 31,050
Full year $2,400,000 $1,240,000 $382,800 $126,750
Notes:
(1) .33 times cumulative excess of Air Group Net Earnings over
Minimum Return on Equity
(2) For first 3 quarters, 50% of cumulative excess, if any, of
Compensation Amount over $225,000. Final Payment equals
Compensation Amount minus $225,000 and all Interim Advances.
