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
-------------------------------------------------------------------------------
Three year anniversary of the Grant
20% of Covered Shares 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
Rider to Supplement A to Agreement between The Chicago Mercantile Exchange and
Xxxxx X. XxXxxxx dated February 7, 2000:
As required by the Agreement, with the demutualization of the Exchange on
November 13, 2000, it is necessary to define the specific number of shares by
class and exercise price thereof:
1. The Non-Qualified Stock Option for a basket of up to 2.5% of all classes
of common stock with an exercise price of 2.5% of the value of the
Employer on the Grant Date (Tranche A), shall be represented by the
following number of shares of each class of common stock with the
following exercise prices:
EXERCISE
CLASS/SERIES NUMBER OF PRICE
OF STOCK SHARES PER SHARE
-------- ------ ---------
CLASS A 646,380.000 $18.47
SERIES B-1 15.625 177,077.46
SERIES B-2 20.325 160,389.61
SERIES B-3 32.175 116,053.34
SERIES B-4 6.325 20,545.45
SERIES B-5 53.500 184.70
For purposes of this presentation it is assumed that each share of Series
B-5 stock issued at November 13, 2000 is converted into 10 shares of Class
A common stock.
2. The Non-Qualified Stock Option for a basket of up to 2.5% of all classes
of common stock with an exercise price of 3.75% of the value of the
Employer on the Grant Date (Tranche B), shall be represented by the
following number of shares of each class of common stock with the
following exercise prices:
EXERCISE
CLASS/SERIES NUMBER OF PRICE
OF STOCK SHARES PER SHARE
-------- ------ ---------
CLASS A 646,380.000 $27.71
SERIES B-1 15.625 265,616.19
SERIES B-2 20.325 240,584.42
SERIES B-3 32.175 174,080.01
SERIES B-4 6.325 30,818.18
SERIES B-5 53.500 277.10
For purposes of this presentation it is assumed that each share of Series
B-5 stock issued at November 13, 2000, is converted into 10 shares of
Class A common stock.
Further, it is agreed that if the option is exercised by the employee in
accordance with item 13(iii), the Employer's liability with respect to brokerage
fees is limited to $50,000.
The limitation will be applied on a pro rata basis, if the entire option
is not exercised at the same time.
Accepted By /s/ Xxxxx X. XxXxxxx
-----------------------------------------------
Xxxxx X. XxXxxxx
Accepted By /s/ Xxxxx X. Xxxxxx
-----------------------------------------------
On behalf of Chicago Mercantile Exchange Inc.
Witness /s/ M. Xxxxx Xxxxxx
-------------------------------------------------
AMENDMENT
This is the First Amendment to the
Employment Agreement (the "Agreement")
entered into between Xxxxx X. XxXxxxx ("Employee") and Chicago Mercantile
Exchange Inc. ("Employer"), which became effective on February 7, 2000.
Capitalized terms used but not defined in this First Amendment shall have the
meaning set forth in the Agreement.
This Amendment is effective this 28th day of November, 2000. Except as set
forth herein, all provisions of the Agreement shall remain unchanged and in
full force and effect.
Section 3(c)(i) of the Agreement is hereby amended 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 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 no later than
one (1) day prior to the start of each calendar year (i.e. no later than
December 31)."
CHICAGO MERCANTILE EXCHANGE INC. XXXXX X. XXXXXXX
By: /s/ Xxxxx X. Xxxxxxxx By: /s/ Xxxxx X. XxXxxxx
------------------------------------ ------------------------------
Title: Chairman, Compensation Committee Title: CEO, President
--------------------------------- -------------------------
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.
SECOND AMENDMENT
This is the Second Amendment ("Second Amendment") to the
Employment Agreement ("Agreement") entered into between Xxxxx X. XxXxxxx
("Employee") and Chicago Mercantile Exchange, Inc. ("Employer") which became
effective on February 7, 2000.
1. The Agreement has previously been subject to the following
supplements and amendments that have been approved by the parties:
(a) Pursuant to a resolution of the Employer's Board of Directors dated
August 30, 2000, the Board increased Employee's base salary by the
amount of $4,036.46 in connection with the purchase of life
insurance for Employee. (This document is attached as Annex I,
hereto.)
(b) Pursuant to an Amendment (the "First Amendment") dated November 28,
2000, the parties agreed upon performance goals for Employee and a
schedule for the delivery of goals for subsequent years under the
Agreement (This document is attached as Annex II, hereto.)
(c) Pursuant to the provisions of Supplement A to the Agreement, a Rider
to the Agreement was to be prepared once the conversion of Employer
from an
Illinois not-for-profit corporation to a for-profit
corporation had taken place. Such Rider was to show the number of
shares of each class of Employer's stock that were the subject of
the Non-Qualified Stock Option included in the Agreement. According
to the terms of the Supplement, such Rider "...will be attached to
and become a part of this Agreement." This Rider was prepared in
February 2001. (This document is attached as Annex III, hereto. The
first two pages of Annex III show the original Rider; the second two
pages show updated information following the holding company
reorganization.)
2. Except to the extent otherwise amended expressly below, the
Agreement (which includes Supplement A), Annex I, Annex II and Annex III are
hereby ratified and confirmed and shall remain in full force and effect.
3. Capitalized terms used but not defined in this Second Amendment
shall have the meaning set forth in the Agreement.
4. Pursuant to the provisions of Annex II, the Board of Employer was to
have delivered in writing the performance goals for Employee for calendar
year 2002 on or
before December 31, 2001. The 2002 goals were not delivered at that time,
although during 2002 Employer, Employee and Employer's outside advisors
continued to review various performance goals as well as methods and criteria
for measuring whether Employee met or exceeded those goals. A copy of the
final 2002 performance goals has been delivered to Employee and Employee
waives Employer's failure to deliver these goals in a timely manner. (The
2002 Performance Goals are attached as Annex IV, hereto). Employer has asked
Employee to suggest suitable performance goals and related metrics for
Employee for 2003. Employer has specified that there should be a minimum of
three and a maximum of six such performance goals for 2003 and that one of
the goals should involve starting a new business. Employee will deliver that
information to Employer in the beginning of December 2002. As provided in
Annex II, however, the ultimate obligation to deliver performance goals rests
with Employer, and Employer reconfirms its obligation to deliver Employee's
performance goals for 2003 prior to December 31, 2002.
5. Employee and Employer have previously agreed that the Non-Qualified
Stock Option should be adjusted in the event Employer declares a significant
cash dividend. The last sentence of the first paragraph of Supplement A
refers to such an adjustment in general terms, and the following sentence
shall be added immediately thereafter.
"In addition, a large nonrecurring dividend shall be deemed to have been
paid (i) in the event that a nonrecurring cash dividend has been paid that
is 1.5 or more times the prior calendar year's S&P 500 average dividend
yield and (ii) to the extent by which such dividend distribution by
Employer in fact exceeds such 1.5 times measure."
6. Employee and Employer have previously agreed to limit Employer's
obligation to pay Employee's brokerage fees upon exercise of the
Non-Qualified Stock Option to a payment of not more than $50,000 in fees.
(Annex III, bottom of page 1.) From this point forward, Employee agrees to
pay all such fees and agrees that Employer shall not be obligated to pay any
such fees. Employer agrees that from this point forward it will limit itself
to delivering shares of its most widely held form of equity
2
which can be used for payment under the Non-Qualified Stock Option, the
shares of Class A common stock, or cash or a combination of the two upon an
exercise of the Non-Qualified Stock Option and to relinquish the right to
deliver shares of Class B common stock or other common stock upon such
exercise. Employee and Employer have also been advised by Employer's outside
accountants that the benefits associated with fixing certain expenses under
SFAS 123 (as described below in paragraph 8, hereof) will not be available if
Employer elects to deliver cash to Employee but may be available (assuming
other conditions including those in paragraph 8, below are met) if upon
exercise, Employer delivers to Employee solely shares of its widely held
equity (Class A common stock). The parties confirm, however, that while it
may be expected that Employer will deliver shares of Class A common stock
upon an exercise of the Non-Qualified Stock Option in order to secure such
benefits, the decision whether to deliver such shares, or cash, or a
combination thereof, remains exclusively with Employer. In particular, the
parties further confirm that the steps that they are taking and preparing to
take in this agreement in the hope and expectation of securing benefits
associated with fixing certain expenses under SFAS 123 do not alter
Employer's freedom to deliver a permitted form of consideration upon exercise
of the Non-Qualified Stock Option as Employer in its sole judgment shall
determine, whether or not specific accounting or other benefits to Employer
result from its decision.
7. Paragraph 9 of Supplement A deals with Employer's obligation to
deliver cash and/or shares upon the exercise of the Option by Employee and
includes a procedure for determining the Fair Market Value for the Class A
and Class B Stock included in the Covered Shares as of particular dates. One
of the methods for determining such Fair Market Value is used if the shares
are traded on an established exchange, one method involves taking the average
of bid and ask and one involves the use of an outside expert. In order to
establish greater certainty about how Fair Market Value will be determined
and in order to conform the contractual terms to the accounting methodology
that Employer has used in describing the option and stock grants made to
other employees, the parties have agreed to modify Supplement A as follows:
3
"Subparagraphs (ii) and (iii) of Paragraph 9 of Supplement A are hereby
deleted and in their place the following are inserted:
'(ii) if such stock is not traded on a national exchange as of such date,
Fair Market Value shall be determined using the regular procedures
employed by Employer's accounting department in valuing stock grants and
in making related determinations, including the use of last sales price
for such Stock in the event a sale has occurred within the preceding 15
business days and the use of the average of the bid and ask prices for
such Stock, where quoted for such Stock, as of the applicable date if no
such sale has occurred within said 15 business days;
'(iii) If the price of any Class of Stock is not established under
subparagraph (i) and if either party certifies that the price that is
calculated for such Stock pursuant to subparagraph (ii) is materially
inconsistent with such Stock's Fair Market Value, the party so certifying
may demand appointment of an independent expert, who shall be mutually
selected by Employer and Employee, to establish the Fair Market Value of
the Stock in question."
8. Employer and Employee have discussed a further amendment to the
Non-Qualified Stock Option that might permit Employer to fix the expense
associated with the Non-Qualified Stock Option under Statement of Financial
Accounting Standards ("SFAS") 123. To achieve fixed expense under SFAS 123
would require (a) adoption of the proposed change in the relevant accounting
rules by the Financial Accounting Standards Board ("FASB") and (b) Employee's
willingness to relinquish his right to have his estate or designated
beneficiary receive a cash payment equal to "the excess of the fair market
value of the Covered Shares (referred to in Supplement A) subject to exercise
over the aggregate exercise price for such Shares" (the "Paragraph 5(a) death
benefit").
In connection with the other agreements reflected herein and in
order to provide Employer and its shareholders the benefits that Employer's
outside accountants and financial advisors have indicated would be secured by
the ability to fix the expense related to the Non-Qualified Stock Option
instead of having the expense vary, in the event the proposed change is
adopted by FASB, Employer adopts SFAS 123, as amended, and Employer has
completed an underwritten public offering (which offering is now
contemplated), Employee agrees that (in the event of his death prior to the
4
expiration or other termination of the Non-Qualified Stock Option) his estate
or designated beneficiary shall no longer be entitled to receive the
Paragraph 5(a) death benefit in cash, provided said estate or designated
beneficiary shall instead have the continued right to exercise the
Non-Qualified Stock Option in the place of Employee through the end of the
term of said Option. (Any unexercised portion of the Non-Qualified Stock
Option shall expire at the end of the term of said Option.)
9. This document is being executed by Employee and by a duly authorized
officer of Employer.
Dated: November 13, 2002
Chicago Mercantile Exchange, Inc.
/s/ Xxxxx X. XxXxxxx /s/ Xxxxxxxx X. Xxxxx
----------------------------------- ------------------------------------
Xxxxx X. XxXxxxx
Name:
-------------------------------
Title: Chairman of the Board
------------------------------
5
ANNEX I
CHICAGO MERCANTILE EXCHANGE
RESOLUTION OF THE
BOARD OF DIRECTORS
WHEREAS, the Chicago Mercantile Exchange, by and through it Board
of Directors, has reviewed the merits of increasing the salary level for its
President, Xxxxx XxXxxxx, thereby permitting him to purchase life insurance
for himself;
WHEREAS, the Board of Directors, by unanimous agreement has
determined that such a plan would, among other things, avoid substantial
financial loss to the Exchange should Xx. XxXxxxx leave the employment of the
Exchange because of dissatisfaction with his life insurance benefits and
would further relieve Xx. XxXxxxx of anxiety concerning the financial
security of his family in the event of his premature death or upon his
retirement;
WHEREAS, Xx. XxXxxxx has agreed to have such salary increases
applied to the purchase of life insurance policies on his life; and has
further agreed to advise the insurer that duplicate premium notices and
notice of policy cash withdrawals or policy loans will be provided to the
Exchange;
NOW, THEREFORE, BE IT RESOLVED:
RESOLVED, that in consideration of services rendered in the past
and those to be performed in the future, the Exchange hereby agrees to
increase the salary base of Xx. XxXxxxx in amount equal to $4,034.46.
/s/ M. Xxxxx Xxxxxx
-----------------------------------
Chairman of the Board of Directors
IN WITNESS WHEREOF, this 30th day of August, 2000.
/s/ Xxx X. Xxxxxx
-----------------------------
Corporate Secretary
ANNEX II
AMENDMENT
This is the First Amendment to the
Employment Agreement (the "Agreement")
entered into between Xxxxx X. XxXxxxx ("Employee") and Chicago Mercantile
Exchange Inc. ("Employer"), which became effective on February 7, 2000.
Capitalized terms used but not defined in this First Amendment shall have the
meaning set forth in the Agreement.
This Amendment is effective this 28th day of November, 2000. Except as set
forth herein, all provisions of the Agreement shall remain unchanged and in
full force and effect.
Section 3(c)(i) of the Agreement is hereby amended 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 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 no later than
one (1) day prior to the start of each calendar year (i.e. no later than
December 31)."
CHICAGO MERCANTILE EXCHANGE INC. XXXXX X. XXXXXXX
By: /s/ Xxxxx X. Xxxxxxxx By: /s/ Xxxxx X. XxXxxxx
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Title: Chairman, Compensation Committee Title: CEO, President
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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.
ANNEX III
Rider to Supplement A to Agreement between The Chicago Mercantile Exchange
and Xxxxx X. XxXxxxx dated February 7, 2000:
As required by the Agreement, with the demutualization of the Exchange on
November 13, 2000, it is necessary to define the specific number of shares by
class and exercise price thereof:
1. The Non-Qualified Stock Option for a basket of up to 2.5% of all classes
of common stock with an exercise price of 2.5% of the value of the
Employer on the Grant Date (Tranche A), shall be represented by the
following number of shares of each class of common stock with the
following exercise prices:
EXERCISE
CLASS/SERIES NUMBER OF PRICE
OF STOCK SHARES PER SHARE
-------- ------ ---------
CLASS A 646,380.000 $18.47
SERIES B-1 15.625 177,077.46
SERIES B-2 20.325 160,389.61
SERIES B-3 32.175 116,053.34
SERIES B-4 6.325 20,545.45
SERIES B-5 53.500 184.70
For purposes of this presentation it is assumed that each share of Series
B-5 stock issued at November 13, 2000 is converted into 10 shares of Class
A common stock.
2. The Non-Qualified Stock Option for a basket of up to 2.5% of all classes
of common stock with an exercise price of 3.75% of the value of the
Employer on the Grant Date (Tranche B), shall be represented by the
following number of shares of each class of common stock with the
following exercise prices:
CLASS/SERIES NUMBER OF EXERCISE PRICE
OF STOCK SHARES PER SHARE
-------- ------ ---------
CLASS A 646,380.000 $27.71
SERIES B-1 15.625 265,616.19
SERIES B-2 20.325 240,584.42
SERIES B-3 32.175 174,080.01
SERIES B-4 6.325 30,818.18
SERIES B-5 53.500 277.10
For purposes of this presentation it is assumed that each share of Series
B-5 stock issued at November 13, 2000, is converted into 10 shares of
Class A common stock.
Further, it is agreed that if the option is exercised by the employee in
accordance with item 13(iii), the Employer's liability with respect to
brokerage fees is limited to $50,000.
The limitation will be applied on a pro rata basis, if the entire option
is not exercised at the same time.
Accepted By /s/ Xxxxx X. XxXxxxx
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Xxxxx X. XxXxxxx
Accepted By /s/ Xxxxx X. Xxxxxx
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On behalf of Chicago Mercantile Exchange Inc.
Witness /s/ M. Xxxxx Xxxxxx
----------------------------------------------------
Rider to Supplement A to Agreement between the Chicago Mercantile Exchange
and Xxxxx X. XxXxxxx dated February 7, 2000:
As required by the Agreement, with the demutualization of the Exchange on
November 13, 2000 and the holding company reorganization on December 3, 2001,
it is necessary to define the specific number of shares by class and exercise
price thereof:
1. The Non-Qualified Stock Option for a basket of up to 2.5% of all classes
of common stock with an exercise price of 2.5% of the value of the
Employer on the Grant Date (Tranche A), shall be represented by the
following number of shares of each class of common stock with the
following exercise prices:
CLASS NUMBER OF EXERCISE PRICE TOTAL
OF STOCK SHARES PER SHARE EXERCISE PRICE
-------- ------ --------- --------------
CLASS A 719,289.075 $18.47 $13,285,269
CLASS B-1 15.625 143,849.93 2,247,655
CLASS B-2 20.325 138,244.08 2,809,811
CLASS B-3 32.175 104,989.81 3,378,047
CLASS B-4 10.300 18,716.92 192,784
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SUBTOTAL $21,913,566
ADJUSTMENT (73,019)
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TOTAL PRICE $21,840,547
These individual exercise prices were determined assuming that the
Series B-5 stock of Chicago Mercantile Exchange Inc. that existed prior
to April 2001 would all be converted to Class A common stock. In
actuality, some of the Series B-5 stock was converted to Series B-4
common stock. As a result, the sum of the individual exercise prices by
class of stock is greater than the total exercise for Tranche A and
this sum must be reduced by $73,019 as indicated above to arrive at the
total exercise price for Tranche A of $21,840,547.
2. The Non-Qualified Stock Option for a basket of up to 2.5% of all classes
of common stock with an exercise price of 3.75% of the value of the
Employer on the Grant Date (Tranche B), shall be represented by the
following number of shares of each class of common stock with the
following exercise prices:
CLASS/SERIES NUMBER OF EXERCISE PRICE TOTAL
OF STOCK SHARES PER SHARE EXERCISE PRICE
-------- ------ --------- --------------
CLASS A 719,289.075 $27.71 $19,931,500
CLASS B-1 15.625 215,774.90 3,371,483
CLASS B-2 20.325 207,366.12 4,214,716
CLASS B-3 32.175 157,484.72 5,067,071
CLASS B-4 10.300 28,075.38 289,176
---------------
SUBTOTAL $32,873,947
ADJUSTMENT (113,164)
---------------
TOTAL PRICE $32,760,783
These individual exercise prices were determined assuming that the Series B-5
stock of Chicago Mercantile Exchange Inc. that existed prior to April 2001 was
all converted to Class
A common stock. In actuality, some of the Series B-5 stock was converted to
Series B-4 common stock. As a result, the sum of the individual exercise prices
by class of stock is greater than the total exercise for Tranche A and this sum
must be reduced by $113,164 as indicated above to arrive at the total exercise
price for Tranche A of $32,760,783.
ANNEX IV
PERFORMANCE GOALS FOR 2002
ECONOMIC
1. Deliver Against Financial Forecasts
2. Raise New Capital Through Successful IPO
3. Roll-out and Support New Products
4. Formalize New Product Process
5. Maintain World-Class Trading Floor
6. Protect Eurodollar Franchise
STRATEGIC
7. Improve Scalability and Performance of Technology Platform
8. Improve Customer Service Levels and Relationships
9. Improve and Xxxxxx Core Elements of CME Operations, Technology and
Clearing
10. Create a Mergers, Acquisitions and Alliance Plan
LEADERSHIP
11. Establish CME as a "Talent Advantaged" Organization
12. Continue to Adjust to Public Company Practices and Processes
13. Effectively Lead the Management Team
14. Share Vision and Effectively Communicate Strategy with Board of Directors
