EMPLOYMENT AGREEMENT
AGREEMENT made as of the 19th day of August 1996, to be
effective September 1, 1996 (the "Effective Date"), between Associated
Communications, L.L.C. (formerly DMT, L.L.C.), a Delaware limited liability
company (the "Company"), and Xxxx X. Xxxxx (the "Executive"), and, as to the
last sentence of Section 4(d)(I) and Sections 4(d)(II), 4(d)(III), 4(f),
8(a)(ii), 10(c) and 14 hereof only, Microwave Services, Inc., a Delaware
corporation ("MSI"), and Digital Services Corporation, a Virginia corporation
("DSC", and collectively with MSI, the "Original Shareholders").
The Board of Directors of the Company (the "Board") desires to
provide for the employment of the Executive as a member of the Company's
management. The Executive is willing to commit himself to serve the Company, on
the terms and conditions herein provided.
In order to effect the foregoing, the Company and the
Executive wish to enter into an employment agreement on the terms and conditions
set forth below. Accordingly, in consideration of the premises and the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and conditions set forth herein.
2. Term. The Company hereby employs the Executive, and the
Executive hereby accepts such employment, for the period commencing on the
Effective Date and ending on the sixth anniversary of the Effective Date, unless
further extended as provided in this Section 2 or sooner terminated in the event
that Executive's employment is terminated pursuant to Section 6 hereof (the
"Term of Employment"). On the sixth and each subsequent anniversary of the
Effective Date, the Term of Employment ---- shall automatically be extended for
an additional year unless, not later than 180 days prior to any such
anniversary, the Company or the Executive shall have given notice not to extend
the Term of Employment.
3. Position and Duties. Commencing on the Effective Date and
continuing for the remainder of the Term of Employment, the Executive shall be
employed as Chairman of the Board and Chief Executive Officer of the Company. He
shall have such authorities, duties and responsibilities customarily assigned to
a Chairman of the Board and Chief Executive Officer of an enterprise like the
company (including those associated with a public company if the Company becomes
a Public Company, as such term is defined in Section 4(d)(I) below). The
Executive shall be assigned no duties or responsibilities that are materially
inconsistent with, or that materially impair his ability to discharge, the
foregoing duties and responsibilities. He shall report solely and directly to
the Board. Upon any termination of the Executive's employment with the Company,
the Executive shall resign from the Board. The Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Company; provided, however, that the Executive may also (a) serve on the
boards of directors or trustees of the business enterprises listed on Exhibit A
hereof, as well as any others to which the Board gives its written consent,
which shall not be unreasonably withheld, (b) serve on the boards of directors
or trustees of trade associations and/or charitable organizations or engage in
charitable activities and community affairs, and (c) manage his personal
investments and affairs, provided that such activities do not interfere with the
proper performance of his duties and responsibilities under this Agreement.
4. Compensation and Related Matters.
(a) Salary. The Company shall pay Executive a base
salary ("Base Salary") during the period of the Executive's employment
hereunder, which shall be at an initial rate of five-hundred-thousand dollars
($500,000) per annum. The Base Salary may be adjusted from time to time as
provided in the next paragraph and shall be paid in accordance with the
Company's standard payroll procedure.
Prior to the third anniversary of the
Effective Date, the Base Salary shall be reviewed for
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increase effective on such third anniversary in the discretion of the Board.
Thereafter, the Base Salary shall be reviewed at least annually for increase in
the discretion of the Board. The Executive's Base Salary may not be decreased at
any time during the Term of Employment.
(b) Annual Bonus. For the Company's fiscal year
in which the Term of Employment begins, the Company shall pay the Executive an
amount equal to the product of five-hundred-thousand dollars ($500,000)
multiplied by a fraction, the numerator of which is the number of calendar
days of such fiscal year during which the Executive is employed hereunder, and
the denominator of which is 366. With respect to each of the first three full
fiscal years of the Company during the period of the Executive's employment
hereunder, the Company shall pay the Executive an annual bonus of
five-hundred-thousand dollars ($500,000). The respective bonus amounts
referred to in the preceding sentences of this on 4(b) shall be paid within
thirty (30) days after the end of the Company's fiscal year in respect of
which such bonus amount is payable. With respect to the fourth and subsequent
full fiscal years of the Company during the period of the Executive's
employment hereunder, the Executive shall be entitled to an annual bonus in
such amount and based upon such criteria as the Board may determine in its
discretion.
(c) Non-Equity-Based Annual Compensation Programs.
Beginning on the third anniversary of the Effective Date, the Executive shall
participate in all annual (but not long-term) executive compensation plans and
programs of the Company which are not equity-based at a level commensurate
with his seniority and position at the Company, provided that this Section 4(c)
shall not duplicate the amount of any benefit provided pursuant to the last
sentence of Section 4(b) hereof.
(d) Company Appreciation Rights.
(I) As of the Effective Date, the Company
shall grant the Executive six separate Company Appreciation Rights ("CARs")
which will expire on the tenth anniversary of the Effective Date and which will
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vest on the first through sixth anniversaries of the Effective Date,
respectively, if the Executive shall be employed by the Company on the
respective six anniversaries; provided, however, that, if the Executive's
employment shall be terminated for any reason (other than a termination by the
Company for "Cause," as defined in Section 6(c) hereof), the CAR which would
otherwise have vested on the anniversary of the Effective Date next following
the issuance of a Notice of Termination (as defined in Section 6(e) hereof,
except in the case of termination due to death in which event the date of death
shall be deemed to be the issuance of such Notice for this purpose) in
connection with such termination shall vest on the Executive's Date of
Termination (as defined in Section 6(f) hereof). Each vested CAR will entitle
the Executive to receive, as soon as practicable after its Settlement Date
(defined below) in accordance with the terms hereof, an amount equal to three
percent (3%) (subject to adjustment as described below) of the amount by which
the equity value of the Company on the Settlement Date (calculated based on the
Fair Market Value, as defined below) exceeds the applicable Target Value, as set
forth in the table below (subject to adjustment as described below). If on a
Settlement Date the Company's equity securities which may be paid to the
Executive upon settlement of a CAR are not listed and traded on a national
securities exchange or on the Nasdaq National Market (if such equity securities
are so listed and traded, the Company shall be deemed to be a "Public Company"),
the amount to be paid to the Executive shall be paid as soon as practicable, and
in any event within 120 days, after the Company has received notice of the final
determination of the Company's Fair Market Value made in accordance with Section
4(d)(VI) hereof. In the discretion of the Board, the amount to be paid to the
Executive may be paid in cash, equity securities of the Company, or any
combination thereof, and/or such other form of consideration as the Board may
determine in good faith; provided, that, if equity securities of the Company are
used and more than one class of equity securities is outstanding, the Executive
shall have the right to request an appraisal of the fair market value of such
equity securities in accordance with the procedures set forth in Section
4(d)(VI) hereof for determining the Fair Market Value of the Company; and
provided, further, that a form of consideration other than cash or equity
securities of
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the Company can be used only with the consent of the Executive, which shall not
be unreasonably withheld. If the Executive gives the Company notice that he does
not consent to payment in such form, the Company shall pay him promptly in cash
and/or equity securities of the Company. If equity securities of the Company are
paid to the Executive, all such securities shall be of the same type as the
securities owned at the time of payment by the Original Shareholders. If the
equity securities of the Company delivered to the Executive upon the settlement
of a CAR are of more than one class of security, the number of securities of
each class so delivered shall bear the same proportionate relationship as the
securities of such classes then owned by the Original Share holders (including
for purposes of this Section 4(d)(I), their respective successors) bear to each
other. If the Company becomes a Public Company pursuant to an initial public
offering (the "IPO") of equity securities pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise, (A) the Company will, if requested in writing by the Executive, use
its reasonable best efforts to cause to be included in any registration
statement with respect to a public offering (including the IPO) of equity
securities of the class or classes issued to the Executive upon settlement of a
CAR or issued or issuable to the Executive upon exercise of an Option (as
defined in Section 4(d)(V) below) an amount of such equity securities so issued
to and owned by, or so issuable to, the Executive, as of the Conversion Date (as
defined in Section 4(d)(V) below) (the total number of such equity securities,
subject to adjustments for splits, combinations and the like, being referred to
as the "Maximum Amount"), proportionate to the amount of such equity securities
then owned by the Original Shareholders which are included in such registration
statement (based on the total amount of such equity securities then owned by the
Original Shareholders, and the Maximum Amount, respectively), and (B) in each of
the four successive twelve-month periods, the first of which commences on the
Conversion Date and each of the remaining three of which commences on each of
the three respective subsequent anniversaries thereof, the Company will, if
requested in writing by the Executive (which request with respect to the first
such twelve-month period may not be made prior to six months after consummation
of the IPO), use its reason-
5
able best efforts to promptly cause to be registered under the Securities Act,
and registered or qualified under such state securities laws as the Executive
may reasonably request (provided that the Company shall not be required to
consent to general service of process in any jurisdiction where it is not then
so subject), for public sale by the Executive an amount of such equity
securities constituting at least 25% of the difference between the Maximum
Amount and the number of such equity securities, if any, sold by the Executive
in the IPO (such difference being referred to as the "Maximum Annual Amount");
provided that in no event will the Executive sell publicly more than the Maximum
Annual Amount in any such twelve-month period. Such registration rights shall
not be transferable to any transferee of such equity securities (except to
transferees referred to in clauses (i) and (ii) of the last sentence of Section
4(d)(IV) or in the last sentence of Section 4(d)(V)). In addition, such
registration rights shall be subject to the Executive entering into underwriting
(if applicable), indemnification, and other customary agreements, and to the
Company's right to defer (or require the Executive to suspend sales pursuant to)
any such registration if (but only for so long as) it determines in good faith
that such registration (or continued sales) would require disclosure which would
be materially adverse to the Company's interests. The Company shall keep any
registration statement filed under clause (B) above effective for at least 90
days (increased by the number of days, if any, that sales under any such
registration statement are suspended as provided above). If sold in the public
market, shares registered pursuant to this Section 4(d)(I) shall not be subject
to the first refusal rights set forth below in Section 4(d)(III). The Company
shall bear all registration expenses (exclusive of underwriting discounts and
commissions) under this Section 4(d)(I) and shall provide the Executive with
indemnification against liabilities under the securities laws in customary form.
6
CAR Vesting Target
Date Value
1 1st Anniversary $200 million
2 2nd Anniversary $250 million
3 3rd Anniversary $325 million
4 4th Anniversary $425 million
5 5th Anniversary $500 million
6 6th Anniversary $2.75 billion
The applicable percentage (initially three percent (3%)) shall be appropriately
adjusted downward by the Board in good faith to reflect equity investments in
the Company (whether such investments are made in cash or in kind and whether
made prior to, on or after the Effective Date); provided, however, that (i) no
such adjustment shall be made in respect of up to $25 million of equity
investments in the Company to the extent such investments were or are made by
the Original Shareholders or their respective affiliates prior to one year after
the Effective Date, (ii) if equity investments in the Company in excess of $25
million up to a total of $75 million (i.e., $50 million over and above such $25
million) were or are made by the Original Shareholders or their respective
affiliates prior to one year after the Effective Date, in lieu of adjusting the
applicable percentage, the applicable Target Value of each CAR shall be adjusted
upward by the amount of such excess equity investments and (iii) if equity
invest ments in the Company not covered by clause (i) or (ii) above were or are
made by the Original Shareholders or their respective affiliates, the
appropriate adjustment in the applicable percentage in respect of such equity
investments shall be based on (A) the amount of such equity investment, and (B)
the Fair Market Value of the Company (determined in accordance with Section
4(d)(VI)) at the time of such equity investment. For purposes of this Section
4(d), equity investments made by the Original Sharehold ers or their respective
affiliates shall include (and shall be deemed made at the time of the payment or
advancement of), in addition to actual capital contributions or investments,
amounts paid by the Original Shareholders or their respective affiliates to the
Company in xxxx-
7
bursement of costs or expenses incurred by or on behalf of the Company and the
amount of the loan advanced by the Original Shareholders to the Executive
pursuant to Section 4(d), provided that if the "DTS Systems Transfers" are "con
summated" (with such quoted terms having the same meaning as in the Limited
Liability Company Agreement, dated as of March 5, 1996 between the Original
Shareholders (the "DMT L.L.C. Agreement")), the contribution to the Company of
"DTS Licenses" (with such quoted term having the same meaning as in the DMT
L.L.C. Agreement) pursuant thereto shall not be considered an investment for
purposes of this Section 4(d).
The applicable Target Value of each CAR shall be appropriately adjusted downward
dollar for dollar by the Board in good faith to reflect distributions from the
Company in respect of equity interests in the Company (whether such
distributions are made in cash or in kind); provided, however, that no
adjustment shall be made with respect to distributions for tax liabilities
attributable to such equity interests. For the thirty-day period immediately
following the Company's notice to the Executive that an additional non-cash
equity investment has been made in the Company (other than a non-cash equity
investment pursuant to the DTS Systems Transfers) , or that the Company has made
a non-cash distribution in respect of equity interests in the Company (which
notice the Company agrees to provide within fifteen (15) days following any such
investment or distribution) the Executive shall have a right to request an
appraisal of the fair market value of such equity investment or distribution in
accordance with the procedures set forth in Section 4(d)(VI) hereof. In the
event the Company fails to give notice to the Executive as provided in the
preceding sentence, the thirty-day period during which the Executive may request
such appraisal shall commence on the first date, after the end of the fifteen
(15) day notice period for the Company, on which the Executive knows of the
applicable equity investment or distribution. Any appraisal so requested shall
be made only at the first subsequent Settlement Date, unless the Company, in its
discretion, decides to have the appraisal made earlier; provided, however, that
if the aggregate value of all such non-cash equity investments or distributions,
respectively, would reasonably be
8
estimated to exceed $50 million, the Executive may include in the foregoing
request a request for a current appraisal (including of the dilutive effect of
such investments) in which event an appraisal thereof in accordance with Section
4(d)(VI) shall be made as promptly as reasonably possible. In the case of an
equity investment in cash whereby equity interests in the Company of a different
class from the equity interests held by the Original Shareholders are issued,
the Executive may request an appraisal of the dilutive effect of such investment
on equity interests and the CARs, in which event an appraisal in accordance with
Section 4(d)(VI) shall be made as promptly as practicable. It shall be a
condition to the Executive's receipt of an Equity Interest (as defined in
Section 4(d)(II) below) that, if requested by the Company, the Executive becomes
a party to the DMT L.L.C. Agreement as then in effect, or any analogous
partnership, stockholders or other governance agreement (with respect to any
successor partnership or corporate entity) to which the Original Shareholders
(or their successors) are parties (such DMT L.L.C. Agreement or analogous
agreement being sometimes referred to as a "Company Governance Agreement"). The
Company shall give the Executive written notice of any changes (which notice
shall include the full text of such changes) which are made in the Company
Governance Agreement from time to time, such notice to be given within fifteen
(15) days following any such change. It is agreed that if the Executive becomes
a party to a Company Governance Agreement, in the event of any conflict or
inconsistency between the respective rights and obligations of the Executive,
the Company and the Original Shareholders thereunder and under this Agreement,
the provisions of this Agreement shall control.
(II) If the Original Shareholders
(including for purposes of this Section 4(d)(II) and Section 4(d)(III), their
respective successors) shall sell to a third party any of their equity
interests in the Company at a time (whether or not during the Term of
Employment) when the Executive holds vested CARs or owns any equity interest
in the Company as a result of the settlement of any CAR or otherwise (an
"Equity Interest"):
(A) The Original Shareholders shall require the purchaser of
their equity interests to purchase, at the
9
Executive's election, the same percentage of the aggregate of the Executive's
vested CARs (treating such vested CARs as if the date of purchase were a
Settlement Date and the vested CARs had been converted into an Equity Interest
as provided in Section 4(d)(I) above immediately prior to such purchase) and
Equity Interest as the percentage of the aggregate equity interests of the
Original Shareholders which is being purchased; the purchase from the Executive
shall be made on the same terms and for the same consideration as the purchase
from the Original Shareholders; and
(B) The Original Shareholders, at their election, may require
the purchaser of their equity interests to purchase, and the Executive to sell,
the same percentage of the aggregate of the Executive's vested CARs (treating
such vested CARs as if the date of purchase were a Settlement Date and the
vested CARs had been converted into an Equity Interest as provided in Section
4(d)(I) immediately prior to such purchase) and Equity Interest as the
percentage of the aggregate equity interests of the Original Shareholders which
is being purchased; the Original Shareholders, in their discretion, may direct
the Company to vest part or all of the Executive's unvested CARs immediately
prior to such date of purchase; any purchase from the Executive shall be made on
the same terms and for the same consideration as the purchase from the Original
Shareholders.
(III) Upon the terms and subject to the
conditions of this Section 4(d)(III), the Executive grants the Original
Shareholders a right of first refusal with respect to any sale or other
disposition for value by the Executive (a "Transfer") of any Equity Interest.
(i) If the Executive desires to effect a
Transfer of some or all of his Equity Interest pursuant to a bona fide offer
(an "Offer") from any person or entity (an "Offeror"), the Executive shall
give written notice of such Offer (a "First Refusal Notice") to each of the
Original Shareholders. The First Refusal Notice shall specify the number or
amount of securities comprising the Equity Interest proposed to be transferred
pursuant to such Offer (the "First Refusal Interest"), the price proposed to
be paid by the Offeror (the "Offer Price"), the
10
identity of the Offeror and the other terms and conditions of such Offer, and
shall be accompanied by a true and correct copy of the Offer. If any part of
the consideration proposed in the Offer consists of other than cash, the price
proposed to be paid pursuant to such Offer shall be deemed to include the fair
market value of such non-cash consideration, as determined in good faith by the
Board. If the Executive objects to the fair market value, as so determined, the
Executive may require that the Company obtain a determination of the fair market
value of such non-cash consideration pursuant to the procedures set forth in
Section 4(d)(VI) hereof for determining the fair market value of the Company,
and such determination shall be final and binding on all parties.
(ii) Each Original Shareholder shall have
the option to purchase the First Refusal Interest at the Offer Price and on
such other terms as are set forth in the Offer, by giving notice to the
Executive within thirty (30) days of receipt by such Original Shareholder of
the First Refusal Notice (an Original Shareholder which gives such notice being
referred to as an "Accepting Original Shareholder"), and by purchasing such
First Refusal Interest for the Offer Price in cash, against delivery of the
First Refusal Interest (with appropriate transfer documentation) free and clear
of any liens or encumbrances within fifteen (15) days following the expiration
of such thirty (30) day period; provided, however, that if Accepting Original
Shareholders elect in the aggregate to purchase more than 100% of the First
Refusal Interest, then the portion of the First Refusal Interest which may be
purchased by any Accepting Original Shareholder that has elected to purchase
more than such Accepting Original Shareholder's Pro Rata Share (as defined
below) of the First Refusal Interest shall be reduced (based on each such
Accepting Original Shareholder's Pro Rata Share), but not below such Accepting
Original Shareholder's Pro Rata Share; and provided, further, that the date for
such purchase may be deferred solely to the extent necessary to obtain any
governmental consents or approvals required to complete such purchase or, if
applicable, to the extent necessary to complete the determina tion of the fair
market value of any non-cash consideration proposed to be paid by the Offeror,
as provided in subparagraph (i) above. For
11
purposes of this paragraph (ii) of this Section 4(d)(III), an Accepting Original
Shareholder's "Pro Rata Share" shall be the percentage which such Accepting
Original Shareholder's ownership interest in the Company represents of the
ownership interest in the Company of all Accepting Original Shareholders.
(iii) If the Original Shareholders do not
give timely notice of their election to purchase the entire First Refusal
Interest, or if such notice is timely given but the Accepting Original
Shareholders fail to purchase the entire First Refusal Interest within the
applicable time period specified in this Section 4(d)(III), then the Executive
may, within the 90-day period immediately following the expiration of the period
during which the Original Shareholders may give no xxxx of such election, or, if
applicable, within the 90-day period immediately following such failure to
purchase the entire First Refusal Interest, transfer the First Refusal Interest
to the Offeror at a price not less than the Offer Price and on the same terms
and subject to the same conditions as were set forth in the First Refusal
Notice. If the Executive does not complete such Transfer within such 90-day
period, no subsequent Transfer of all or any part of his Equity Interest may be
made without again complying with this Section 4(d)(III), it being understood
and agreed that the retention by the Executive of a security interest in some or
part of the First Refusal Interest which is transferred shall not mean that such
Transfer has not been completed.
(iv) If the Executive fails to comply
with this Section 4(d)(III) with respect to all or any part of his Equity
Interest (including without limitation any beneficial interest therein), any
attempted or purported Transfer thereof shall be void and of no force or effect.
(IV) Upon any termination of Executive's
employment, the Executive's CARs which have not vested on or before the Date of
Termination shall be forfeited. No Settlement Date shall occur with respect to
forfeited CARs. Except to the extent provided in Section 4(d)(II) hereof, CARs
held by the Executive (whether vested or not) can be transferred (i) during his
lifetime only by gratu-
12
itous transfers to immediate family members or to trusts for their benefit, and
(ii) upon his death by his will or the laws of descent and distribution.
(V) Except to the extent previously
settled pursuant to Section 4(d)(II) hereof, the Settlement Date of each vested
CAR shall occur, at the Executive's election, at any time after its vesting and
before the tenth anniversary of the Effective Date, even if the Term of
Employment shall have already ended. Notwithstanding the foregoing, if any
vested CAR shall still be outstanding on the tenth anniversary of the Effective
Date, such anniversary shall be its Settlement Date (and it shall automatically
be settled and thereby expire). If the Company becomes a Public Company, the
Board shall effect as promptly as practicable the conversion (the "Conversion")
of each outstanding CAR (whether or not vested) into a stock option ("Option"),
effective as of the date the Company becomes a Public Company (such date being
referred to as the "Conversion Date"), having the same vesting schedule, vesting
rights (including upon termination of employment) and term as the CAR being
converted, commencing with the Effective Date. In converting the CARs into
Options, the Board shall proceed in good faith and on an equitable basis so as
to preserve the value and economic opportunities previously represented by the
CARs. If on the Conversion Date there are outstanding equity interests of the
Company of a different class than the shares of common stock for which, as a
result of the Conversion, the Options will be exercisable, the terms of the
Conversion as determined by the Board shall be subject to review, at the
Executive's request, in accordance with the procedures described in Section
4(d)(VI), including, without limitation, determination of the exercise price and
the number of shares subject to the Options. Each Option shall be exercisable
for shares of a class of common stock of the Company that is listed on a
national securities exchange or on the Nasdaq National Market. Pursuant to the
Conversion, each CAR shall become an Option to acquire shares having an
aggregate value (val ued at the average closing price of a share over the first
twenty (20) days of public trading of such class of shares commencing on the
Conversion Date or, if, in accordance with Section 4(d)(I), the Executive is
selling shares in the IPO whereby the Company becomes a Public Company,
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valued at the price per share to the public of such shares in the IPO (the
"Share Value")) equal to the product of multiplying (1) the equity value of the
Company on the Conversion Date, which, unless on the Conversion Date there are
outstanding equity interests of the Company of a different class than the shares
of common stock for which, as a result of the Conversion, the Options will be
exercisable, shall be the Share Value times the number of outstanding shares of
common stock of the Company as of the Conversion Date (and in any event the
determination of such equity value shall take the Share Value into account) by
(2) the applicable percentage for the CAR as set forth in Section 4(d)(I), as
adjusted in accordance with that Section (the "CAR Percentage"). Such Option
shall have an aggregate exercise price equal to the product of multiplying (1)
the Target Value of the CAR, as adjusted if applicable, on the Conversion Date
by (2) the CAR Percentage. Such Option shall provide that in the event that any
dividend or other distribution (whether in the form of cash, stock, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution, or other similar corporate transaction or event occurs that affects
the stock subject to the Option so that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of the Option holder, then the
Option shall, in such manner as is equitable, be adjusted as to any or all of
(i) the number and kind of shares of stock which may thereafter be issued in
connection with the Option and (ii) the exercise price of the Option. Any
dispute arising under the prior sentence shall be resolved in accordance with
the procedures described in Section 15. Each Option (when otherwise exercisable)
may be exercised in full, or in part, at the Executive's election. Any part of
the exercise price of any Option may, at the Executive's election, be paid
through the withholding of shares subject to the Option with a value equal to
the portion of the exercise price to be paid in shares. In addition, any part of
the exercise price of any Option and any related tax withholding amount may, at
the Executive's election, be paid through a cashless exercise procedure that
affords the Executive the opportunity to sell immediately some or all of the
shares underlying the exercised portion of the Option in order to generate
sufficient cash to pay the
14
Option exercise price and/or to satisfy tax withholding obligations relating to
the Option (and if such tax withholding obligations are not satisfied through
such cash, the Executive shall, as a condition of such exercise, pay to the
Company, or make arrangements satisfactory to the Company for the payment of,
the full amount of such tax withholding obligations), provided that such
cashless exercise procedure shall be available only if at the time of such
exercise the shares subject to the Option being exercised are freely
transferable without restriction under the Securities Act, state securities or
"blue sky" laws or otherwise. Any Option held by the Executive (whether vested
or not) may be transferred (1) during his lifetime only by gratuitous transfers
to immediate family members or to trusts for their benefit, and (2) upon his
death by his will or the laws of descent and distribution.
(VI) For purposes of this Agreement,
except as otherwise expressly provided in this Agreement, (A) the "Fair Market
Value" of the Company on any Settlement Date on which the Company is not a
Public Company (or on any other date for which a valuation of the Company is
required by this Agreement), (B) the fair market value of any non-cash
consideration or property the value of which is to be determined under this
Section 4(d) (including, if required by Section 4(d)(V), the terms of the
Conversion) and (C) if required by Section 4(d)(V), the dilutive effect of any
equity investments or distributions on equity, shall be determined in accordance
with the following procedure: The Executive and the Company shall each select a
nationally recognized appraiser, which shall determine the valuation or other
issue in question. If, in the case of a valuation issue, the higher of the two
original appraisal values is not more than ten percent (10%) above the lower
appraisal value, the value in question shall be the value agreed upon by the two
original appraisers or, in the absence of such an agreement, the value in
question shall be the average of the two original appraisal values. If, in the
case of a valuation issue, the higher of the two original appraisal values is
more than ten percent (10%) above the lower appraisal value, the two appraisers
shall select a third nationally recognized appraiser who shall determine a value
which shall be at least equal to the lower appraisal
15
value and whose determination of the value in question shall be final and
binding on all parties. In the case of any other issue, if either appraiser
concludes that the two appraisers are not in substantial agreement, the two
appraisers shall select a third nationally recognized appraiser who shall
resolve the remaining differences and whose determination shall be final and
binding on all parties. All costs and expenses relating to any appraisal or
review conducted under this Section 4(d)(VI) shall be borne by the Company.
(VII) For purposes of this Section 4(d),
equity securities of the Company which are identical except for voting rights
shall not be deemed to be equity securities of different classes.
(e) Special Payment. During the Term of
Employment, the Company shall make no distributions to its members (other than
for tax liabilities attributable to their interests in the Company) until the
fifth anniversary of the Effective Date unless the Company first makes a payment
to the Executive in the amount of five million dollars ($5,000,000). Promptly
upon the fifth anniversary of the Effective Date, if the Executive has not
previously received a payment of five million dollars ($5,000,000) pursuant to
either the immediately preceding sentence or clause (iii) of Section 8(a)
hereof, the Company shall pay the Executive the following amount, and the
Executive shall have no further rights under this Section 4(e):
(i) If the Executive is employed hereunder
on such fifth anniversary of the Effective Date, the amount of five million
dollars ($5,000,000);
(ii) If the Executive's employment has
been terminated by the Company for Cause prior to such fifth anniversary, an
amount equal to one million dollars ($1,000,000) for each completed year of
employment hereunder;
(iii) If the Executive's employment has
been terminated by the Executive without Good Reason prior to such fifth
anniversary, an amount equal to eighty-three thousand three hundred and
thirty-three
16
dollars ($83,333) for each completed month of employment hereunder; and
(iv) If the Executive's employment has
been terminated for any other reason prior to such fifth anniversary, the
amount of five million dollars ($5,000,000).
Any payment made pursuant to this Section 4(e) shall not be offset by any
payment received, or to be received, by the Executive pursuant to any other
provision of this Agreement.
(f) Recourse Loan. As of the Effective Date, the
Original Shareholders shall loan the Executive (in proportion to their
respective equity interests in the Company) the aggregate amount of fifteen
million dollars ($15,000,000). The Executive shall be personally liable,
subject to the terms of this Agreement, for the repayment of such loans, which
shall become due and payable in full on the fifth anniversary of the Effective
Date. Interest shall accrue on such loans at the "Applicable Federal Rate",
determined in accordance with section 1274(d) of the Internal Revenue Code of
1986, as amended from time to time (the "Code"). On each of the first two
anniversaries of the Effective Date, if, and only if, the Executive shall be
employed by the Company on such anniversary date, all interest then accrued on
such loans and one-fifth (1/5) of the principal amount of such loans shall
automatically be forgiven. Upon any termination of the Executive's employment
for Cause prior to the fifth
17
anniversary of the Effective Date, the entire outstanding principal balance of
such loans and all accrued interest thereon shall become due and payable
immediately. Upon the earlier to occur of the fifth anniversary of the Effective
Date (if, and only if the Executive shall be employed by the Company on such
date) or any termination of the Executive's employment prior to the fifth
anniversary of the Effective Date by the Company (other than for Cause), by the
Executive for Good Reason (as defined in Section 6(d)(i) hereof), or by reason
of the Executive's death or Disability, the entire outstanding principal balance
of such loans and the accrued interest thereon shall automatically be forgiven.
If the Executive's employment is terminated by the Executive prior to the fifth
anniversary of the Effective Date (other than for Good Reason or by reason of
his death or Disability), forgiveness of outstanding principal and accrued
interest of such loans (beyond amounts required to be forgiven pursuant to the
fourth sentence of this Section 4(f)) shall not occur, and the remaining
principal and accrued interest of such loans shall immediately become due and
payable. On September 3, 1996, the Executive shall execute promissory notes
evidencing such loans substantially in the forms attached hereto as Exhibits B-1
and B-2, respectively. The parties acknowledge that such promissory notes may be
assigned by the Original Shareholders to the Company, in which case the rights
and obligations under such notes shall inure to the benefit of and be binding
upon, and shall be enforceable by, the Company; provided that no such assignment
shall occur prior to the earlier of (i) the second anniversary of the Effective
Date and (ii) the Company having raised an aggregate of $150 million of equity
or debt financing.
(g) Non-Equity-Based Benefit Plans. The Executive
shall be entitled to participate in or receive benefits under any "employee
benefit plan" (as currently defined in section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or employee benefit
arrangement which is not equity-based and is made available by the Company from
time to time during the period of the Executive's employment hereunder to its
executives and key management employees, on terms and conditions commensurate
with his position at the Company, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements;
provided, however, that there shall be no duplication of the benefits or
compensation elements created by this Agreement; and provided, specifically,
without limitation, that there shall be no duplication of amounts paid in
respect of the annual bonuses and annual bonus opportunities provided by
Sections 4(b) and 4(c) hereof.
(h) Expenses. The Executive shall be entitled to
receive prompt reimbursement for all reasonable and customary expenses
incurred by the Executive in performing services hereunder during the Term of
Employment, including all expenses of travel and living expenses
18
while away from home on business or at the request of and in the service of the
Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company. The
Executive shall be entitled to receive prompt reimbursement for his reasonable
legal and public relations expenses incurred in connection with the execution of
this Agreement.
(i) Place of Employment; Services Furnished. The
Executive shall be based in the Company's principal executive offices, currently
located in the Washington, D.C. area, except for reasonable required travel on
Company business. The Company shall furnish the Executive with appropriate
office space and such other facilities and services as shall be suitable to the
Executive's position and adequate for the performance of his duties as set forth
in Section 3 hereof. If the Company's principal executive offices shall be
moved out of the Washington, D.C. area, the Company shall promptly reimburse the
Executive for the reasonable costs of relocating his family, and principal
residence, to the new location of such offices.
5. Offices. At the reasonable request of the Company, the
Executive agrees to serve without additional compensation as a director of any
of the Company's subsidiaries and in one or more executive offices of any of the
Company's subsidiaries or affiliates.
6. Termination.
(a) Death. The Executive's employment hereunder
shall terminate upon his death.
(b) Disability. If, as a result of the Executive's
incapacity due to physical or mental illness (as determined by a medical doctor
chosen by the Company and reasonably satisfactory to the Executive or his legal
representative), the Executive shall have been absent from his duties hereunder
on a full-time basis for the entire period of one-hundred-eighty (180)
consecutive days, the Executive's employment hereunder shall be terminated for
Disability.
19
(c) Cause. The Company may terminate the
Executive's employment hereunder for "Cause". For purposes of this Agreement,
the Company shall have "Cause" to terminate the Executive's employment hereunder
if (i) the Executive is convicted of a felony; or (ii) the Executive engages in
conduct that constitutes willful gross neglect or willful gross misconduct in
carrying out his duties under this Agreement, resulting, in either case, in
material harm to the Company, monetarily or otherwise, unless the Executive
reasonably believed in good faith that such act or non-act was in (or not
opposed to) the best interests of the Company). Unless the Executive has been
convicted of a felony, no termination for Cause shall take effect unless the
following provisions of this paragraph shall have been complied with. The Board
shall give the Executive written notice of its intention to terminate him for
Cause, such notice (i) to state in detail the particular circumstances that
constitute the grounds on which the proposed termination for Cause is based and
(ii) to be given within four (4) months of the Board learning of such
circumstances. The Executive shall have ten (10) days, after receiving such
special notice, to cure such grounds, to the extent such cure is possible. If he
fails to cure such grounds to the Board's satisfaction, the Executive shall then
be entitled to a hearing by the Board, during which he may, at his election, be
represented by counsel. Such hearing shall be held within thirty (30) days of
his receiving such special notice, provided he requests a hearing within fifteen
(15) days of receiving the notice. If the Board gives written notice to the
Executive within five (5) days following such hearing confirming that, in the
good faith judgment of a majority of the Board, Cause for terminating him on the
basis set forth in the original notice exists, he shall thereupon be terminated
for Cause.
20
(d) Termination by the Executive.
(i) The Executive may terminate his employment
hereunder for "Good Reason", which, for purposes of this Agreement, shall mean
any failure by the Company or the Original Shareholders to comply with any
material provision of this Agreement required by the terms hereof to be complied
with by such entity (including, without limitation, any breach of any of the
Company's obligations under Sections 3, 4(a), 4(b), 4(c), 4(d), 4(e), 4(f),
8(a), 9 or 15) that has not been cured within twenty (20) days after written
notice of such noncompliance (specifying in reasonable detail the particulars of
such noncompliance) has been given by the Executive to the Company.
(ii) The Executive may terminate his
employment hereunder without Good Reason, upon giving four months notice to the
Company (which notice period shall end earlier if the Company's designated
successor to the Executive commences employment with the Company before the end
of such period).
(e) Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive (other than
termination pursuant to Section 6(a) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 17
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated, except that in the case of a termination by the
Company without Cause, or a termination by the Executive without Good Reason,
the Notice may merely state that Cause/Good Reason for termination is not
claimed.
(f) Date of Termination. "Date of Termination"
shall mean the following: (i) if the Executive's employment is terminated by his
death, the date of his death; (ii) if the Executive's employment is terminated
pursuant to Section 6(b) hereof, thirty (30) days after the Notice of
Termination is given; (iii) if the Executive's employment is terminated
21
pursuant to Section 6(c) hereof, the date specified in the Notice of
Termination; (iv) if the Executive's employment is terminated pursuant to
Section 6(d)(i) hereof, thirty (30) days after the Notice of Termination is
given; (v) if the Executive's employment is terminated pursuant to Section
6(d)(ii) hereof, the date determined in accordance with said Section; and (vi)
if the Executive's employment is terminated by the Company without Cause, thirty
(30) days after the Notice of Termination is given. Notwithstanding the
immediately preceding sentence, if within thirty (30) days after any Notice of
Termination is given the party re ceiving such Notice of Termination notifies
the other party in good faith that a dispute exists concerning the termination,
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties or by a binding
and final arbitration award. Anything herein to the contrary notwithstanding, if
the Executive gives Notice of Termination on the basis of Good Reason, his
absence from employment after the 30th day following such notice shall not
constitute a basis for termination for Cause.
7. Compensation Upon Termination or During Disability.
(a) During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness ("Disability Period"), the Executive shall continue to receive his Base
Salary at the rate and frequency then in effect for such period and all other
compensation and benefits provided herein until his employment is terminated
pursuant to Section 6(b) hereof, provided that payments so made to the Executive
shall be reduced by the sum of the amounts, if any, payable to the Executive at
or prior to the time of any such payment under disability benefit plans of the
Company or under the Social Security disability insurance program, and which
amounts were not previously applied to reduce any such payment.
(b) If the Executive's employment is terminated
(i) by his death, (ii) for Disability under
22
Section 6(b) hereof, (iii) by the Company for Cause under Section 6(c) hereof,
or (iv) by the Executive without Good Reason, the Company shall promptly pay the
Executive (or the Executive's legal representative in accordance with Section
15(b) hereof) his (A) Base Salary through the Date of Termination at the rate in
effect on the Date of Termination (plus, in the case of termination due to
death, Base Salary at that rate through the ninetieth (90th) day after the date
of death); (B) any amounts due the Executive through the Date of Termination
pursuant to Section 4 hereof, provided that the Company's post-termination
obligations with respect to CARs shall be as provided pursuant to Section 4(d)
hereof; and (C) any other or additional benefits to be provided in accordance
with pertinent plans, programs, or obligations of the Company.
(c) If (A) the Company shall terminate the
Executive's employment (other than for Cause), (B) the Executive shall terminate
his employment for Good Reason or (C) the Executive's employment shall be
terminated for Disability, then, subject to the Executive's continuing
compliance with Section 12 hereof (provided that the Company's post-termination
obligations with respect to CARs, which are provided for in Section 4(d) hereof,
shall not be subject to such compliance),
(i) the Company shall promptly pay the
Executive his Base Salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, any previously awarded but unpaid
bonus for any fiscal year completed prior to the Date of Termination, all other
unpaid amounts, if any, to which the Executive is entitled as of the Date of
Termination under this Agreement or any compensation plan or program of the
Company, at the time such payments are due, and a pro-rata bonus for the year
of termination based on his prior year's bonus award (or, if the Date of
Termination shall occur prior to the end of the first full fiscal year of the
Company during the Term of Employment, based on an annual bonus of five-hundred
thousand dollars ($500,000));
(ii) in lieu of any further salary or
bonus payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay as
23
severance to the Executive an amount (the "Severance Amount") equal to two (2)
times the sum of (A) the Executive's annual Base Salary rate in effect as of the
Date of Termination (or, if the termination is for Good Reason based on a
reduction in Base Salary, then the rate shall be the rate in effect immediately
prior to such reduction), plus (B) if the Date of Termination occurs on or
before December 31, 1999, a deemed annual bonus of five-hundred-thousand dollars
($500,000); the Severance Amount shall be paid in substantially equal
installments and in the same manner and over the same period of time as the
Executive's salary payments would have been made, except that if the Date of
Termination occurs within the two-year period immediately following a "Change in
Control" (as defined in Section 8 hereof) the Severance Amount shall be paid in
a single lump sum payment within the ten-day period immediately following such
Date of Termination;
(iii) the Company shall maintain in full
force and effect, for the continued benefit of the Executive for two years, each
"employee welfare benefit plan" (as defined in section 3(1) of ERISA) in which
the Executive was entitled to participate immediately prior to the Date of
Termination (with no reduction in benefits), provided that the Executive's
continued participation is possible under the general terms and provisions of
such plans. In the event that the Executive's participation in any such plan is
barred, the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have been
entitled to receive under the plan from which his continued participation is
barred (with no reduction in benefits); and
(iv) the Company shall promptly pay to
the Executive (A) any other amounts due and owing to the Executive under Section
4 of this Agreement and (B) any other or additional benefits to be provided in
accordance with pertinent plans, programs and obligations of the Company.
(d) After completing the payments and providing
the benefits required by this Section 7 and Section 4 hereof, the Company shall
have no further obligations to
24
the Executive under this Agreement except as expressly set forth in Sections 9,
10, 14 and 15 hereof. Any amounts due under this Section 7 and Section 4 hereof
are in the nature of compensation or severance payments considered to be
reasonable by the Company and are not in the nature of a penalty.
8. Change in Control of the Company.
(a) Notwithstanding any other provision of this
Agreement, if a "Change in Control" (as defined in Section 8(b) hereof) shall
occur while the Executive is employed by the Company hereunder, (i) all of the
Executive's outstanding CARs shall immediately vest, (ii) the principal balance
remaining of the loans to the Executive pursuant to Section 4(f) hereof (and all
accrued interest thereon) shall automatically be forgiven, and (iii) if the
Company has not previously made a payment in full to the Executive pursuant to
Section 4(e) hereof, the Company shall immediately pay the Executive the sum of
five million dollars ($5,000,000) less any amounts previously paid the Executive
pursuant to Section 4(e), in complete settlement of the Executive's rights
pursuant to such Section 4(e).
(b) For purposes of this Agreement, a Change in
Control shall occur if (i) any person or entity, or group of affiliated persons
or entities, other than the Original Shareholders and/or their respective
affiliates (for this purpose, the Executive shall be deemed to be an affiliate
of the Original Shareholders), acquires membership interests, stock or other
equity interests of the Company representing more than 50% of the voting power
of all such outstanding membership interests, stock or other equity interests,
(ii) the majority of the Board (or comparable governing group) consists of
persons who are designees of any person or entity or group of affiliated persons
or entities which hold membership interests, stock or other equity interests in
the Company, other than the Original Shareholders and/or their respective
affiliates (for this purpose the Executive shall be deemed a designee of the
Original Shareholders), (iii) the Company adopts a plan of liquidation providing
for the distribution of all or substantially all of its assets, or (iv) all or
substantially all of the business enterprise of the Compa-
25
ny is disposed of pursuant to a sale of assets transaction or a merger,
consolidation or similar transaction in which the Company is not the surviving
entity (unless (A) no person or entity, or group of affiliated persons or
entities, other than the Original Shareholders and/or their respective
affiliates (for this purpose, the Executive shall be deemed to be an affiliate
of the Original Shareholders) owns immediately after such transaction membership
interests, stock or other equity interests of the entity which succeeds to the
business of the Company as a result of such transaction representing more than
50% of the voting power of all such outstanding membership interests, stock or
other equity interests, (B) a majority of the board of directors (or comparable
governing body) of the entity which succeeds to the business of the Company as a
result of such transaction consists of persons (or persons designated by such
persons) who constituted a majority of the Board of the Company immediately
prior to such transaction, and (C) such successor entity assumes in writing the
Company's obligations hereunder and, with respect to the CARs, agrees in writing
to substitute for the CARs on an equitable basis equity-based awards having the
same vesting schedule as the CARs, the same period of time during which the
Executive can exercise a right equivalent to the settlement right associated
with the CARs and otherwise providing substantially equivalent economic
opportunity to that afforded by the CARs determined, if the Executive requests,
as provided in Section 4(d)(VI) (it being understood and agreed that if the
common stock of such successor entity is listed and traded on a national
securities exchange or the Nasdaq National Market, such substitution will be
effected through the conversion of the CARs into stock options for the purchase
of such common stock, or other equity based awards of such entity having the
same economic value, in the manner described in Section 4(d)(V)). For purposes
of this Agreement, "affiliate" (or derivations thereof, i.e., "affiliated") of
any person or entity means any other person or entity directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person or entity; and for purposes of such definition, "control" when used
with respect to any person or entity means the power to direct the management
and policies of such person or entity, directly or indirectly, whether through
the
26
ownership of voting securities or other equity interests, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
9. Gross-Up Payment. In the event that the aggregate of any
payments or benefits made or provided to the Executive under this Agreement
(other than any payment pursuant to this Section 9) and under any other plans,
programs or arrangements of the Company (the "Aggregate Payment") is determined
to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2)
of the Code, or any successor provision, then, subject to the last sentence of
this Section 9, the Company shall pay to the Executive, prior to the time any
excise tax imposed by Section 4999 of the Code, or any successor provision
("Excise Tax"), is payable with respect to such Aggregate Payment, an additional
amount which, after the imposition of all income and excise taxes thereon, is
equal to the Excise Tax on the Aggregate Payment. The determination of whether
an Aggregate Payment constitutes a Parachute Payment and, if so, the amount to
be paid to the Executive and the time of payment shall be made by an independent
Tax Auditor (the "Tax Auditor") jointly selected by the Company and the
Executive and paid by the Company. The Tax Auditor shall be a nationally
recognized United States public accounting firm that has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Company or any affiliate thereof. If the Executive and the Company cannot agree
on a firm to serve as the Tax Auditor, then the Executive and the Company shall
each select one nationally recognized United States accounting firm and those
two firms shall jointly select the accounting firm to serve as the Tax Auditor.
Notwithstanding the foregoing (but subject to the last sentence of this Section
9), in the event that the amount of the Executive's Excise Tax liability is
subsequently determined to be greater than the Excise Tax liability with respect
to which an initial payment to the Executive under this Section 9 has been made,
the Company shall pay to the Executive an additional amount with respect to such
additional Excise Tax (and any interest and penalties thereon) at the time that
the amount of the actual Excise Tax liability is finally determined, such
additional amount to be calculated in the same manner as such initial payment.
The Executive and the Company shall cooperate
27
with each other in connection with any proceeding or claim relating to the
existence or amount of liability for Excise Tax, and all expenses relating to
any such proceeding or claim (including all reasonable attorney's fees and other
expenses incurred by the Executive in connection therewith) shall be paid by the
Company promptly upon written demand by the Executive. Notwithstanding any of
the foregoing provisions of this Section 9, the aggregate amounts payable to the
Executive pursuant to this Section 9 with respect to the Excise Tax liability
(exclusive of the aforesaid expenses incurred by the Executive in connection
therewith) shall not exceed one million dollars ($1,000,000).
10. Indemnification.
(a) The Company agrees that (i) if the Executive
is made a party, or is threatened to be made a party, to any proceeding, by
reason of the fact that he is or was a director, officer, employee or agent of
the Company or is or was serving at the request of the Company as a director,
officer, member, employee or agent of another corporation, partnership, joint
venture, trust, person or other entity, including service with respect to
employee benefit plans, whether or not the basis of such proceeding is the
Executive's alleged action in an official capacity while serving as a director,
officer, member, employee or agent, or (ii) if any claim, demand, request,
threat, or request for information, documents or testimony (collectively,
"Claim") is made, or is threatened to be made, that arises out of or relates to
the Executive's service in any of the foregoing capacities, then the Executive
shall promptly be indemnified and held harmless by the Company to the fullest
extent permitted or authorized by the Company's limited liability company
agreement, certificate of incorporation, bylaws, or other corporate governance
documents or, if greater, by the laws of the State of Delaware, against any and
all costs, expenses, liabilities and losses (including, without limitation,
reasonable attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) incurred or suffered by the
Executive in connection therewith, and such indemnification shall continue as to
the Executive even if he has ceased to be a director, member, employee or agent
of the Company or
28
other person or entity, and shall inure to the benefit of the Executive's heirs,
beneficiaries, executors, administrators and other representatives and
successors. The Company shall pay all reasonable out-of-pocket costs and
expenses incurred by the Executive in connection with any such proceeding or
Claim within fifteen (15) days of receiving written notice requesting such
payment and provid ing evidence reasonably satisfactory to the Company of the
Executive's incurrence of such costs and expenses. Such notice shall include an
undertaking by the Executive to repay the amount of such payment if he is
ultimately determined not to be entitled to indemnification against such costs
or expenses. Notwithstanding the foregoing provisions of this Section 10(a), the
Company shall not indemnify and hold harmless the Executive, and shall not pay
any costs or expenses incurred by the Executive, in connection with any action,
suit or proceeding by the Executive against the Company or any of its directors,
officers, subsidiaries or affiliates; provided that this sentence shall not
affect the Executive's right to indemnification and payment of costs and
expenses if the Company is made a party to a third party action, suit or
proceeding against the Executive, but no such right to indemnification or
payment shall apply with respect to any claim (other than a claim for
indemnification under this Section 10(a) to which the Executive is otherwise
entitled), counterclaim or cross-claim by the Executive against the Company or
any of its directors, officers, subsidiaries or affiliates.
(b) Neither (i) the failure of the Company
(including its Board, independent legal counsel or stockholders) to have made a
determination, in connection with any request for payment or reimbursement under
Section 10(a), that the Executive has satisfied any applicable standard of
conduct, nor (ii) a determination by the Company (including its Board,
independent legal counsel or stockholders) that the Executive has not satisfied
any applicable standard of conduct, shall create a presumption that the
Executive has not met an applicable standard of conduct.
(c) Until such time as the Company shall obtain
officers' and directors' liability insurance coverage providing protections to
the Executive (as part
29
of a policy covering officers and directors of the Company, generally) as
comprehensive as possible (taking into account scope, exclusions, deductibles,
maximum liability and other factors) for an annual premium not exceeding
$100,000, the guarantee provided in Section 14 hereof shall remain in full force
and effect with respect to Section 10(a) hereof (whether or not it has
terminated for all other purposes); it being understood and agreed that from and
after the time such guarantee is no longer in effect with respect to Section
10(a) hereof until the termination of the Executive's employment with the
Company, the Company will continue to maintain the aforesaid officers' and
directors' liability insurance to the extent available at an annual premium not
exceeding $100,000.
11. No Offset; No Mitigation. If the Executive's employment
is terminated for any reason during the Term of Employment, the Executive shall
not be required to mitigate damages by seeking other employment, and there shall
be no offset against amounts due the Executive under this Agreement on account
of (i) any remuneration or benefits attributable to any subsequent employment
that the Executive may obtain or (ii) any claims the Company or any of its
affiliates may have against the Executive.
12. Confidentiality, Noncompetition and Nonsolicitation.
(a) The Executive will not, during or after the
Term of Employment, disclose to any entity or person any information (including,
but not limited to, information about customers or about the design, manufacture
or marketing of products or services) (i) which is not generally known to the
public (other than through the Executive's own breach of this Agreement); (ii)
which relates to the business of the Company or any of its subsidiaries; (iii)
which is treated as confidential by the Company; and (iv) to which the Executive
gains access by reason of his position as an employee or director of the
Company, except as such disclosure (i) is required or appropriate in connection
with his work as an employee of the Company, or (ii) is required by a court of
law, by any governmental agency having supervisory authority over the business
of the Company, or by any other person or body
30
with apparent jurisdiction to order him to disclose such information.
(b) While the Executive continues to be an employee
of the Company and for the two-year period immediately following his Date of
Termination (or if the Executive's employment is terminated by the Company
without Cause or by the Executive with Good Reason, for the one-year period
immediately following his Date of Termination), the Executive shall not, except
as permitted by the Company upon its prior written consent, (i) enter, directly
or indirectly, into the employ of or render or engage in, directly or
indirectly, any services to any person, firm, corporation or other entity that
is in competition (or is actively planning to engage in competition) with the
Company with respect to (x) any local loop business (if the Company is engaged
in such business on the Date of Termination), (y) any business actively
conducted by the Company on the Date of Termination or (z) any business which,
on the Date of Termination, the Company plans to enter pursuant to a business
strategy in the development of which the Executive actively participated and
which was adopted by the Board before the Executive's termination of employment
(any of the foregoing being referred to herein as a "Competitive Business"), or
(ii) become interested, directly or indirectly, in any such person, firm,
corporation or other entity as an individual, partner, member, shareholder,
creditor, director, officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity. The ownership of three percent
(3%) of any class of the outstanding securities of any corporation, even though
such corporation may conduct (or be planning to conduct) a Competitive Business,
shall not be deemed as constituting an interest which violates clause (ii) of
the immediately preceding sentence. Further, the Executive shall not be deemed
to have violated the first sentence of this Section 12(b) solely by reason of
the fact that the Executive is employed by, or rendering services to, a person,
firm, corporation or other entity which conducts or provides services to (or may
be planning to conduct or provide services to) a Competitive Business, so long
as the Executive's employment is, or his services rendered are, solely in
connection with businesses of such person, firm, corporation or other entity
which are not Competitive
31
Businesses and which do not involve the provision of services to any Competitive
Business, and the Executive has no direct or indirect authority or involvement
in connection with any Competitive Business conducted (or planned to be
conducted), or any services provided (or planned to be provided) to any
Competitive Business, by such person, firm, corporation or other entity.
(c) While the Executive continues to be an employee
of the Company and for the two-year period immediately following his Date of
Termination, the Executive shall not, except as permitted by the Company upon
its prior written consent, attempt, directly or indirectly, to induce any
employee employed by or performing services for the Company, or any subsidiary
or affiliate of the Company ("Another Employee"), to be employed or perform
services elsewhere; provided, however, the Executive shall not be deemed to have
induced Another Employee to be employed or perform services elsewhere solely as
a result of any actions properly taken in the performance of his duties
hereunder. If the Executive engages in discussions with an entity other than the
Company, its subsidiaries or affiliates about his own subsequent employment or
performance of services for such entity or makes plans to establish an entity by
which he will be employed or for which he will perform services (in either case,
the "Subsequent Employer"), the Executive shall not discuss with Another
Employee (or communicate to Another Employee in any manner) the possibility of
the employment of Another Employee, or the engagement of Another Employee to
perform services, by the Subsequent Employer.
(d) Any violation by the Executive of Section 12
hereof, occurring after the Date of Termination, shall entitle the Company to
cease making any payments and providing any welfare benefits otherwise required
under Section 7(c) hereof (provided that the Company's post-termination
obligations with respect to CARs which are provided for in Section 4(d) hereof
shall not be subject to this provision). Additionally, the Company shall have
the right and remedy to have the provisions of this Section 12 specifically
enforced, including by temporary and/or permanent injunction, it being
acknowledged and agreed that any such violation may cause irreparable injury to
the Company and that money damages
32
will not provide an adequate remedy to the Company. The Company shall in any
event have the right to seek damages for any breach of this Section 12.
13. Independence and Severability of Section 12 Provisions.
Each of the rights and remedies enumerated in Section 12 shall be independent of
the others and shall be severally enforceable and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity. If any of the
covenants contained in Section 12 or if any of the rights or remedies enumerated
in Section 12, or any part of any of them, is hereafter construed to be invalid
or unenforceable, the same shall not affect the remainder of the covenant or
covenants or rights or remedies which shall be given full effect without regard
to the invalid portions. If any of the covenants contained in Section 12 is held
to be unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court or arbitrator making such
determination shall have the authority to reduce the duration and/or area of
such provi sion, and in its reduced form said provision shall then be
enforceable.
14. Guarantee. The Original Shareholders, in proportion to
their respective ownership interests (as such interests may vary from time to
time) in the Company, severally and unconditionally guarantee prompt payment of
all amounts that become due and owing to the Executive from the Company under
this Agreement; provided that at such time, if any, as the "DTS Systems
Transfers" are fully "consummated" (with the quoted terms having the same
meaning as in the DMT, L.L.C. Agreement), such guarantee shall automatically
terminate and be of no further force or effect, except with respect to the
guarantee of the Company's obligations under Section 10(a) hereof, which
guarantee shall be governed by the provisions of Section 10(c) hereof. Each of
the Original Shareholders hereby represents and warrants, as to itself, that it
is fully authorized and empowered to enter into this Agreement to the extent
provided in the first paragraph hereof and that the performance of its
obligations under this Agreement does not violate any law, regulation or order,
or any agreement between it and any other person or entity.
33
15. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, any amendment of this Agreement, or any breach of
any of the foregoing, shall, at the election of the Company or the Executive, be
settled by confidential arbitration, to be held in Washington D.C., in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator(s) shall apply the provisions of this Agreement
strictly as written (unless doing so violates the clear intent of this
Agreement), and shall explain the reasons and basis of his (their) award in
detail and in writing. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. All costs and expenses
relating to any controversy or claim that is arbitrable under this Section
(including reasonable attorney's fees of the Executive) shall be paid by the
Company promptly on written demand, except that the arbitrator(s) are authorized
to require xxxx bursement of the Company for moneys paid by it pursuant to this
sentence if the arbitrator(s) determine that the substantive positions of the
Executive in the arbitration were entirely without merit. Pending final
resolution of any arbitration or court proceeding, the Company shall continue
prompt payment of all amounts due the Executive under this Agreement or any
amendment thereof and prompt provision of all benefits to which the Executive or
his beneficiaries are entitled. Notwithstanding the foregoing, nothing contained
in this Section 15 shall limit a party's right to seek equitable relief in any
court of competent jurisdiction.
16. Successors; Binding Agreement.
(a) No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity, or in
connection with the sale or liquidation of all or substantially all of the
assets of the Company, or in connection with the disposition of the business of
the Company substantially as an entirety, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such
34
assignee or transferee assumes the liabilities, obligations and duties of the
Company under this Agreement, either contractually or as a matter of law.
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
17. Notice.
(a) For the purposes of this Agreement, notices,
demands and all other communications provided for in this Agreement shall be
in writing and shall be addressed as follows:
If to the Executive:
Xx. Xxxx X. Xxxxx
If to the Company:
Associated Communications, L.L.C.
c/o The Associated Group, Inc.
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile No.: 000-000-0000,
with copies to:
The Associated Group, Inc.
Three Xxxx Xxxxx Xxxx
Xxxxx 000
Xxxx Xxxxxx, XX 00000
35
Attention: Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxx, Esq.
Facsimile No.: 000-000-0000;
Skadden, Arps, Slate, Xxxxxxx & Xxxx
Xxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxx
Facsimile No.: 000-000-0000;
and
Digital Services Corporation
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: President
Attention: General Counsel
Facsimile No.: 000-000-0000
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) Notices and communications given in accordance
with the foregoing shall conclusively be deemed to have been received and to be
effective on the day on which delivered to the designated recipient, or, if sent
by United States certified or registered mail, postage prepaid, on the fifth
business day after the day on which mailed, provided that a telecopy or cable of
identical content has been sent to the relevant address specified above within
two days after the posting date of such mail. "Business day" shall mean any day
not a Saturday, Sunday or a legal holiday for non-government employees in the
District of Columbia.
18. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer of the Company as
may be duly authorized by the Board. No waiver by either party hereto at any
time of any prospective or past breach of any condition or provision of this
Agree-
36
ment by the other party hereto shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time (unless
otherwise specified in the waiver). No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and, performance and enforcement of
this Agreement shall be governed by the laws of the State of Delaware without
regard to its conflicts of law principles. To the extent that the rights and
obligations under this Agreement of the parties hereto and their successors, as
such rights and obligations are described herein, may require performance after
the termination or expiration of this Agreement, such rights and obligations
shall survive the Term of this Agreement and shall be fully enforceable
thereafter. In the event that any portion or aspect of any provision of this
Agreement shall be deemed to be invalid or unenforceable for any reason, in
whole or in part, the remainder of this Agreement shall remain in full force and
effect to the fullest extent permitted by law so as to achieve the purposes of
this Agreement. The Executive shall be entitled, to the fullest extent permitted
by law, to select and change a beneficiary or beneficiaries to receive any
compensation or benefit hereunder following the Executive's death. In the event
of the Executive's death or a judicial determination of his incompetence,
references in this Agreement to the Executive shall be deemed, where
appropriate, to refer to his beneficiary, estate or other legal representative.
The Executive agrees that he will cooperate with any application by the Company
to obtain insurance to assist in funding its obligations to him under this
Agreement. The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement does not violate any law, regulation or order,
or any agreement between it and any other person or entity. The Executive
represents that there are no restrictions or limitations of any kind imposed by
his current employer which would affect his ability to execute this Agreement
and perform his obligations hereunder and further represents that such execution
and performance will not create any liabilities to his current employer or
breach the
37
terms of any agreement to which the Executive is a party (except to the extent
of triggering loss of various rights, options, and other benefits from the
Executive's current employer), including without limitation, any agreement to
keep in confidence the confidential or proprietary information of his current
(or any prior) employer. The Executive shall not, during his employment with the
Company or thereafter, disclose to the Company or otherwise use in an
unauthorized manner any confidential or proprietary information of any third
party, including his current (or any prior) employer. All payments and benefits
provided to Executive hereunder shall be subject to applicable withholding
taxes, and no such payments or benefits shall be made without adequate
arrangement, reasonably acceptable to the Company, for the satisfaction of such
withholding taxes. Notwithstanding any other provision of this Agreement,
wherever this Agreement provides for an action to be taken, or a decision to be
made, by the Company, the action or decision shall be taken or made by the
Company's Board, or by such individual (including, without limitation, the
Executive) or a group of individuals as shall have been duly authorized by the
Company's Board.
19. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
20. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
21. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
38
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
ASSOCIATED COMMUNICATIONS, L.L.C.
By: /s/Xxxxx X. Xxxxxxx
--------------------------
Name: Xxxxx X. Xxxxxxx
Title:
EXECUTIVE
/s/ Xxxx X. Xxxxx
------------------------------
Xxxx X. Xxxxx
Signed and agreed upon, as to the last
sentence of Section 4(d)(I) and
Sections 4(d)(II), 4(d)(III), 4(f), (8)(a)(ii), 10(c) and 14 hereof only.
MICROWAVE SERVICES, INC.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------
Name: Xxxxx X. Xxxxxxx
Title: Executive Vice President
DIGITAL SERVICES CORPORATION
By: /s/ Xxxxxxxx Xxxxx
------------------------
Name: Xxxxxxxx Xxxxx
Title: President
