[cad 229]
[EXHIBIT 2]
FIRST AMENDMENT TO
EMPLOYMENT AND CONSULTING AGREEMENT
DATED AS OF DECEMBER 19, 1995
BETWEEN ITT DESTINATIONS, INC. AND
XXXX X. XXXXXXX
WHEREAS, ITT CORPORATION, a Nevada corporation (formerly known as
ITT Destinations, Inc.) (the "Company"), entered into an employment and
consulting agreement with Xxxx X. Xxxxxxx (the "Executive") dated as of December
19, 1995 (the "Agreement"); and
WHEREAS, the Company and Executive desire to amend the Agreement in
certain respects;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein set forth and for other consideration herein described, the
parties hereto agree as follows:
1. Paragraph 12 of the Agreement shall be amended by adding the
following at the end thereof:
"Following a Change in Control of the Company (as defined herein),
Executive shall have the right to terminate for good reason (as defined
herein). For purposes hereof,
(A) "Good Reason" shall mean:
(i) without the Executive's express written consent and
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by
the Company or its affiliates
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promptly after receipt of notice thereof given by the Executive, (A)
a failure to pay or reduction in the Executive's annual base salary
as described in paragraph 3 hereof) or any bonus or incentive
compensation opportunities or any reduction in any material
compensation or benefits arrangement provided to the Executive or
in which the Executive participates, (B) the assignment to the
Executive of any duties inconsistent in any respect with the
Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by paragraphs 2, 6, and 8 hereof, (C) any other action
by the Company or any of its affiliates which results in a
diminution in Executive's position, authority, duties or
responsibilities, or (D) any failure by the Company to comply
with any of the provisions of paragraph 5 hereof;
(ii) without the Executive's express written consent, the
Company's requiring the Executive's work location to be other than
within twenty-five (25) miles of New York City, New York;
(iii) any failure by the Company to obtain an express written
assumption of the Agreement by any successor to the Company.
For purposes hereof, a determination by the Executive that he has
"Good Reason" hereunder shall be final and binding on the parties
hereto absent a showing of bad faith on the Executive's part.
and (B) "Change in Control" of the Company shall mean the
occurrence of:
(i) a report on Schedule 13D shall be filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "Act") disclosing that any
person (within the meaning of Section 13(d) of the Act), other than
the Company or a subsidiary of the Company or any employee benefit
plan sponsored by the Company
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or a subsidiary of the Company, is the beneficial owner directly or
indirectly of twenty percent of more of the outstanding common
stock, no par value ("Stock") of the Company;
(ii) any person (within the meaning of Section 13(d) of the
Act), other than the Company or a subsidiary of the Company or any
employee benefit plan sponsored by the Company or a subsidiary of
the Company, shall purchase shares pursuant to a tender offer or
exchange offer to acquire any Stock of the Company (or securities
convertible into Stock) for cash, securities or any other
consideration, provided that after consummation of the offer, the
person in question is the beneficial owner (as such term is defined
in Rule 13d-3 under the Act), directly or indirectly, of fifteen
percent or more of the outstanding Stock of the Company (calculated
as provided in paragraph (d) of Rule 13d-3 under the Act in the case
of rights to acquire Stock);
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company in which the Company is not
the continuing or surviving corporation or pursuant to which shares
of Stock of the Company would be converted into cash, securities or
other property, other than a merger of the Company in which holders
of Stock of the Company immediately prior to the merger have the
same proportionate ownership of common stock of the surviving
corporation immediately after the merger as immediately before, of
(B) any sale, lease, exchange or other transfer in one transaction
or a series of related transactions) of all or substantially all the
assets of the Company; or
(iv) there shall have been a change in a majority of the
members of the Board within a 12-month period unless the election or
nomination for election by the Company stockholders of each new
director during such
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12-month period was approved by the vote of two-thirds of the
directors then still in office who were directors at the beginning
of such 12-month period."
2. Paragraph 13 of the Agreement is hereby amended by adding the
following paragraph (c) at the end thereof:
"(c) Notwithstanding the foregoing, if, within two years
following a Change in Control, the Executive's employment with
the Company is involuntarily terminated other than for cause or is
terminated by the Executive for Good Reason, then ITT will pay the
Executive in a lump sum within five days following Executive's date
of termination of employment, the following (i) all amounts owing
under paragraphs 13(a) hereof (as if the Board of Directors had
determined not to elect the Executive to the offices described in
paragraph 2 hereof) without reduction for future payment, (ii) all
amounts owing under paragraph 13(b), hereof (as if the Executive
served as Chairman and Chief Executive until October 31, 2000 and
was not nominated as a non-management director), without reduction
for future payment, and (iii) the value of the benefit provided
for in paragraph 7 hereof, computed without reduction for future
payment. For purposes of this paragraph 13(c), the amounts under
(i), (ii) and (iii) shall be determined as provided in paragraph
14(d) hereof.
The foregoing provisions of this paragraph 13(c) shall be
subject to paragraph 14 hereof."
3. A new paragraph 14(1) is added to the Agreement, to read as
follows:
"14. Golden Parachute Tax Matters
(a) Section 280 Cutback. Except as provided in paragraph
(b) and paragraph (c) hereof, notwithstanding any other provision
of this Agreement to the contrary, in the event that any payment
or benefit received or to be received by
----------
(1) Note that there is no paragraph 14 currently in the Agreement
(paragraphs skip from 13 to 15).
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Executive in connection with a Change in Control of the Company
or the termination of Executive's employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement) with the Company, any "person" (as defined in Section
13(d) of the Act) whose actions result in a Change in Control or any
person affiliated with the Company or such person) (all such
payments and benefits, being hereinafter called "Total Payments")
would not be deductible (in whole or part) by the Company, an
affiliate or person making such payment or providing such benefit as
a result of section 280G of the Internal Revenue Code of 1986,
as amended ("the Code"), then, to the extent necessary to make
such otherwise non-deductible portion of the Total Payments
deductible (and after taking into account any reduction in the
Total Payments provided by reason of section 280G of the Code in
such other plan, arrangement or agreement), (A) the cash portion
of the Total Payments provided in this Agreement shall first be
reduced (if necessary, to zero), and (B) all other non-cash Total
Payments under this Agreement shall next be reduced (if necessary,
to zero). For purposes of this limitation, (i) no portion of the
Total Payments the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the Date of
Termination shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which in the opinion of
a nationally recognized tax counsel selected by the Executive does
not constitute a "parachute payment" within the meaning of section
280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A)
of the Code, (iii) the Total Payments shall be reduced only to
the extent necessary so that the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4)(B) of the Code or are
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otherwise deductible after application of the non-deductibility
rules of Section 280G of the Code, in the opinion of the tax counsel
referred to in clause (ii); and (iv) the value of any non-cash
benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code. Solely for purposes of this paragraph
14(a) and Without limiting the generality of clause (ii)
of the preceding sentence, it is expressly acknowledged by the
Company that the Executive's accrued benefit under the Company's
Excess Pension Plan and the Executive's account balance under the
Company's Excess Savings Plan, both of which are already fully
vested under the terms of the respective plans, as well as any
non-qualified stock options which are fully exercisable as of the
date of the Executive's termination of employment do not constitute
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code. (2)
(b) Certain Additional Payments by the Company. (i) Anything
in this Agreement to the contrary notwithstanding, in the event that
it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (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 paragraph 14(b)
(a) "Payment") would as give rise to liability of the Executive for
the excise tax imposed by Section 4999 of the Code, or that any
interest or penalties are incurred by the Executive 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 the Executive shall be entitled to receive an
additional payment (the "Gross-Up Payment") in an amount such that
after payment by Executive of all Federal, state and local taxes
----------
(2) The Company should confirm that all amounts are fully vested and no
amount payable thereunder will constitute a "parachute payment".
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(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 to such
taxes) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this paragraph 14(b)(i), if it shall be determined
that the Executive is entitled to the Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax)
as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such
that the receipt of Payments would not give rise to any Excise Tax,
then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(ii) Subject to the provisions of paragraph 14(b)(iii),
all determinations required to be made under this paragraph
14(b), including whether and when the Gross-Up Payment is
required and the amount of such Gross-Up Payment, and the
assumptions to be utilized in arriving at such determinations
shall be made by a nationally recognized certified public
accounting firm as may be designated by the Executive (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested
by the Company. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment
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shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of
uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that the Gross-Up Payment
made will have been an amount less than the Company should
have paid pursuant to this paragraph 14(b)(ii) (the
"Underpayment"). In the event that the Company exhausts its
remedies pursuant to paragraph 14(b)(iii) and the Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment and any such Underpayment shall be promptly paid
by the Company to or for the benefit of Executive.
(iii) The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day
period following the date on which he or she gives such notice
to the Company (or such shorter period ending on the date that
any payment of taxes, interest and/or penalties, with respect
to such claim is due). If the Company notifies the Executive
in writing prior to the
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expiration of such period that it desires to contest such
claim, the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with contesting
such claim as the Company 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
Company,
(C) cooperate with the Company in good faith in
order to effectively contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify the Executive for and hold the Executive
harmless from, on an after-tax basis, any Excise Tax or
income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and
payment of all related costs and expenses. Without limiting
the foregoing provisions of this paragraph 14(b)(iii), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo 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 direct the Executive to
pay the tax claimed and xxx
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for a refund or contest the claim in any permissible manner,
and the Executive 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 Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and xxx for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis, and shall
indemnify the Executive for and hold the Executive harmless
from, on an after-tax basis, any Excise Tax or income 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 further provided that
any extension of the statute of limitations relating to the
payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable
hereunder and the Executive 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.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph 14(b)(iii),
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of paragraph 14(b)(iii))
promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable
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thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph 14(b)(iii), a
determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 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.
(c) Notwithstanding anything herein to the contrary, paragraph
14(a) shall not become effective if the closing price per share of
Company common stock, no par value, as reported on the New York
Stock Exchange Composite Tape, remains, for five consecutive trading
days following February [11], 1997, (provided one of the
consecutive days occurs prior to the Executive's date of termination
of employment), at or above the price at which two-thirds of the
award of performance-based options granted by the Company on
February 4, 1997 to senior executives of the Company will
vest by their terms (the "Target Price"), such Target Price to be
adjusted for any stock split, stock dividend, merger,
reorganization, recapitalization or other business combination
effectuated after the date of execution of this First Amendment
to the Agreement.
(d) For purposes of the calculations required to be made
under paragraphs 13 and 14, the parties agree that, absent any
changes made following the date of execution of this First
Amendment to Executive's compensation arrangements or to the
Company's benefit plans, programs, policies or arrangements, the
determinations to be made hereunder by tax counsel and the
Accounting Firm shall be made on a basis consistent with the
calculations set forth in Exhibit {A} hereto which have been
prepared by
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the Company concurrently with the execution of this First Amendment."
4. Except as hereinabove provided, this First Amendment is hereby
ratified and confirmed and the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment
to the Agreement as of the __ day of [February], 1997.
__________________________
Xxxx X. Xxxxxxx
ITT CORPORATION
By:
_______________________
[Xxxxx X. Xxxxxx]
[Senior Vice President]
