Exhibit 10.6
AGREEMENT
THIS AGREEMENT, made and entered into this 7th day of February, 2000, by
and between THE CHICAGO MERCANTILE EXCHANGE ("Employer"), an Illinois not for
profit corporation, having its principal place of business at 00 Xxxxx Xxxxxx
Xxxxx, Xxxxxxx, Xxxxxxxx, and Xxxxx X. XxXxxxx ("Employee").
R E C I T A L S:
WHEREAS, Employer wishes to retain the services of Employee in the capacity
of president and chief executive officer upon the terms and conditions
hereinafter set forth and Employee wishes to accept such employment;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties mutually agree as follows:
1. EMPLOYMENT. Subject to the terms of the Agreement, Employer hereby
agrees to employ Employee during the Agreement Term as president and chief
executive officer and Employee hereby accepts such employment. Employee shall
report to the Employer's Board of Directors, or any successor to the Board of
Directors (hereinafter, "Board" shall mean the Board of Directors of Employer
and/or any successor thereto). The duties of Employee as president and chief
executive officer shall include, but not be limited to, the performance of all
duties associated with the management and operation of Employer, including the
execution of all policies formulated by the Board, the selection and hiring of
personnel for the various divisions and departments, the training and
establishing of duties and responsibilities of supervisory personnel, and
improvements in organization, accounting procedures and financial policy for
Employer. Further, and without limiting the generality of the foregoing,
Employee, pursuant to the direction of the Board, shall be expected to
successfully oversee and implement the "demutualization" of
Employer, defined herein as the change of Employer from a member-owned not for
profit corporation to a stockholder-owned for-profit corporation. Employee shall
devote his full time, ability and attention to the business of Employer during
the Agreement Term, subject to the direction of the Board.
Notwithstanding anything to the contrary contained herein, nothing in the
Agreement shall preclude Employee from participating in the affairs of any
governmental, educational or other charitable institution, engaging in
professional speaking and writing activities, and serving as a member of the
board of directors of a publicly held corporation (except for a competitor of
Employer), as long as the Board does not determine that such activities
interfere with or diminish Employee's obligations under the Agreement. Employee
shall be entitled to retain all fees, royalties and other compensation derived
from such activities, in addition to the compensation and other benefits payable
to him under the Agreement, but shall disclose such fees to Employer.
2. AGREEMENT TERM. Employee shall be employed hereunder for a term
commencing on February 7, 2000 and expiring on December 31, 2003, unless sooner
terminated as herein provided ("Agreement Term"). The Agreement Term may be
extended or renewed by the mutual written agreement of the parties.
3. COMPENSATION.
(a) SIGN-ON BONUS. Within thirty (30) days of Employee's commencement
of employment with Employer, Employer shall pay to Employee, in a single lump
sum, a sign-on bonus of two million dollars ($2,000,000), less applicable
deductions and withholdings, to compensate Employee for the loss of benefits
from Employee's previous employment.
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(b) ANNUAL BASE SALARY. During the Agreement Term, Employee shall
receive an Annual Base Salary of one million dollars ($1,000,000) payable semi-
monthly. Employer shall annually review the Annual Base Salary and, at its sole
discretion, may increase it from the level then in effect; in no event shall the
Annual Base Salary be reduced during the Agreement Term from the level specified
herein.
(c) ANNUAL INCENTIVE BONUS. Employee shall have the opportunity for
an Annual Incentive Bonus for each calendar year during the Agreement Term based
on Employee's attainment of pre-established goals, as follows:
(i) The goals for the first calendar year of the Agreement
Term have been mutually agreed-upon by the parties, and are attached hereto as
EXHIBIT A and are incorporated herein by reference. During the remainder of the
Agreement Term, the goals for each coming calendar year shall be determined
solely by the Board, and shall be communicated, in writing, to Employee at least
thirty (30) days prior to the start of each calendar year.
(ii) The Annual Incentive Bonus shall not exceed the lesser of
one and one-half million dollars ($1,500,000) or, following demutualization, ten
percent (10%) of the Employer's Net Income, determined in accordance with
generally accepted accounting practices by the Employer's regular outside
certified public accountants.
(iii) The amount of the Annual Incentive Bonus for each calendar
year shall be as determined by the Board, in its sole discretion, based on the
Board's evaluation of Employee's attainment of the pre-established goals. Prior
to payment of an Annual Incentive Bonus to Employee, the Board shall certify in
writing that the pre-established goals, and any other terms deemed material by
the Board, have been attained.
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(iv) Payment to Employee of any Annual Incentive Bonus
determined by the Board, shall be made in a single lump sum during the first
calendar quarter following the end of the calendar year.
(d) NON-QUALIFIED STOCK OPTION AND LONG TERM INCENTIVE AWARD. As of
the date of Employee's commencement of employment with Employer, Employer shall
grant to Employee a Non-Qualified Stock Option and Long-Term Incentive Award
("collectively referred to herein as the "Non-Qualified Stock Option") in
accordance with SUPPLEMENT A attached hereto and incorporated herein by
reference.
(e) BENEFITS AND BENEFIT PROGRAMS. Employee shall be eligible to, and
shall, participate in all benefits and benefit programs offered from time to
time to the senior executives of Employer. This shall include, without
limitation, all insurance programs (e.g., medical, dental, vision, life,
accidental death and dismemberment and disability), paid holidays and 5 weeks
annual vacation, and pension, savings, cash balance, 401(k) and other retirement
plan or plans, all as may be in effect from time to time. In addition, at
Employer's expense, Employee shall be entitled to: (1) an annual physical
examination; (2) parking space at the principal location of Employer, and (3)
the amount of legal fees expended by Employee in connection with the negotiation
and execution of this Agreement, not to exceed thirty-five thousand dollars
($35,000).
(f) CEO PERQUISITES. Employee shall be eligible for such other
perquisites, paid for or reimbursed by Employer, that are customary for the
chief executive officer of a major financial institution, such as club
memberships, automobile allowance and reimbursement for professional services.
All such perquisites are subject to the approval of the Board's Compensation
Committee, or its designate or successor, which approval shall not be
unreasonably
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withheld, and shall not exceed fifty thousand dollars ($50,000) for each
calendar year of the Agreement Term.
(g) BUSINESS EXPENSES. Employer agrees to pay or promptly reimburse
Employee for all reasonable expenses incurred by Employee in furtherance of, or
in connection with, the transaction of the business of Employer hereunder,
subject to proper accounting by Employee and approval by Employer.
4. DISABILITY.
(a) In the event Employee is permanently disabled, as hereinafter
defined, for a continuous period of 6 months, Employer, in its sole discretion,
may terminate Employee's employment under the Agreement upon written notice to
Employee. In such event, Employee's Annual Base Salary shall continue as
provided in subparagraph (a) of paragraph 5.
(b) Employee, for the purposes hereof, shall be deemed to be
"permanently disabled" when a mutually selected physician determines that as a
result of bodily injury or disease or mental disorder, he is so disabled that he
is prevented from performing the principal duties of his employment with or
without reasonable accommodation.
5. TERMINATION.
Employer may terminate the employment of Employee under the Agreement in
the event that Employee shall die, or become permanently disabled, or for
"Cause" or "without Cause" as hereinafter defined, or upon expiration of the
Agreement Term, as set forth in subparagraphs (b) and (c) of this paragraph, and
Employee may terminate employment under the Agreement with or without Good
Reason, as hereinafter defined, as set forth in subparagraph (d) of this
paragraph. Except as set forth in the last sentence of this Section, Employee's
and his dependents' health,
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dental and vision insurance shall be continued on the terms then in effect (or
as thereafter changed generally for the senior management of Employer) until the
earlier of (a) the end of the period of continuation of Employee's Annual Base
Salary, or (b) the date Employee obtains other employment and becomes eligible
for coverage under such employer's health insurance program. To the extent
applicable, continuation of group health insurance coverage for Employee and his
dependents pursuant to the provisions of Section 4980B of the Internal Revenue
Code of 1986, as amended, and Sections 6.02 through 6.07 of the Employee
Retirement Income Security Act of 1974, as amended ("COBRA") shall commence
after expiration of the health insurance coverage provided above. In the event
of termination of Employee for Cause, or termination by Employee other than for
Good Reason, or termination upon expiration of the Agreement, Employee's and his
dependents' sole right to continued health insurance coverage shall be pursuant
to COBRA.
(a) DEATH OR DISABILITY. In the event of termination of Employee's
employment hereunder due to death or Employee becoming permanently disabled,
Employer shall, for a period of six (6) months following such termination,
continue to pay Employee's Annual Base Salary, as then in effect. Payments
pursuant to this subparagraph (a) shall be made to Employee, or to his estate or
designated beneficiary in the event of his death.
Any portion of the Non-Qualified Stock Option that is not vested prior to
termination on account of Employee's death or permanent disability shall
immediately vest on such termination. In the event of permanent disability,
during the remainder of the ten year period following the Grant Date (defined in
Supplement A), Employee shall be permitted to exercise any unexercised portion
of the Non-Qualified Stock Option. Any portion of the Non-Qualified Stock Option
that has not been exercised on the ten year anniversary of the Grant Date shall
be forfeited. As soon
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as practicable following death, Employer shall pay to Employee's estate or
designated beneficiary cash equal to the excess of the fair market value of the
Covered Shares (referred to in Supplement A) subject to such exercise over the
aggregate exercise price for such Shares.
(b) CAUSE OR EXPIRATION OF AGREEMENT TERM. If Employee's employment
hereunder is terminated by Employer for Cause, or upon expiration of the
Agreement Term, Employer shall pay to Employee in a single lump sum, as soon as
practicable after such termination or expiration, any and all accrued but unused
vacation pay and, accrued but unpaid Annual Base Salary, and other amounts that
have been earned but not paid to Employee as of the date of such termination or
expiration. If Employee is terminated for Cause, the entire Non-Qualified Stock
Option that has not been exercised by the date of notice of termination for
Cause shall be forfeited unless the Board, in its sole discretion, determines
otherwise. Upon expiration of the Agreement Term, Employee shall be permitted to
exercise any unexercised portion of the Non-Qualified Stock Option during the
ten year period following the Grant Date. Any portion of the Non-Qualified Stock
Option that has not been exercised by the ten year anniversary of the Grant Date
shall be forfeited.
For purposes of this Agreement, "Cause" shall be deemed to exist if, and
only if:
(i) Employee shall engage, during the performance of his duties
hereunder, in acts or omissions constituting dishonesty, intentional breach of
fiduciary obligation or intentional wrongdoing or malfeasance;
(ii) Employee shall intentionally disobey or disregard a lawful and
proper direction of the Board or Employer; or
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(iii) Employee shall materially breach the Agreement and such breach
by its nature is either incapable of being cured, or if capable of being cured,
remains uncured for more than thirty (30) days following receipt by Employee of
written notice from Employer specifying the nature of the breach and demanding
the cure thereof. For purposes of this clause (iii), a material breach of the
Agreement that involves inattention by Employee to his duties shall be deemed a
breach capable of cure.
Without limiting the generality of the foregoing, the following shall not
constitute Cause for termination of Employee or the modification or diminution
of any of his authority hereunder: (a) any personal or policy disagreement
between Employee and Employer or any member of Employer or its Board, or (b) any
action taken by Employee in connection with his duties hereunder or any failure
to act, if Employee acted, or failed to act, in good faith and in a manner
Employee reasonably believed to be in and not opposed to the best interest of
Employer and Employee has no reasonable cause to believe his conduct was
unlawful.
In the event of termination for Cause, Employer shall give Employee at
least thirty (30) days prior written notice, specifying in reasonable detail the
reason or reasons for Employee's termination.
(c) WITHOUT CAUSE. Employee's employment may be terminated by
Employer at any time during the Agreement Term, at Employer's discretion and
without Cause, upon ninety (90) days advance written notice of same to Employee.
In this event, Employee shall continue to receive (1) his Annual Base Salary for
the remainder of the Agreement Term, and (2) one-third (1/3) of the maximum
Annual Incentive Bonus, payable semi-monthly, for the remainder of the Agreement
Term. Any portion of the Non-Qualified Stock Option that is not vested prior to
such
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termination shall immediately vest on termination. During the ten year period
following the Grant Date, Employee shall be permitted to exercise any
unexercised portion of the Non-Qualified Stock Option. Any portion of the Non-
Qualified Stock Option that has not been exercised by the ten year anniversary
of the Grant Date shall be forfeited.
(d) BY EMPLOYEE. Employee's employment with Employer may be
terminated by Employee at any time, after the first anniversary of this
Agreement, by the giving of ninety (90) days advance written notice of same to
Employer. In the event Employee terminates after the first anniversary of this
Agreement, Employer shall pay to Employee, as soon as practicable after such
termination, in a single lump sum, any and all Annual Base Salary, and accrued
but unused vacation pay, that have been earned but not paid to Employee as of
the date of termination. Employee shall forfeit the Annual Incentive Bonus for
the year during which he resigns, and he shall forfeit any portion of the
Non-Qualified Stock Option that is not vested prior to termination. During the
one hundred eighty (180) day period following such termination, Employee shall
be permitted to exercise any portion of the Non-Qualified Stock Option that was
vested prior to termination. Any portion of the Non-Qualified Stock Option that
has not been exercised by the one hundred eighty first (181st) day following
termination shall be forfeited. In the event Employee attempts to terminate his
employment prior to the first anniversary of the Agreement, such act shall be
treated as a material breach of the Agreement by Employee under paragraph
5(b)(iii).
In the event Employee terminates the Agreement pursuant to the above after
its first anniversary date with less than ninety (90) days advance written
notice of same to Employer, the parties acknowledge that Employer will be
damaged thereby, but that such damages will be
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difficult to calculate. Accordingly, Employee will promptly pay to Employer, or
allow Employer to set off against any monies it may then owe to Employee, as
liquidated damages a sum equal to Employee's Annual Base Salary, on the date of
termination divided by 260 for each day Employee's notice of termination
hereunder is less than ninety (90) days.
A termination by Employee for Good Reason shall entitle Employee to those
payments applicable to a termination without Cause, as set forth in subparagraph
(c) of this paragraph. For purposes of this paragraph, "Good Reason" shall be
deemed to exist if, and only if:
(i) The Employee's principal place of business is relocated
outside of the Chicago metropolitan area;
(ii) Employer fails to pay to Employee the agreed-upon compensation
or benefits;
(iii) There is a demotion or significant diminution in Employee's
responsibilities or authorities under the Agreement sufficient
to constitute a constructive termination as presently defined
by Illinois law.
The conditions set forth in (ii) and (iii) above shall constitute Good
Reason if such conditions remain uncured for more than thirty (30) days
following Employer's receipt of written notice from Employee advising of such
condition and demanding the cure thereof.
6. "WALKAWAY" OPTION.
In the event Employer has not demutualized by December 31, 2000, the
Agreement may, within thirty (30) days thereafter, be terminated by either
Employee, if such failure is not the result of an intentional act by Employee,
or by Employer, by written notice of same to the other; provided, however, that
if Employer certifies in writing to Employee on or before January 31,
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2001, that demutualization has been delayed solely because a necessary
government action or ruling has not been received, and that Employer believes in
good faith that it will be received within ninety (90) days of the date of
Employer's certification hereunder, Employee shall not terminate hereunder
unless demutualization is not completed within such ninety (90) day period. For
purposes of the Agreement, the "Walkaway Period" shall mean the foregoing period
of time prior to demutualization, including the specified extensions thereof,
during which either party may, pursuant to this paragraph 6, terminate the
Agreement.
In the event of termination of the Agreement under this paragraph, Employee
shall be paid the Annual Base Salary in effect prior to such termination plus
one-third (1/3) of the maximum Annual Incentive Bonus, payable semi-monthly, for
the remainder of the Agreement Term. Such payments shall cease if and when
Employee becomes employed by or becomes a consultant to any organization engaged
in trade execution and/or trade clearing. Notwithstanding the preceding
sentence, such payments shall not cease if Employee becomes a member of the
board of directors of any organization that is not in direct competition with
Employer. For purposes of this provision, all stock exchanges shall be deemed to
be in direct competition with Employer.
During the Walkaway Period, Employee shall not exercise any portion of the
Non-Qualified Stock Option that has vested. In the event of termination of the
Agreement under this paragraph by either Employer or Employee, the entirety of
the Non-Qualified Stock Option, regardless of whether otherwise vested or
unvested, shall be forfeited.
7. CHANGE IN CONTROL. For purposes of the Agreement, the term "Change in
Control" means the occurrence, of the events described in any of subsections
(i), (ii), or (iii) below:
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(i) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of any voting securities of
the Employer entitled to vote generally in the election of directors ("Voting
Securities") if, immediately after such acquisition, such Person beneficially
owns fifty percent (50%) or more of the combined voting power of the outstanding
Voting Securities (the "Outstanding Employer Voting Securities"). The foregoing
provisions of this subsection (i) shall be subject to the following:
(A) The following shall not constitute a "Change in Control": (I) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by Employer or any entity controlled by Employer (an "Employer
Plan"); (II) any acquisition by an underwriter temporarily holding
securities pursuant to an offering of such securities; or (III) any
acquisition by any Person pursuant to a transaction which complies with
subsections (ii)(A) and (ii)(B) of this definition.
(B) For purposes of the foregoing provisions of this subsection (i), the
following shall not be deemed to constitute an "acquisition" by any Person:
(I) any acquisition directly from Employer (excluding any acquisition
resulting from the exercise of an exercise, conversion, or exchange
privilege unless the security being so exercised, converted, or exchanged
was acquired directly from Employer); and (II) any acquisition by Employer
of Voting Securities.
(ii) Consummation of (I) a reorganization, merger, consolidation, or other
business combination involving Employer or (II) the sale or other disposition of
more than fifty percent (50%) of the
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operating assets of Employer (determined on a consolidated basis), other than in
connection with a sale-leaseback or other arrangement resulting in the continued
utilization of such assets (or the operating products of such assets) by
Employer (any transaction described in part (I) or (II) being referred to as a
"Corporate Transaction"); excluding, however, a Corporate Transaction pursuant
to which each of subsections (A) and (B) below are applicable:
(A) All or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Employer Voting
Securities immediately prior to such Corporate Transaction beneficially
own, directly or indirectly, more than fifty percent (50%) of the combined
voting power of the then Outstanding Employer Voting Securities entitled to
vote generally in the election of directors of the ultimate parent entity
resulting from such Corporate Transaction (including, without limitation,
an entity which, as a result of such transaction, owns Employer or all or
substantially all of the assets of Employer either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the
Outstanding Employer Voting Securities, as the case may be.
(B) No Person (other than Employer, any Employer Plan or related trust, the
corporation resulting from such Corporate Transaction, and any Person which
beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, fifty percent (50%) or more of the Outstanding
Employer Voting Securities) will beneficially own, directly or indirectly,
fifty percent (50%) or more of the then combined voting power of the then
outstanding voting securities of such entity.
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(iii) Approval by the shareholders of Employer of a plan of complete liquidation
or dissolution of the Employer.
If during the Agreement Term there is both a Change in Control, and
Employee's employment is terminated by Employer, or by Employee for Good Reason,
during the two (2) years following such Change in Control, Employee shall be
entitled to the following:
(a) A single lump sum severance payment to be paid by Employer equal
to the aggregate of (1) two (2) times the Annual Base Salary in effect prior to
such termination that would have been due Employee but for his termination
pursuant to this paragraph 7, plus (2) one and one-third (1 1/3) times the
maximum Annual Incentive Bonus that Employee would have been eligible to receive
but for his termination pursuant to this paragraph 7, for the remainder of the
Agreement Term; provided, however, that such severance payment shall not exceed
eight million dollars ($8,000,000), and may be reduced to a lesser amount to the
extent provided in subparagraph (b) next below. This severance payment shall be
made within ninety (90) days of the date of such termination pursuant to this
paragraph.
(b) If:
(i) any payment or benefit to which the Employee is entitled
from Employer, any affiliate, or trusts established by Employer or by any
affiliate (the "Payments," which shall include, without limitation, the vesting
of an option or other non-cash benefit or property) are more likely than not to
be subject to the tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended ("Code") or any successor provision to that section; and
(ii) reduction of the Payments to the amount necessary to avoid
the application of such tax would result in Employee retaining an amount that is
greater than the
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amount he would retain if the Payments were made without such reduction but
after the application of such tax;
The Payments shall be reduced to the extent required to avoid application of
such tax. The Employee shall be entitled to select the order in which Payments
are to be reduced in accordance with the preceding sentence. Determination of
whether Payments would result in the application of the tax under Code Section
4999, and the amount of reduction that is necessary so that no such tax is
applied, shall be made by the mutual agreement of the parties or, in the absence
of such agreement, by a mutually selected independent certified public
accounting firm, retained at Employer's expense.
(c) Any portion of the Non-Qualified Stock Option that is not then
vested shall immediately vest. If the securities that Employee would receive
upon the exercise of the Non-Qualified Stock Option are of a class that is not
registered under Section 12 of the Securities Exchange Act of 1934, then the
Non-Qualified Stock Option shall be exercisable by Employee until the three-year
anniversary of Employee's termination of employment with Employer; provided that
in no event shall the Non-Qualified Stock Option be exercisable later than the
ten-year anniversary of the Grant Date. If the securities that Employee would
receive upon the exercise of the Non-Qualified Stock Option are of a class that
is registered under Section 12 of the Securities Exchange Act of 1934, then
Employer shall file a Securities Exchange Commission Form S-8 with respect to
the sale of all of the securities that would be deliverable to Employee upon the
exercise of the Non-Qualified Stock Option (in whole or in part) (the "Required
Form S- 8") before, or as soon as practicable after the termination of
Employee's employment with
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Employer, and the Non-Qualified Stock Option shall be exercisable by Employee
until the latest to occur of:
(i) the one-year anniversary of Employee's termination of employment with
Employer;
(ii) the one-year anniversary of the date on which the Required Form S-8
becomes effective with respect to the exercise of the Non-Qualified Stock
Option; or
(iii) the one-year anniversary of the date on which counsel to Employer renders
an opinion to Employer and Employee that Employee is not an "affiliate"
(as that term is defined in Rule 144 under the Securities Act of 1933)
with respect to Employer or, if later, the date specified in such opinion
as the date on which Employee will cease to be an "affiliate";
provided that in no event shall the Non-Qualified Stock Option be exercisable
later than the ten-year anniversary of the Grant Date. Any portion of the
Non-Qualified Stock Option that has not been exercised prior to the end of the
period of exercisability set forth in this paragraph (c) shall be forfeited.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that Employer may disclose certain
confidential information to Employee during the Agreement Term to enable him to
perform his duties hereunder, and Employee hereby covenants and agrees that,
subject to subparagraph (b) of this Section, he will not, without the prior
written consent of Employer, during the Agreement Term (except in connection
with the proper performance of his duties hereunder) or at any time thereafter,
disclose or permit to be disclosed to any third party by any method whatsoever
any of the confidential information of Employer. For purposes of the Agreement,
"confidential information" shall include, but not be limited to, any and all
records, notes, memoranda, data,
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writings, research, personnel information, customer information, clearing
members' information, Employer's financial information and plans in the
possession or control of Employer that have not been published or disclosed to
the general public or the commodities futures industry. If Employee fails to
comply with any provisions of this paragraph, which failure (i) is inadvertent
or unintentional, or (ii) occurs notwithstanding Employee's good faith effort to
comply with paragraph, or (iii) does not, and is not likely to, result in
material loss to Employer, then such failure shall not constitute a violation of
any provision, covenant or agreement of this paragraph, for any purposes of this
Agreement.
(b) Clause (a), above, shall not be applicable if and to the extent
Employee is required to testify in a legislative, judicial or regulatory
proceeding pursuant to an order of Congress, any state or local legislature, a
judge, or an administrative law judge issued after Employee and his legal
counsel have, by all legal means, resisted such order. Employee will promptly
notify Employer, so that Employer will have sufficient time to intervene or
otherwise protect its interests, of the commencement of a proceeding or action
which might result in an order requiring the disclosure of confidential
information by Employee.
9. INDEMNITY. Except as precluded by law or regulation, Employer shall
indemnify, protect, defend and save Employee harmless from and against any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative, in which Employee is made a party by
reason of the fact that Employee is an officer, employee or agent of Employer,
or any judgment, amount paid in settlement (with the consent of Employer), fine,
loss, expense, cost, damage and reasonable attorney's fees incurred by reason of
the fact that Employee is an officer, employee or agent of Employer, provided,
however, that Employee acted
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in good faith and in a manner he reasonably believed to be in the best interests
of Employer, and had no reasonable cause to believe his conduct was unlawful.
Employer, at its expense, shall have the right to purchase and maintain
insurance or fidelity bonds on behalf of Employee against any liability asserted
against him and incurred by him in his capacity as an officer, employee or agent
of Employer.
10. ARBITRATION; EQUITABLE REMEDIES. Any controversy or claim arising out
of or relating to the Agreement or the validity, interpretation, enforceability
or breach thereof, which is not settled by agreement of the parties, shall be
settled by arbitration conducted in the City of Chicago, in accordance with the
Labor Rules and Procedures of the American Arbitration Association
("Association"), and judgment upon the award rendered in such arbitration may be
entered in any court having jurisdiction. The arbitration shall be conducted
before a single arbitrator selected by the parties. In the event the parties
cannot agree on any arbitrator, then the Association will supply both parties
with a list of seven (7) names. The parties will alternatively strike one name
until only one remains. First choice will be determined by a coin toss, the
winning party having the option of striking first or second. All expenses of
arbitration shall be borne equally by the parties, except that each party shall
bear its own attorney's fees. The arbitrator shall have no power to amend,
alter, add to or delete from the Agreement.
Employee acknowledges that Employer would be irreparably injured by a
violation of paragraph 8 and Employee agrees that Employer, in addition to any
other remedies available to it for such breach or threatened breach, shall be
entitled to a preliminary injunction, temporary restraining order, or other
equivalent relief, restraining Employee from any actual or threatened breach of
paragraph 8 pending, and in aid of, arbitration of the dispute. If a bond is
required to be
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posted in order for Employer to secure an injunction or other equitable remedy,
the parties agree that such bond need not be more than a nominal sum.
11. RETURN OF PROPERTY. Upon Employee's last day of active work, Employee
hereby agrees to immediately turn over to Employer any keys, credit cards,
passes, and all notes, memoranda, records, documents, computer disks, and all
other information, no matter how produced or reproduced, kept by Employee or in
his possession or control, used in or pertaining to the business of Employer, it
being hereby acknowledged that all of said items are the sole and exclusive
property of Employer.
12. DEFENSE OF CLAIMS. During the period of his employment by Employer,
and continuing after the termination of his employment for a period of three (3)
years, Employee shall reasonably cooperate with Employer at its request in the
defense or prosecution of any claim that may be made by or against Employer.
Such cooperation shall include, without limitation, serving as a witness at
trial or hearing, being deposed, and preparation for same or otherwise
cooperating with Employer as determined to be necessary by Employer at its sole
discretion, for the defense or prosecution of a claim. For the period after
Employee terminates his employment with Employer, Employer shall reimburse
Employee for all reasonable expenses in connection therewith, including travel
expenses, and shall compensate him at a daily rate equal to his Annual Base
Salary on the date his employment with Employer terminated, divided by 260, with
days used for preparation, travel and other related matters being included for
purposes of determining the compensation due to Employee. Less than full days
shall be paid for by the hour, determined by dividing the daily rate by eight.
To the extent reasonably practicable, Employer shall provide Employee with
notice at least ten (10) days prior to the date on which any such travel is
required.
19
13. WAIVER OF BREACH. No waiver of either party hereto of a breach of any
provision of the Agreement by the other party, or of compliance with any
condition or provision of the Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of either party to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
14. ENTIRE AGREEMENT. The Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof.
15. COUNTERPARTS. The Agreement may be signed in multiple counterparts,
each of which shall be deemed to be an original for all purposes.
16. ACKNOWLEDGMENT BY EMPLOYEE. Employee represents that he is
knowledgeable and sophisticated as to business matters, including the subject
matter of the Agreement, that he has read the Agreement and that he understands
its terms. Employee acknowledges that, prior to assenting to the terms of the
Agreement, he has been given reasonable time to review it, to consult with
counsel of his choice, and to negotiate at arm's length with Employer as to the
contents. Employee and Employer agree that the language used in the Agreement is
the language chosen by the parties to express their mutual intent, and that no
rule of strict construction is to be applied against either party hereto.
20
17. ASSIGNMENT, SURVIVAL OF AGREEMENT.
(a) This Agreement is personal to Employee and shall not be assigned.
(b) Employer may assign the Agreement without the consent of Employee
to any other entity who in connection with such assignment acquires all or
substantially all of the assets of Employer, or acquires a majority of the
voting rights of Employer, or into or with which Employer is merged or
consolidated. In the event of a merger, sale, reorganization or other Change in
Control (as defined in paragraph 7) of Employer, the Agreement shall be binding
upon, and inure to the benefit of, any successor to Employer.
(c) Except as otherwise expressly provided in this Agreement, the
rights and obligations of the parties to the Agreement shall survive the
termination of Employee's employment with Employer.
18. NOTICE. All notices and communications required hereunder shall be in
writing and shall be deemed to have been given on the day of delivery if
personally delivered or sent by facsimile, or two (2) days after mailing if
mailed, postage prepaid, certified or registered, return receipt requested, to
the following addresses:
IF TO EMPLOYEE: Xxxxx X. XxXxxxx
0 Xxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
WITH A COPY TO: Xxxx Xxxxx
Xxxxxx Xxxxxx & Xxxxx
000 X. Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
IF TO EMPLOYER: Chicago Mercantile Exchange
00 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
ATTENTION: Xxxxx Xxxxxxx
21
WITH A COPY TO Xxxxxxx X. Xxxxxxx
Xxxxxxx, Xxxxxxx & Xxxxxxx
000 X. Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
or to such other addresses as the respective parties may hereafter designate.
19. SEVERABILITY. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement, and shall
not affect the application to any clause, provision or portion hereof to other
persons or circumstances.
20. BENEFIT. The provisions of this Agreement shall be binding upon and
inure to the benefit of Employer, its successors and assigns and upon and to
Employee, his heirs, personal representatives and successors, including without
limitation, the estate of Employee and the executors, administrators or trustees
of such estate.
21. RELEVANT LAW: This Agreement shall be construed and enforced in
accordance with the laws of the State of Illinois without regard to that State's
conflict of laws.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
day and date first above written.
EMPLOYER: EMPLOYEE:
CHICAGO MERCANTILE EXCHANGE,
an Illinois not for profit
corporation
By: /s/ Xxxxx Xxxxxx /s/ Xxxxx X. XxXxxxx
----------------------------------- ----------------------------------
[Name]
Its:
-----------------------------
22
SUPPLEMENT A
As of the date of employment (the "Grant Date"), Employer grants to
Employee this Non-Qualified Stock Option ("Option") upon the terms and
conditions set forth in this Supplement A. The Option may only be exercised if
Employer converts from an Illinois not-for-profit corporation to a for-profit
corporation. If Employer does not convert, Employee shall be entitled to
appreciation rights in lieu of the Option. The Option rewards Employee for
helping to increase the Value of Employer. The Option allows Employee to acquire
a basket of up to 2.5% of all classes of the Employer's common stock, as of the
date that Employer converts, for an exercise price equal to 2.5% of the Value of
the Employer on the Grant Date and to acquire a basket of up to 2.5% of all
classes of the Employer's common stock, as of the date that Employer converts,
for an exercise price equal to 3.75% of the Value of the Employer on the Grant
Date. The number of shares of each class will be computed when the conversion
becomes final and a Rider showing the results of such computation will be
attached to and become a part of this Agreement. The number of shares and
exercise price of a class of common stock subject to the Option shall be
adjusted as a result of an equity restructuring to maintain the economic value
of the Option. For purposes of this Supplement A, an equity restructuring is a
nonreciprocal transaction between the Company and its shareholders, such as a
stock dividend, spin-off, stock split, reverse stock split, rights offering, or
recapitalization through a special, large nonrecurring dividend that causes the
market value per share of the stock underlying the Option to decrease or
increase.
The Option shall be a non-qualified stock option, not granted in accordance
with Section 422 of the Internal Revenue Code of 1986, as amended, to purchase
an indivisible package including each class of shares issued by the Employer
(the "Covered Shares").
1. The Option provides that, upon exercise with respect to the Covered Shares
elected by Employee, Employee shall receive shares of Class A common stock,
Class B common stock, cash, or a combination thereof, as determined by
Employer in its sole discretion (except Employer shall not distribute more
class B common stock than the amount included in the indivisible package
comprising the Covered Shares elected by Employee), with an aggregate Fair
Market Value equal to the Fair Market Value of the Covered Shares to which
he would otherwise have been entitled upon exercise.
2. The Options will be divided into two tranches, referred to as Tranche A and
Tranche B. Each of Tranche A and Tranche B will include an equal number of
the Covered Shares granted hereunder, that is, each tranche shall include a
basket equal to 2.5% of each class of Employer's common stock.
3. The exercise price with respect to all of the Covered Shares under Tranche
A shall be 2.5% of the Value of Employer on the Grant Date. The exercise
price with respect to all of the Covered Shares under Tranche B shall be
3.75% of the Value of Employer on the Grant Date. If fewer than all the
Covered Shares in a Tranche are exercised, the exercise price will be
proportionately reduced.
4. The "Value of Employer on the Grant Date" shall be equal to the sum of the
prices for all memberships, with the price for any category of membership
to be determined based on the average price of all actual transactions for
that category of membership which took place during the six months prior to
the Grant Date.
5. Each Installment of Covered Shares of Tranche A and each installment of
Covered Shares of Tranche B shall be exercisable on and after the Vesting
Date for such Installment as described in the following schedule (but only
if Employee's date of termination with Employer has not occurred before the
Vesting Date):
2
INSTALLMENT VESTING DATE APPLICABLE TO
INSTALLMENT
40% of Covered Shares One year anniversary of the Grant Date
20% of Covered Shares Two year anniversary of the Grant Date
20% of Covered Shares Three year anniversary of the Grant Date
20% of Covered Shares Four year anniversary of the Grant Date
6. Notwithstanding the foregoing provisions of paragraph 5, the Option shall
become fully vested and exercisable under the following circumstances: (i)
the termination of Employee's employment with Employer by reason of the
Employee's death or permanent disability pursuant to subparagraph 5(a) of
the Agreement, (ii) termination by Employer without Cause pursuant to
subparagraph 5(c) of the Agreement, (iii) termination by Employee for Good
Reason pursuant to subparagraph 5(d) of the Agreement, and (iv) a Change in
Control and termination as defined in paragraph 7(a) of the Agreement.
7. At any time that a portion of the Option is exercisable, Employee may
exercise such portion in whole or in part by filing a written notice with
Employer accompanied by payment of the exercise price in accordance with
Paragraph 13 of this Supplement A.
8. The Option may be exercised on or after Employee's date of termination with
Employer only as to those Covered Shares for which it was exercisable
immediately prior to Employee's date of termination with Employer, or
becomes exercisable on Employee's date of termination with Employer.
3
9. Upon exercise of the Option, Employer shall distribute to Employee the
Covered Shares subject to the exercise, or in lieu of the Covered Shares,
shares of Class A common stock, Class B common stock, cash, or a
combination thereof, as determined by Employer in its sole discretion
(except Employer shall not distribute more class B common stock than the
amount included in the indivisible package comprising the Covered Shares
elected by Employee). Such payment of cash and/or shares of common stock
shall be equal to the aggregate Fair Market Value of the Covered Shares
subject to the exercise notice on the date of exercise. The Fair Market
Value for the Class A and Class B Stock included in the Covered Shares, as
of any date, shall be determined in the following manner:
(i) If traded on an established exchange, Fair Market Value
shall be the closing prices of such Stock on such exchange as of such
date;
(ii) If such Stock is not traded on an established exchange as
of such date, Fair Market Value shall be the average of the bid and
ask prices for such Stock, where quoted for such Stock, as of the
applicable date;
(iii) If no applicable price is available pursuant to clauses
(i) or (ii) above, or if, in the mutual opinion of Employer and
Employee, either or both of Class A and Class B Stock are thinly
traded, an outside expert, mutually selected by Employer and Employee,
shall establish the Fair Market Value of either or both.
10. The Option shall not be exercisable after Employer's close of business on
the last business day that occurs prior to the Expiration Date. The
"Expiration Date" shall be the earlier to occur of: (i) the ten-year
anniversary of the Grant Date or (ii) the date on which Employee is
notified by Employer of Employee's termination for Cause; or (iii) the
applicable date
4
following Employee's death, permanent disability or other termination
pursuant to paragraphs 5 or 7 of the Agreement.
11. The Options and all rights thereunder will be non-transferable except with
the written consent of the Compensation Committee of the Board.
12. Shares of Class A Stock of Employer distributed pursuant to the exercise of
the Option shall be transferable by Employee, subject to Employee being
required to hold shares of such Stock, with a Fair Market Value equal to
not less than three times Employee's Annual Base Salary, while employed by
Employer as its Chief Executive Officer, subject to any applicable legal
requirements, and subject to any lockup restrictions specified by
Employer's banker.
13. The Option may be exercised by Employee, by a legatee or legatees of the
Option under Employee's last will, or by his executors, personal
representatives or distributees, by delivering to the Secretary of Employer
written notice of the percentage of Covered Shares with respect to which
the Option is being exercised, accompanied by full payment to Employer of
the exercise price of the Covered Shares being purchased under the Option.
The exercise price of the Covered Shares purchased shall be paid in full by
any of the following methods, or any combination thereof, selected by
Employee, or his legatee or legatees, executors, personal representatives
or distributees: (i) in cash, (ii) in Class A Stock valued at its Fair
Market Value on the date of exercise, (iii) in Class B Stock valued at its
Fair Market Value on the date of exercise, (iv) in cash by a broker-dealer
to whom the holder of the Option has submitted an exercise notice
consisting of a fully-endorsed Option (in such case, Employer shall pay all
brokerage fees in connection with the exercise), (v) by agreeing to
surrender a portion of the Option then exercisable,
5
valued at the Fair Market Value of the Covered Shares minus the exercise
price for such Covered Shares, or (vi) by directing Employer to withhold
such number of shares of Covered Shares otherwise issuable upon exercise of
the Option having an aggregate Fair Market Value on the date of exercise
equal to the exercise price of the Option. The election by Employee
pursuant to the preceding sentence must be made on or prior to the date of
exercise of the Option and shall be irrevocable.
14. As soon as reasonably practicable after exercise of the Option, and payment
of the exercise price as provided above, Employer shall issue, in the name
of Employee (or if applicable his legatees, executors, personal
representatives or distributees) stock certificates representing the total
number of Covered Shares or shares of common stock issuable pursuant to the
exercise of the Option, provided that any Stock purchased by Employee
through a broker-dealer shall be delivered to such broker-dealer in
accordance with applicable government regulations.
15. If Employer has not demutualized at the date that Employee gives notice of
exercise, Employee shall receive appreciation rights in lieu of the Covered
Shares to which he would have been entitled. In such case, no payment of
the exercise price shall be due from Employee under paragraphs 7 and 13 of
this Supplement A, and no distribution shall be made to Employee in
accordance with paragraphs 1, 9 and 14 of this Supplement A or otherwise.
Instead, Employee shall be entitled to a cash payment equal to the excess
of (i) the Fair Market Value (determined in accordance with paragraph 4 as
of the date of exercise) of the percentage of Employer that would have been
represented by Covered Shares subject to the exercise over (ii) the
exercise price applicable to the Covered Shares
6
that would have been subject to the exercise notice. The amount of such
cash distribution (together with interest at the rate of LIBOR plus one)
shall be made in three substantially equal installments on each of the
one-year anniversary, the two-year anniversary, and the three-year
anniversary of the exercise date.
7
EXHIBIT A
Pursuant to paragraph 3(c)(i) of the Agreement, Employer and Employee have
mutually agreed upon the goals for Employee for the year 2000, which are as
follows:
1. Complete an evaluation of selected alliance partner relationships and
the strategic implications of each for the Employer.
2. Evaluate Clearing 21 capabilities with recommendations for
enhancements.
3. Lead staff effort in the completion of S-4 filing with SEC regarding
demutualization.
4. Complete an evaluation of the current technology, including, without
limitation, GLOBEX trade matching engine capabilities, and evaluate
alternatives.
5. Prepare an employee stock option plan that aligns the objectives of
employees to those of shareholders.
6. Complete an analysis of existing senior management team.
7. Assess the ongoing needs of the Employer with respect to personnel,
staffing levels and real estate needs, and possible adjustments thereto.
8. Assist in the regulatory and legislative processes on matters that
affect the Employer.
9. Establish and maintain strong communications with the Employer's Board
of Directors, and endeavor to obtain the Board's cooperation and support in the
ongoing planning process.
