EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT, hereinafter referred to as the
"Agreement," is entered into on this 15th day of September, 2001, at San Diego,
California, by and between DIRECT III MARKETING, INC., a Delaware corporation,
hereinafter referred to as "DIRECT III," and XXXXXXX X. XXXXX, hereinafter
referred to as "Executive".
Executive has substantial experience in the corporate matters and the
student loan industry. DIRECT III is entering into this Agreement in recognition
of the importance of Executive's services as President and Chief Operating
Officer to the continuity of management of DIRECT III and based upon its
determination that it will be in the best interest of DIRECT III to encourage
Executive's continued attention and dedication to Executive's duties on behalf
of DIRECT III on into the future. (Certain capitalized terms used in this
Agreement have the meanings ascribed to them in Section 22 below.)
Effective as of the date first set forth above, hereinafter referred to
as the "Effective Date," DIRECT III and Executive agree as follows:
1. Employment Term. During the period specified in this Section 1,
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DIRECT III shall employ Executive, and Executive shall serve DIRECT III on the
terms and subject to the conditions set forth herein. The term of Executive's
employment under this Agreement shall commence on the Effective Date, and
subject to prior termination as provided in Section 9 below, shall continue
through June 30, 2003. Unless Executive's employment has been earlier
terminated, on and on each June 30th thereafter occurring during the term of
Executive's employment (each such June 30th being an "Extension Date"), the term
Executive's employment shall be extended by one (1) additional year so that, as
extended, the term will expire on the next anniversary of that particular
Extension Date (except that if the Scheduled Retirement Date is before the next
anniversary of that particular Extension Date, the term shall be extended only
through the Scheduled Retirement Date) unless, on or before the March 31 next
preceding such Extension Date, either party has given notice to the other of
Executive's or its intention that the term of Executive's employment should not
be so extended. The term of Executive's employment under this Agreement as
described herein above is sometimes referred to as the "Employment Period".
2. Duties, Responsibilities, Reporting, No Service for Others.
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(a) At all times during this Employment Period, Executive (i)
shall have the titles of President and Chief Operating Officer and shall perform
the duties of those offices and such other duties in furtherance of DIRECT III's
business, consistent with the offices of President and Chief Operating Officer,
as may be assigned to Executive from time to time by the Board of Directors of
DIRECT III, hereinafter referred to as the "Board of Directors", (ii) shall be a
member of the Board of Directors, and (iii) shall devote Executive's entire
business time, energy, talent, and best efforts to the faithful and efficient
performance of Executive's duties as President and Chief Operating Officer and
as a member of the Board of Directors.
(b) Executive shall report to and take direction from the
Chief Executive Officer and the Board of Directors.
(c) Executive shall not, at any time during the Employment
Period, directly or indirectly, render any business, commercial, or professional
services to any other person, firm, or organization (other than DIRECT III) for
compensation without the prior approval of the Board of
Directors (except that Executive may, without the prior approval of the Board of
Directors, serve as a director or trustee of one or more other entities provided
Executive's service in that capacity does not interfere with the performance by
Executive of Executive's duties hereunder), nor shall Executive, directly or
indirectly, have any debt or equity investment in any business enterprise (other
than DIRECT III) engaged to any extent in the student loan origination,
servicing, purchasing, selling, and securitization business. Nothing in this
Agreement shall preclude Executive from devoting reasonable periods of time to
charitable and community activities or the management of Executive's personal
investment assets provided (i) such activities do not interfere with the
performance by Executive of Executive's duties hereunder, and (ii) Executive
does not invest, directly or indirectly, in any business entity (other than
DIRECT III), except that Executive may invest in any such entity if its stock is
publicly traded and Executive does not, alone or in concert with any other
person or persons, have or acquire beneficial ownership of more than Two Percent
(2%) of the outstanding stock of the entity.
3. Compensation.
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(a) Base Salary. During the Employment Period, DIRECT III
shall pay to Executive a base salary in regular equal installments in accordance
with DIRECT III's usual payroll practice. Beginning October 1, 2001, the initial
rate of Executive's base salary shall be TWO HUNDRED TWENTY-FIVE THOUSAND AND
NO/100 DOLLARS ($225,000.00) per annum. On March 31, 2002, Executive's base
salary shall be increased to TWO HUNDRED SEVENTY-FIVE THOUSAND AND NO/100
DOLLARS ($275,000.00) per annum. The rate of Executive's base salary shall be
reviewed at least annually towards the end of DIRECT III's fiscal year (with a
first review to be completed no later than June 30, 2002), and may be adjusted
at least once each year as may be determined by the Compensation Committee of
the Board of Directors, hereinafter referred to as the "Compensation Committee".
(b) Annual Incentive Compensation. During the Employment
Period, Executive will be a participant in DIRECT III's Annual Incentive Plan on
such terms and with such target and maximum incentive bonus as the Compensation
Committee may from time to time determine.
(c) Long-Term Incentive Compensation. During the Employment
Period, and if implemented by the Board of Directors, Executive shall be a
participant in DIRECT III's Stock Option Plan and shall receive such awards
thereunder as the Compensation Committee may from time to time determine.
Furthermore, it is anticipated that if Executive remains in Executive's position
with DIRECT III through the each anniversary of Executive's initial hiring,
Executive shall receive additional non-qualified stock option awards for
additional shares of the common stock of DIRECT III as determined by the
Compensation Committee.
4. Employee Welfare Benefits. During the Employment Period, Executive
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shall be entitled to participate in, and shall receive benefits in accordance
with the terms of all welfare benefits plans, practice, policies, and programs
that are made available by DIRECT III to either salaried employees of DIRECT III
(including any medical and life insurance plans and programs) or other similar
executive officers of DIRECT III, whichever is greater.
5. Retirement Benefits. During the Employment Period, Executive shall
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be entitled to participate in the DIRECT III MARKETING 401(K) PLAN, and any
other retirement benefits implemented by the Board of Directors, in each case in
accordance with the terms and conditions of the applicable plan.
6. Reimbursement for Business Expenses. Subject to such limitations as
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may be reasonably imposed by the Board of Directors from time to time during the
Employment Period, DIRECT III shall
reimburse Executive for all reasonable employment-related expenses incurred by
Executive in the performance of Executive's duties under this Agreement,
provided that Executive appropriately accounts to DIRECT III with respect to all
such expenses in accordance with the reimbursement accounting policies
established by DIRECT III for similar executive officers from time to time
during the term hereof.
7. Vacations. During the Employment Period, Executive shall be entitled
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to take periodic vacations subject to the provisions of DIRECT III's vacation
policy as in effect from time to time, but not less than SIX (6) weeks per year,
with such vacation to be taken at such time or times as Executive may determine
in such manner as to avoid undue disruption to the business of DIRECT III.
8. Effect of Disability While in the Employ of DIRECT III. If during
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the Employment Period, Executive becomes disabled by reason of physical or
mental impairment to such an extent that Executive is unable to substantially
perform Executive's duties under this Agreement (as determined in the reasonable
judgment of the Board of Directors):
(a) DIRECT III may relieve Executive of the duties under this
Agreement for as long as Executive is so disabled;
(b) DIRECT III shall pay to Executive, net of the offset
referred to in the last sentence of this section 8(b), all base salary and
annual incentive compensation, if any, to which Executive would have been
entitled under this Agreement and the Annual Incentive Plan had Executive
continued to be actively employed by DIRECT III to the earliest of (i) the first
date on which Executive is no longer disabled, (ii) the date on which
Executive's employment is terminated by DIRECT III due to the disability
pursuant to Section 9(b), (iii) the date of Executive's death, or (iv) the end
of the Employment Period due to any reason other than termination by DIRECT III
due to disability pursuant to section 9(b) or death. Any payment referred to in
this Section 8(b) shall be made at the same time as that payment would have been
made if Executive were not disabled. Payments under this Section 8(b) for any
period shall be offset, dollar for dollar, by any disability benefits (other
than benefits payable pursuant to any disability income policy all of the
premiums for which were paid by Executive) for that period that are received by
Executive.
(c) Except as provided in this Section 8, DIRECT III shall
have no further obligations to Executive for base salary or incentive
compensation for any period during which Executive is so disabled.
9. Termination.
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(a) At Expiration of Employment Period. If either party gives
written notice to the other on or before the March 31 next preceding any
Extension Date, of the respective party's intention that the term of Executive's
employment not be extended by an additional one (1) year on that Extension Date,
Executive's employment shall expire at the end of the then current term (June
30, 2003 or a later anniversary thereof) without any further notice by either
party to the other.
(b) Death or Disability. Executive's employment hereunder will
terminate immediately upon Executive's death. DIRECT III may terminate
Executive's employment hereunder immediately upon giving notice of termination
if Executive is disabled, by reason of physical or mental impairment, to such an
extent that Executive has been unable to substantially perform Executive's
duties under this Agreement (as determined in the reasonable judgment of the
Board of Directors) for an aggregate of ninety (90) days (whether business or
non-business days and whether or not consecutive) during any period of twelve
consecutive calendar months.
(c) For Cause. DIRECT III may terminate Executive's employment
under this Agreement for "Cause" (and Executive's employment will be deemed to
have been terminated for "Cause") if, as of the date of termination, any of the
following circumstances have occurred:
(1) Executive has materially failed to devote
Executive's entire business time, energy, talent, and best efforts to the
performance of Executive's duties under this Agreement;
(2) Executive has been negligent, insubordinate or
disloyal in the performance of Executive's duties under this Agreement;
(3) Executive has failed to follow directions from
the Board of Directors with respect to a specified course of conduct;
(4) Executive has violated the provisions of this
Agreement;
(5) Executive has been convicted of any crime
involving an act of dishonesty; or
(6) Executive has committed an act or series of acts
of dishonesty in the course of Executive's employment;
as determined by the vote of a majority (excluding Executive) of all the members
of the Board of Directors then in office. No termination of Executive pursuant
to clause (1) above shall be effective unless and until Executive has first been
given written notice of the conduct or circumstance purported to constitute
"Cause" thereunder and, unless such conduct and circumstance is not reasonably
susceptible of cure, Executive has filed with the Board of Directors notice of
Executive's intent to cure that conduct or omission within thirty (30) days
following receipt of that notice by Executive (which thirty [30] day period will
be extended for up to an additional sixty [60] days if, and only if, and for so
long, and only so long as (i) despite diligent efforts on Executive's part,
Executive is unable to effect a cure within the original thirty [30] days and
(ii) Executive diligently and continuously makes a good faith effort, from and
after the date of receipt of the notice, to effect a cure, and that effort is
reasonably likely to result in cure). Termination for any other reason shall be
effective on such current or prospective date as may be specified by DIRECT III
when giving notice of the termination.
(d) By DIRECT III Without Cause. DIRECT III may terminate
Executive's employment hereunder without Cause at any time upon notice from the
Board of Directors to Executive. If employment is not to be extended and, as a
result, Executive's employment terminates before Executive's Schedule Retirement
Date, DIRECT III shall be deemed to have terminated Executive's employment
without Cause as of the expiration of the then current term.
(e) By Executive Without Good Reason. Executive may terminate
Executive's employment hereunder without Good Reason at any time upon notice
from Executive to the Board of Directors. If Executive gives notice to DIRECT
III under Section 9(a) of Executive's intention that the term of employment not
be extended and, as a result, Executive's employment terminates before the
Scheduled Retirement Date, Executive shall be deemed to have terminated
Executive's employment without Good Reason as of the expiration of the current
term.
(f) By Executive for Good Reason Within Two Years After a
Change of Control. Executive may terminate Executive's employment hereunder for
"Good Reason" at any time during the two (2) year period beginning on the date
of a Change of Control upon ten (10) days advance
notice from Executive to the Board of Directors. Executive shall be deemed to
have "Good Reason" to terminate Executive's employment under this Agreement if,
at any time during the two (2) year period beginning on the date of a Change of
Control, (i) Executive is demoted from Executive's position of President and
Chief Operating Officer of DIRECT III or Executive's responsibility and
authorities in those capacities are materially reduced from their levels
immediately before the occurrence of the Change of Control, (ii) Executive
ceases to be a member of the Board of Directors by reason of any action taken by
the Board of Directors or the Shareholders of DIRECT III without Executive's
consent, (iii) Executive's base salary is reduced below its level as in effect
immediately before the occurrence of the Change of Control or Executive is
denied participation in the DIRECT III Annual Incentive Plan with an opportunity
for annual bonus that is at least as favorable to Executive as the opportunity
for such a bonus under the Annual Incentive Plan as in effect during the last
fiscal year of DIRECT III completed before the occurrence of the Change of
Control or, (iv) Executive is advised by DIRECT III that Executive's principal
place of employment is being relocated without Executive's consent to a site
more than thirty (30) miles from Executive's principal place of employment
immediately before the occurrence of the Change of Control.
10. Payment Upon Termination.
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(a) Termination by DIRECT III For Cause or by Executive For
Other Than Good Reason within Two (2) years after a Change of Control. If
Executive's employment hereunder is terminated by DIRECT III for Cause or by
Executive other than for Good Reason during the two (2) years period beginning
on the date of a Change of Control, DIRECT III shall pay to Executive, as soon
as practicable after the Termination Date, any unpaid base salary earned through
the Termination Date and any Annual Incentive Plan compensation to which
Executive is entitled as of the Termination date in accordance with the terms of
the Annual Incentive Plan then in effect, but no further base salary, Annual
Incentive Plan compensation, or other benefits shall accrue or be payable for
any period after the Termination Date.
(b) Termination Upon Death. If Executive's employment
hereunder is terminated due to Executive's death, DIRECT III shall pay to the
beneficiaries designated in writing by Executive or Executive's estate, as
applicable, as soon as practicable after the Termination Date: (i) any unpaid
base salary earned through the Termination Date, (ii) if the Termination Date
falls after the end of a fiscal year but before the date on which payments are
made under the Annual Incentive Plan for that prior fiscal year, the payment
that would have been made to Executive under the Annual Incentive Plan for that
prior fiscal year if Executive has remained in the employ of DIRECT III until
the payments under that plan for that prior fiscal year had been made, (iii) for
the fiscal year in which the Termination Date falls, an amount equal to
Executive's Target Award for that current fiscal year under the Annual Incentive
Plan, multiplied by a fraction, the numerator of which is the number of calendar
days during that current fiscal year that fall on or before the Termination Date
and the denominator of which is 365, and (iv) a lump sum amount equal to
Executive's annual base salary as in effect immediately before Executive's
death. Except as provided in the immediately preceding sentence, no further base
salary, Annual Incentive Plan compensation, or other benefits shall accrue or be
payable for any period after the Termination Date.
(c) Termination Due to Disability. If Executive's employment
hereunder is terminated due to Executive's disability, DIRECT III shall pay to
Executive, net of the offset referred to in the last sentence of this Section
10(c), all base salary and Annual Incentive Plan compensation, if any, to which
the Executive would have been entitled under this Agreement and the Annual
Incentive Plan had Executive continued to be actively employed by DIRECT III to
the earliest of (i) the first anniversary of the Termination Date, (ii) the date
of Executive's death, or (iii) Executive's Scheduled Retirement Date. Any
payment referred to in this Section 10(c) shall be made at the same time as that
payment would have been made if Executive were not disabled. Payments under this
Section 10(c) for any period shall be
offset, dollar for dollar, by any disability benefits (other than benefits
payable pursuant to any disability income policy all of the premiums which were
paid by Executive) for that period of time that are received by Executive. If
payments under this Section 10(c) terminated on the first anniversary of the
Termination Date (rather than due to Executive's death or the attainment of
Executive's Scheduled Retirement Date) then: (x) if the Termination Date falls
after the end of a fiscal year but before the date on which payments are made
under the Annual Incentive Plan for that prior fiscal year, DIRECT III shall
also pay to Executive the payment that would have been made to Executive under
the Annual Incentive Plan for that prior fiscal year if Executive had remained
in the employ of DIRECT III until the payments under that plan for that prior
fiscal year had been made, and (y) DIRECT III shall also pay to Executive, for
the fiscal year in which the Termination Date falls, an amount equals to
Executive's Target Award for that current fiscal year under the Annual Incentive
Plan, multiplied by a fraction, the numerator of which is the number of calendar
days during that current fiscal year that fall on or before the Termination Date
and the Denominator of which is 365. For purposes of this Section 10(c),
Executive's Target Award for any fiscal year in which no Target Award is set for
Executive due to Executive's disability shall be deemed to be equal to the last
Target Award set for Executive under the Annual Incentive Plan.
(d) Termination Without Cause (Other than in the Two Year
Period Beginning on the Date of a Change of Control). If Executive's employment
is terminated by DIRECT III without Cause and not on a date during the two (2)
year period beginning on the date of a Change Control:
(1) DIRECT III shall pay to Executive, as soon as
practicable after the Termination Date, (A) any unpaid base salary earned
through the Termination Date, (B), if the Termination Date falls after the end
of a fiscal year but before the date on which payments are made under the Annual
Incentive Plan for that prior fiscal year, the payment that would have been made
to Executive under the Annual Incentive Plan for that prior fiscal year if
Executive had remained in the employ of DIRECT III until the fiscal year in
which the Termination Date falls, an amount equal to Executive's Target Award
for that current fiscal year under the Annual Incentive Plan, multiplied by a
fraction, the numerator of which is the number of calendar days during that
current fiscal year that fall on or before the Termination Date and the
denominator of which is 365.
(2) DIRECT III shall pay to Executive, on a
regularly scheduled payroll payment date that falls not more than twenty (20)
calendar days after the Termination Date, a lump sum equal to one and one-half
times the sum of (A) the dollar amount of the highest annual base salary that
was payable to Executive at any time under this Agreement, plus (B) the dollar
amount of the Applicable Annual Bonus (except that if Executive's Scheduled
Retirement Date is less than seventeen [17] full months after the Termination
Date, the multiple shall not be one and one-half times but instead shall be a
fraction, the numerator of which is the number of full or partial calendar
months in the period starting with the Termination Date and ending with
Executive's Scheduled Retirement Date, inclusive, and the denominator of which
is eighteen [18]).
(3) Through the first to occur of (A) the end of the
eighteen (18) month period following the Termination Date, or (B) Executive's
Scheduled Retirement Date, DIRECT III shall provide to Executive continuing
health and life insurance coverage, at the same levels (and at the same employee
participation, if any) as was being provided to Executive immediately before the
Termination Date.
(4) All stock options held by Executive on the
Termination Date shall vest as of the Termination Date (to the extent not
previously vested) and shall thereafter be exercisable by Executive in
accordance with their respective terms and the terms of the DIRECT III Stock
Option Plan.
(5) All benefit accrued to Executive under the
DIRECT III Supplemental Executive Retirement Plan shall vest as of the
Termination Date and shall be paid out pursuant to the
terms of that plan and any election Executive may have made thereunder.
(6) All benefit accrued to Executive under the
DIRECT III Non-Qualified Deferred Compensation Plan shall vest as of the
Termination Date and shall be paid out pursuant to the terms of that plan and
any election Executive may have made thereunder.
(e) Termination During Two Year Period After Change of Control
by DIRECT III Without Cause or by Executive for Good Reason. If, during the two
year period beginning on the date of a Change of Control, Executive's employment
hereunder is terminated by DIRECT III Without Cause or by Executive for Good
Reason:
(1) DIRECT III shall pay to Executive, as soon as
practicable after the Termination Date, (A) any unpaid base salary earned
through the Termination Date, (B), if the Termination Date falls after the end
of a fiscal year but before the date on which payments are made under the Annual
Incentive Plan for that prior fiscal year, the payment that would have been made
to Executive under the Annual Incentive plan for that prior fiscal year if
Executive had remained in the employ of DIRECT III until the payments under that
plan for that prior fiscal year had been made, and (C) for the fiscal year in
which the Termination Date falls, an amount equal to Executive's Target Award
for that current fiscal year under the Annual Incentive Plan, multiplied by a
fraction, the numerator of which is the number of calendar days during that
current fiscal year that fall on or before the Termination date and the
denominator of which is 365.
(2) DIRECT III shall pay to Executive, on a
regularly scheduled payroll payment date that falls not more than twenty (20)
calendar days after the Termination Date, a lump sum equal to two times the sum
of (A) the dollar amount of the highest annual base salary that was payable to
Executive at any time under this Agreement, plus (B) the dollar amount of the
Applicable Annual Bonus.
(3) For the period beginning on the day after the
Termination Date and ending on the second anniversary of the Termination Date
(the "Section 9(e) Benefit Period"), DIRECT III shall cause Executive to
continue to be covered by and to participate in all Retirement Plans that
Executive was entitled to be covered by and participating in as an officer of
DIRECT III immediately before the Termination Date in the same manner and to the
same extent as if Executive continued in the full time employ of DIRECT III
throughout the Section 9(e) Benefit Period and as if all of Executive rights
that had accrued through the Termination Date and that accrued thereafter
through the Section 9(e) Benefit Period were fully vested, except where such
coverage or participation is Impermissible. For these purposes: (A) the entire
Section 9(e) Benefit Period shall be included in determining Executive's years
of service, (B) amounts received by Executive under Section 9(e)(3) and
allocable to a multiple of base salary shall be deemed to be base salary
received by Executive ratably during this Section 9(e) Benefit Period, and (c)
amounts received by Executive under clause (a)(3) of Section 9(e) and allocable
to a multiple of the Applicable Annual Bonus shall be deemed to be incentive
compensation received by Executive Annual Bonus shall be deemed to be incentive
compensation received by Executive ratably during the Section 9(e) Benefit
Period. If at any time during the Section 9(e) Benefit Period, DIRECT III
determines in good faith that continuing Executive's coverage by and
participation in any of the Retirement Plans during the Section 9(e) Benefit
Period is Impermissible, Executive shall not be covered by and participate in
such affected plan or plans during the Section 9(e) Benefit Period, but DIRECT
III shall, from time to time both during and after Section 9(e) Benefit Period,
provide to Executive under this Agreement payments, benefits, and opportunities
that, when added to the payments, benefit and opportunities available and
payable to Executive under the Retirement Plans put Executive in the same
position that Executive would have been in had Executive continued to be a full
time employee of DIRECT III and a participant in the Retirement Plans throughout
the Section 9(e) Benefit Period to the same extent as Executive was participant
immediately before the Termination Date.
(4) Through the second anniversary of the Termination
Date, DIRECT III shall provide to Executive continuing health and life insurance
coverage, at the same levels (and at the same employee participation, if any) as
was being provided to Executive immediately before the Termination Date.
(5) All stock options held by Executive on the
Termination Date shall vest as of the termination Date (to the extent not
previously vested) and shall thereafter be exercisable by Executive in
accordance with their respective terms and the terms of the DIRECT III Stock
Option Plan.
(f) No Duty to Mitigate. Executive shall not be obligated to
seek other employment or take any other action to mitigate the amounts payable
to Executive under Executive's Agreement, and such amounts shall not be reduced
or offset as a result of any other employment Executives obtains after the
Termination Date.
(g) Payments and Benefit Constitute Exclusive Remedy.
Executive agrees that if Executive's employment is terminated under
circumstances entitling Executive to payment of any amounts and or provision of
any benefit under this Section 10, Executive's role right and remedy against
DIRECT III in connection with Executive's employment shall be to collect those
amounts and/or receive those benefit, all as otherwise limited by the other
provisions of this Section 10.
11. Confidentiality, Non-solicitation, and Non-competition. Executive
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acknowledges that the business in which DIRECT III engages is competitive and
that Executive's employment with DIRECT III has required and will require that
Executive have access to and knowledge of confidential and proprietary
information pertaining to DIRECT III that is of vital importance to the success
of DIRECT III's business; that the direct or indirect disclosure of any such
confidential information to existing or potential competitors of DIRECT III
would place it at a competitive disadvantage and would do material damage,
financial and otherwise, to its business; and that by virtue of Executive's
training, experience, and expertise, some of Executive's services to DIRECT III
will continue to be special and unique.
(a) Confidentiality. Executive shall not, at any time on or
after the Effective Date, except in connection with the performance of services
hereunder or in furtherance of the business of DIRECT III, communicate, divulge,
or disclose to any other person not a director, officer, employee, or affiliate
of, or not engaged to render service to or for, DIRECT III or use for
Executive's own benefit or purposes any confidential information of or relating
to DIRECT III that Executive has obtained from it or any predecessor entity
(whether obtained by Executive before, during, or after the term of Executive's
employment under this Agreement and including any such information developed by
Executive while employed by DIRECT III); except that this provision shall not
preclude Executive form communication or use of information made known generally
to the public by DIRECT III or by any party unrelated to Executive, or from
making any disclosure required by applicable law, rules, regulations, or court
or governmental or regulatory authority order or decree provided that, if
practicable, Executive shall not make any such disclosure without first giving
DIRECT III notice of intention to make that disclosure and had an opportunity to
interpose an objection to the disclosure without first giving DIRECT III notice
of intention to make that disclosure. All files, records, and documents
pertaining to DIRECT III's business shall belong to and remain the sole and
exclusive property of DIRECT III.
(b) Non-solicitation. During the period commencing on the
Effective Date and continuing thereafter through the Termination Date, Executive
shall not, except in connection with Executive's duties hereunder or otherwise
for the sole account and benefit of DIRECT III, directly or indirectly, induce
or solicit any employee of DIRECT III to leave its employ. If Executive's
employment hereunder is terminated, the prohibition in the immediately preceding
sentence shall extend for one year
beyond the Termination Date.
(c) Non-competition. During the employment Period and
continuing thereafter through the first (1st) anniversary of the Termination
Date, Executive shall not, except in connection with Executive's duties
hereunder or otherwise for the sole account and benefit of DIRECT III, directly
or indirectly, engage in any business activity in which DIRECT III engages or
has engaged in at any time during the Employment Period; provided, however, that
after the Termination Date, Executive shall not be restricted from engaging in
any business activity that is directed towards one or more graduate schools,
where such school(s) act as the lender(s) for purpose of originating or making
available federally guaranteed and or private student loans.
(d) Remedies Not Exclusive. In addition to other remedies
provided by law or equity, upon breach by Executive of any of the restrictions
contained in this Section 11, against Executive prohibiting any further breach
of any such restrictions.
12. Indemnification; Reimbursement of Certain Expenses.
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(a) Indemnification. DIRECT III shall indemnify Executive, to
the fullest extent permitted or authorized by DIRECT III's Code of Regulations,
as it may from time to time be amended if Executive is made or threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, by reason
of the fact that Executive is or was director, officer, or employee of DIRECT
III or any Subsidiary, or is or was serving at the request of DIRECT III or any
Subsidiary as a director, trustee, officer, or employee of any other enterprise.
The indemnification provided by this Section 12 shall not be deemed exclusive of
any other rights which Executive may be entitled under the articles of
incorporation or the regulations of DIRECT III or of any Subsidiary, or any
agreement, vote of shareholder or disinterested directors, or otherwise, both as
to action in Executive's official capacity and as to action in another capacity
while holding such office, and shall continue as to Executive after Executive
has ceased to be a director, trustee, officer, or employee and shall inure to
the benefit of heirs, executors, and administrators of Executive.
(b) Reimbursement of Expenses. Expenses (including attorney's
fees) incurred by Executive in defending any action, suit, or proceeding
commenced or threatened against Executive for any action or failure to act as an
employee, officer, or director of DIRECT III or any Subsidiary shall be paid by
DIRECT III, as they are incurred, in advance of final disposition of the action,
suit, or proceeding upon receipt of an undertaking by or on behalf of Executive
in which agrees to reasonably cooperate with DIRECT III or the Subsidiary, as
the case may be, concerning the action, suit or proceeding, and (i) if the
action, suit, or proceeding is commenced or threatened against Executive for any
action or failure to act as a director, to repay the amount if it is proved by
clear and convincing evidence in a court of competent jurisdiction that
Executive's action or failure to act involved an act of omission undertaken with
deliberate intent to cause injury to DIRECT III or a Subsidiary or with reckless
disregard for the best interests of DIRECT III or a Subsidiary or (ii) if the
action, suit, or proceeding is commenced or threatened against Executive for any
action or failure to act as an officer or employee, to repay the amount if it
ultimately determined that Executive is not entitled to be indemnified. The
obligation of DIRECT III to advance expenses provided for in this Section 12(b)
shall not be deemed exclusive of any other rights to which Executive may be
entitled under the articles of incorporation or the regulations of DIRECT III or
of any Subsidiary, or any agreement, vote of shareholders or disinterested
directors, or otherwise.
13. Arbitration.
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(a) Any controversy between the parties involving the
construction or application of
any of the terms, covenants, or conditions of this Agreement shall be submitted
to arbitration in compliance with commercial rules of arbitration of the
American Arbitration Association.
(b) The parties shall attempt to agree on the appointment of a
single arbitrator to hear and determine the dispute. If the parties cannot so
agree, each of the parties shall appoint one person as an arbitrator. The two
arbitrators so chosen shall select a third arbitrator. Any arbitrator chosen
hereunder must be a member of the National Academy of Arbitrators, and the
arbitration shall be held in Cleveland, Ohio.
(c) The decision of the arbitrator(s) shall be final and
conclusive on the parties. The expenses of arbitration shall be borne as
determined and ordered by the arbitrator(s).
14. Gross-up of Payments Deemed to be Excess Parachute Payments.
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(a) DIRECT III and Executive acknowledge that, following a
Change of Control, one or more payments or distributions to be made by DIRECT
III to or for the benefit of Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement, under some other plan,
agreement, or arrangement, or otherwise) (a "Payment") may be determined to be
an "excess parachute payment" that is not deductible by DIRECT III for Federal
income tax purposes and with respect to which Executive will be subject to an
excise tax because of Sections 280G and 4999, respectively, of the Internal
Revenue Code (hereinafter referred to respectively as "Section 280G" and
"Section 4999"). If Executive's employment is terminated after a Change of
Control occurs, the Accounting Firm which, subject to any inconsistent position
asserted by the Internal Revenue Service, shall make all determinations required
to be made under this Section 14, shall determine whether any Payment would be
an excess parachute payment and shall communicate its determination, together,
with detailed supporting calculations, to DIRECT III and to Executive within
thirty (30) days after the Termination Date or such earlier time as is requested
by DIRECT III. DIRECT III and Executive shall cooperate with each other and the
Accounting Firm and shall provide necessary information so that the Accounting
Firm may make all such determinations. DIRECT III shall pay all of the fees of
the Accounting Firm for services performed by the Accounting Firm as
contemplated in this Section 14.
(b) If the Accounting Firm determines that any Payment gives
rise, directly or indirectly, to liability on the part of Executive for excise
tax under Section 4999 (and/or any penalties and/or interest with respect to any
such excise tax), DIRECT III shall make additional cash payments to Executive,
form time to time and at the same time as any Payment constituting an excess
parachute payment is paid or provided by to Executive, in such amounts as are
necessary to put Executive in the same position, after payment of all federal,
state and local taxes (whether income taxes, excise taxes under Section 4999 or
otherwise, or other taxes) and any and all penalties and interest with respect
to any such excise tax, as Executive would have been in after payment of all
federal, state, and local income taxes if the Payments had not given rise to an
excise tax under Section 4999 and no such penalties or interest had been
imposed.
(c) If the Internal Revenue Service determinates that any
Payment gives rise, directly or indirectly, to liability on the part of
Executive for excise tax under Section 4999 (and/or any penalties and/or any
interest with respect to any such excise tax) in excess of the amount, if any,
previously determined by the Accounting Firm. DIRECT III shall make further
additional cash payments to Executive not later than the due date of any payment
indicated by the internal Revenue Service with respect to these matters, in such
amounts as are necessary to put Executive in the same position, after payment of
all federal, state, and local taxes (whether income taxes, excise taxes under
Section 4999 or otherwise, or other taxes) and any and all penalties and
interest with respect to any such excise tax, as Executive would have been in
after payment of all federal, state, and local income taxes if the Payments
had not given rise to an excise tax under Section 4999 an no such penalties or
interest had been imposed.
(d) If DIRECT III desires to contest any determination by the
Internal Revenue Service with respect to the amount of excise tax under Section
4999, Executive shall, upon receipt from DIRECT III of an unconditional written
undertaking to indemnify and hold Executive harmless (on an after tax basis)
from any and all adverse consequences that might arise from the contesting of
that determination, cooperate with DIRECT III in that contest at DIRECT III's
sole expense. Nothing in this Section 14(d) shall require Executive to incur any
expense other than expenses with respect to which DIRECT III has paid to
Executive sufficient sums so that after the payment of the expenses by Executive
and taking into account the payment by DIRECT III with respect to that expense
and any all taxes that may be imposed upon Executive as a result of Executive's
receipt of that payment, the net effect is no cost to Executive. Nothing in this
Section 14(d) shall require Executive to extend the statute of limitation with
respect to any item or issue in this tax under Section 4999. If, as the result
of the contest of any assertion by the Internal Revenue Service with respect to
excise tax under Section 4999, Executive receives a refund of a Section 4999
excise tax previously paid and/or any interest with respect there to, Executive
shall promptly pay to DIRECT III such amount as will leave Executive, net of the
repayment and all tax effects, in the same position, after all taxes and
interest, that Executive would have been in if the refunded excise tax had never
been paid.
15. Merger of Transfer of Assets of DIRECT III. DIRECT III shall not
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consolidate with or merge into any other corporation, or transfer all or
substantially all of its assets to another corporation, unless such other
corporation shall assume this Agreement in signed writing and deliver a copy
thereof to Executive. Upon such assumption the successor corporation shall
become obligated to perform the obligations of DIRECT III under this Agreement,
and the term "DIRECT III" as used in this Agreement shall be deemed to refer to
such successor corporation.
16. Waiver. No provision of this Agreement may be modified, waived, or
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discharged unless such waiver, modification, or discharge is agreed to in a
writing signed by Executive and DIRECT III. No waiver by either party hereto at
any time of any breach by the other party of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
time or at any prior or subsequent time.
17. Entire Agreement. No agreement or representation, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof has
been made by either party which is not set forth expressly in this Agreement.
18. Notices. Notices under this Agreement will be effective immediately
-------
upon delivery if delivered in person (or by facsimile with confirmation of
receipt) to Executive (in case of notice to Executive) or in person (or by
facsimile with confirmation of receipt) to the Board of Directors (in the case
of notices to DIRECT III) or three (3) days after mailing if deposited in the
United States mail, postage prepaid, and addressed:
If to Executive, to:
Xxxxxxx X. Xxxxx
00000 Xxxxxxxx Xxxxx
Xxxxxx Xxxxxxx, Xxxx 00000
Facsimile No.:(000)000-0000
And if to DIRECT III, to:
Xxxxxxx X. Xxxxx
Executive Vice President and General Counsel
Direct III Marketing, Inc.
00000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.:(000)000-0000
Either party may change the address to which notice that party
may be mailed by notifying the other party or the change in the manner
contemplated in this section.
19. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable shall be ineffective to the extent, but only to the extent, of
such prohibition or unenforceability without invalidating the remaining portions
hereof and such remaining portions of this Agreement shall continue to be in
full force and effect.
20. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which will be deemed an original, but all of which
together shall constitute but one and the same instrument and a signature to
anyone of such counterparts shall be deemed to be a signature to all such
counterparts.
21. Governing Law. The provision of this Agreement shall be governed by
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and construed in accordance with the laws of the State of Delaware applicable to
contracts made in and to be performed entirely within that state.
22. Definitions.
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(a) Accounting Firm. The Term "Accounting Firm" means the
independent auditors of DIRECT III for the fiscal year preceding the year in
which the earlier of (i) the Termination Date, or (ii) the year, if any, in
which occurred the first Change of Control occurring after the Effective Date,
and such firm successor or successors: provided, however, if such firm is unable
or unwilling to serve and perform in the capacity contemplated by this
Agreement, DIRECT III shall select another national accounting firm of
recognized standing to serve and perform in that capacity under this Agreement,
except that such other accounting firm shall not be then independent auditors
for DIRECT III or any of its Affiliates.
(b) Act. The term "Act" means the Securities Exchange Act of
1934, as amended.
(c) Affiliate. The term "Affiliate" shall have the meaning
ascribed to that term in Rule 12b-2 under the Act.
(d) Applicable Annual Bonus. The term "Applicable Annual
Bonus" means the greatest of (i) the amount determined by adding together the
dollar amounts of all annual incentive compensation awards payable to Executive
with respect to the last three complete 12-month fiscal year of DIRECT III
completed before the Termination Date and dividing the sum so obtained by three,
(ii) the target amount payable to Executive under the Annual Incentive Plan for
the year in which the termination Date occurs, and (iii) the target amount
payable to Executive under the Annual Incentive Plan for the first year in which
a Change of Control occurs.
(e) Associates. The term "Associate" shall have the meaning
ascribed to that term in Rule 12b-2 under the Act.
(f) Change of Control. A "Change of Control" of DIRECT III
shall be deemed to
have occurred if any of the following events occur:
(1) Any person (with or without the approval of the
Board of Directors) becomes the beneficial owner directly or indirectly (within
the meaning of Rule 13d-3 under the Act) of more than Thirty Percent (30%) of
DIRECT III then outstanding voting securities, measured on the basis of voting
power, except that for these purposes:
a. Beneficial ownership of more than Thirty
Percent (30%) of DIRECT III's then outstanding voting securities by any of (x)
DIRECT III or any of its Subsidiaries, (y) a trustee or other fiduciary holding
securities under an employee benefit plan of DIRECT III or any of its
Subsidiaries, or (z) a corporation owned, directly or indirectly, by the
shareholders of DIRECT III in substantially the same proportions as their
ownership of DIRECT III voting securities shall be ignored; and
b. Securities held by an underwriter
pursuant to an offering of such securities for a period not to exceed forty (40)
days shall be deemed to be outstanding but shall not be deemed to be
beneficially owned by such underwriter.
(2) The shareholders of DIRECT III approve a
definitive agreement of merger consolidation with any other corporation or
business entity, other than merger or consolidation that would result in the
voting securities of DIRECT III outstanding immediately prior to the
consummation of the merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least Fifty Percent (50%) of the combined voting power of
the voting securities of the surviving entity of such merger or consolidation
outstanding immediately after such merger or consolidation;
(3) Continuing Directors cease to constitute at
least a majority of the directors of DIRECT III; or
(4) The shareholders of DIRECT III approve a plan of
complete liquidation or dissolution of DIRECT III or an agreement for the sale
or deposition by DIRECT III of all or substantially all of DIRECT III's assets.
(g) Continuing Directors. The term "Continuing Directors"
means any directors of DIRECT III who either (I) were directors of DIRECT III on
the Effective Date, or (ii) become directors of DIRECT III after the Effective
Date and whose election or nomination for election by the shareholder of DIRECT
III was duly approved, either by a specific vote or by approval of the proxy
statement issued by DIRECT III in which such individuals were named as nominees
for directors of DIRECT III, by a majority of the Continuing Directors who were
at the time of election or nomination directors of DIRECT III.
(h) Impermissible. The term "Impermissible", when used in the
context of Executive's continued coverage by and participation in any of the
Retirement Plans shall mean that such a continuation would violate the
provisions of any such plan, would cause any such plan to fail to be qualified
under Section 401(a) of the Internal Revenue Code, would require shareholder
approval, or would be unlawful.
(i) Person. The Term "Person" means any individual, firm,
corporation, partnership, or other entity and includes the Affiliates and
Associates of such Person.
(j) Retirement Plans. The Term "Retirement Plans" means the
DIRECT III
MARKETING 401(k) PLAN, and any other retirement plans implemented by the Board
of Directors for DIRECT III, in all cases, as from time to time amended,
restarted or otherwise modified, including any plan that, after the Effective
Date, succeeds, replaces, or is substituted for any such plan, and all
retirement plans of any nature maintained by DIRECT III in which Executive was
participating prior to the Termination Date. Reference to a "Retirement Plan",
in the singular, means any of the Retirement Plans.
(m) Scheduled Retirement Date. The Term "Scheduled Retirement
Date" shall mean Executive's sixty-fifth (65th) birthday.
(n) Subsidiary. A "Subsidiary", as of any time, means any
corporation, partnership, or other entity a majority of the voting control of
which is directly or indirectly owned or controlled at that time by DIRECT III.
(o) Target Award. The term "Target Award" means Executive's
target award set by the Compensation Committee under DIRECT III Annual Incentive
Plan, without regard to whether or not or to what extent the award may actually
be paid, taking into account performance measures and other conditions of
eligibility for payment.
(p) Termination Date. The term "Termination Date" means the
date on which Executive's employment with DIRECT III terminates.
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement as of the date first written above.
DIRECT III: Executive:
DIRECT III MARKETING, INC.
a Delaware corporation
By: /s/ Xxxxxx xxXxxx /s/ Xxxxxxx X. Xxxxx
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XXXXXX XXXXXX XXXXXXX X. XXXXX
Chief Executive Officer
