INCENTIVE COMPENSATION AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
January 22, 1997, by and among Cognitive Communications, LLC, a Delaware limited
liability company ("CCL"), Xxxxx Xxxxxx ("SW"), Xxxxxxx Xxxxxxx ("MR") and Xxxxx
Xxxxxx ("DL"; each of SW, MR and DL are sometimes hereinafter referred to
individually as an "Employee" and collectively as the "Employees").
W I T N E S S E T H :
WHEREAS, as of the date hereof each of the Employees is entering into
an employment agreement with CCL (collectively, the "Employment Agreements");
and
WHEREAS, in connection with the execution of the Employment Agreements,
CCL desires to provide certain incentive compensation to the Employees, as more
fully set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto agree as follows:
1. Profit Pool.
(a) During the period commencing with August 1, 1997 and
ending on July 31, 2002, the Employees will participate equally in a
profit-sharing program to be established by CCL (the "Profit-Sharing Program"),
which will provide for an aggregate profit pool consisting of the difference
between (x) twenty-five percent (25%) (the "Profit Percentage") of the EBITDA
(as hereinafter defined) for each fiscal year commencing with CCL's fiscal year
ending July 31, 1998 and (y) any amounts distributed, or to be distributed, to
the Employees by CCL for such fiscal year as a result of their ownership
interests in CCL (the "Employees' Distribution").
(b) Payment of any amounts under the Profit-Sharing Program to
the Employees shall be made as soon as practicable after the end of each of such
five (5) fiscal years, and in any event within ninety (90) days thereafter, and
shall be accompanied by a copy of the relevant financial statements, together
with a copy of the work papers showing the calculation by CCL of the EBITDA (as
hereinafter defined) and the Employees' Distribution. The Employees shall be
deemed to have accepted such financial statements as final and binding, unless
CCL is notified in writing by them within thirty (30) days after receipt of such
financial statements. If the Employees dispute any of the calculations in the
financial statements, the dispute shall be referred to a firm of independent
public accountants mutually acceptable to CCL and the Employees; provided,
however, that a "Big 6" accounting firm, other than the accounting firms then
used by CCL, any Employee or any of their respective affiliates shall be deemed
to be mutually acceptable for purposes of this Section 1(b). In the event of a
dispute, the determination of such accountants shall be final and binding. In
the event of a dispute, the losing party in such dispute shall pay the fees and
expenses of such accountants. If any review so conducted shall result in an
underpayment by CCL of any amount payable hereunder,
CCL shall pay the amount of such underpayment within twenty (20) days after the
completion of such review, together with interest thereon at the rate of 8% per
annum (calculated on the basis of a 360- day year consisting of twelve 30-day
months). If any review so conducted shall result in an overpayment by CCL of any
amount payable hereunder, the Employees shall refund the amount of such
overpayment, together with interest thereon at the rate of 8% per annum
(calculated on the basis of a 360-day year consisting of twelve 30-day months),
to CCL within twenty (20) days after written request for such refund is made to
them by CCL or, at CCL's option, the amount of such refund shall be netted
against any other amounts due to the Employees.
(c) Termination of an Employment Agreement (i) by CCL for
Cause, as defined in the Employment Agreement, or (ii) by the Employee other
than due to Constructive Termination, as defined in the Employment Agreement,
will also terminate such Employee's rights to receive any amounts under the
Profit-Sharing Program after such termination and will also reduce the Profit
Percentage to 16.67% in the event of one Employee's termination, 8.33% in the
event of two Employees' termination and 0% in the event of the termination of
all three Employees; provided, however, that Xx. Xxxxxx'x termination prior to
either Xx. Xxxxxx'x or Xx. Xxxxxxx'x termination will not reduce the Profit
Percentage, however, in the event of either Xx. Xxxxxx'x or Xx. Xxxxxx'x
termination concurrently with or after Xx. Xxxxxx'x or Xx. Xxxxxxx'x
termination, the Profit Percentage will be reduced to 8.33%. Termination of an
Employment Agreement (y) by CCL other than for Cause or (z) by the Employee as a
result of Constructive Termination will not terminate or otherwise affect such
Employee's rights to receive any amounts under the Profit-Sharing Program as set
forth herein after such termination nor reduce the Profit Percentage.
Termination of an Employment Agreement upon an Employee's death or disability
will also terminate such Employee's rights to receive any amounts under the
Profit-Sharing Program after such termination (provided, however, that his/her
estate or legal representative shall receive a pro rata portion of the profit
pool for the fiscal year in which such termination occurs based upon the number
of days the Employee was employed during such fiscal year) and the Profit
Percentage shall not otherwise be affected by such termination.
2. Definitions.
(a) For purposes of this Agreement, EBITDA shall be defined as
CCL's earnings before interest, taxes, depreciation and amortization, calculated
in accordance with generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, applied on a consistent basis and
consistent with past practices; provided, however, that EBITDA shall be computed
by taking into account directly allocated overhead expenses of CCL's parent,
Manhattan Transfer/Edit, Inc., a Delaware corporation ("MTE"), or MTE's parent,
International Post Limited, a Delaware corporation ("IPL") with respect to CCL,
including property and casualty insurance, workmen's compensation, employee
fringe benefit costs, and other direct costs normally allocated by MTE and/or
IPL among their respective subsidiaries based in part on the size of such
subsidiaries, and by excluding: (a) all special overhead charges of CCL
(including the 3% of revenues overhead charge) and (b) the cost of all term
life,
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health, accident and/or other insurance covering any employee of CCL for which
it or any of its subsidiaries or affiliates, including MTE and/or IPL, is the
beneficiary.
3. Incentive Options.
(a) During the period commencing with August 1, 1997 and
ending on July 31, 2002, the Employees will receive options (the "Incentive
Options") to purchase an aggregate of 50,000 Shares of CCL in each of the five
(5) full fiscal years of CCL commencing with the fiscal year ending July 31,
1998 provided that CCL has attained the annual EBITDA targets for such fiscal
year (at a minimum) set forth below. In the event that in any fiscal year the
annual EBITDA target is not satisfied, the Incentive Options which could have
been earned for such fiscal year shall be awarded if and when the foregoing
cumulative EBITDA target is satisfied for a subsequent fiscal year.
CUMULATIVE EBITDA
TARGET FOR SUCH
FISCAL YEAR AND
ANNUAL EBITDA PRIOR FISCAL YEARS
TARGET FOR SUCH BEGINNING
FISCAL YEAR WITH FISCAL 1998
Fiscal 1998 (i.e., fiscal year
ending July 31, 1998)............. $3,217,000 $3,217,000
Fiscal 1999 (i.e., fiscal year
ending July 31, 1999)............. $5,124,000 $7,583,000
Fiscal 2000 (i.e., fiscal year
ending July 31, 2000)............. $7,982,000 $14,839,000
Fiscal 2001 (i.e., fiscal year
ending July 31, 2001)............. $12,163,000 $25,896,000
Fiscal 2002 (i.e., fiscal year
ending July 31, 2002)............. $18,434,000 $42,654,000
(b) CCL shall issue any Incentive Options which the Employees
are entitled to receive pursuant to the provisions hereof promptly upon the
final determination of the EBITDA for the relevant fiscal year as set forth
above in Section 1, and in any event within ten (10) days thereafter. The
Incentive Options shall be substantially in the form annexed hereto as Exhibit
A. Incentive Options shall be allocated equally among the Employees.
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(c) Termination of an Employment Agreement (i) by CCL for
Cause, as defined in the Employment Agreement, or (ii) by the Employee other
than due to Constructive Termination, as defined in the Employment Agreement,
will also terminate such Employee's rights to receive any Incentive Options
hereunder after such termination but will not reduce the number of Incentive
Options available for issuance to the other Employees. Termination of an
Employment Agreement (y) by CCL other than for Cause or (z) by the Employee as a
result of Constructive Termination will not terminate or otherwise affect such
Employee's rights to receive any Incentive Options after such termination.
Termination of an Employment Agreement upon an Employee's death or disability
will also terminate such Employee's rights to receive any Incentive Options
after such termination (provided, however, that his/her estate or legal
representative shall receive a pro rata portion of any Incentive Options for the
fiscal year in which such termination occurs based upon the number of days the
Employee was employed during such fiscal year) and the aggregate number of
Incentive Options shall not otherwise be affected by such termination.
4. Miscellaneous.
(a) Section headings contained in this Agreement are included
for convenience only and shall not affect the interpretation of any provisions
of this Agreement.
(b) Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing (including facsimile or
similar writing) and shall be deemed to have been duly given (i) on the date of
service if personally served, (ii) on the third day after mailing if mailed to
the party to whom notice is to be given, by first class mail, registered, return
receipt requested, postage prepaid or (iii) on the date sent if sent by
facsimile, to the parties at the following addresses or facsimile numbers (or at
such other address or facsimile number for a party as shall be specified by like
notice):
If to the Employees, to:
Cognitive Communications, Inc.
0 Xxxxxxx Xxxxx
Xxxxx 000
Xxxxx Xxxxxx, Xxx Xxxx 00000
Fax No.:
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with a copy to:
Xxxxxxx, Xxxxxxxx & Kotel
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Fax No.: (000) 000-0000
If to CCL, to:
Cognitive Communications, LLC
c/o International Post Limited
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
Fax No.: (000) 000-0000
with a copy to:
Shereff, Friedman, Xxxxxxx & Xxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Fax No.: (000) 000-0000
(c) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
(d) This Agreement shall be construed in accordance with, and
governed by, the internal laws of the State of New York as applied to contracts
made and to be performed entirely within the State of New York. Any legal
action, suit or proceeding arising out of or relating to this Agreement may be
instituted in any state or federal court located within the County of New York,
State of New York, and each party hereto agrees not to assert, by way of motion,
as a defense, or otherwise, in any such action, suit or proceeding, any claim
that it is not subject personally to the jurisdiction of such court, that the
action, suit or proceeding is brought in an inconvenient forum, that the venue
of the action, suit or proceeding is improper or that this Agreement or the
subject matter hereof may not be enforced in or by such court. Each party hereto
further irrevocably submits to the jurisdiction of any such court in any such
action, suit or proceeding.
(e) This Agreement, including the Exhibits and Schedules
hereto, sets forth the entire understanding and agreement of the parties with
respect to their subject matter and supersede any and all prior understandings,
negotiations or agreements among the parties hereto, both written and oral, with
respect to such subject matter.
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(f) This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which together shall constitute a
single agreement.
(g) In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, in whole or in part, the validity of the
remaining provisions shall not be affected and the remaining portion of any
provision held to be invalid, illegal or unenforceable shall in no way be
affected, prejudiced or disturbed thereby.
(h) This Agreement may be amended or modified only by written
agreement executed by all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
COGNITIVE COMMUNICATIONS, LLC
By:
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Xxxxxxx X. Xxxxxx
Vice President and Chief Financial Officer
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Xxxxx Xxxxxx
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Xxxxxxx Xxxxxxx
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Xxxxx Xxxxxx
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