EMPLOYMENT AGREEMENT made and effective as of October 10, 1996,
(the "Effective Date"), between TIME WARNER INC., a Delaware corporation (the
"Company"), and R.E. Turner III (the "Executive").
This Agreement is being entered into pursuant to the provisions
of the Amended and Restated Agreement and Plan of Merger, dated as of September
22, 1995, as amended on August 8, 1996 (the "Merger Agreement"), among Time
Warner Inc., Turner Broadcasting System, Inc. ("TBS"), the Company, Time Warner
Acquisition Corp. and TW Acquisition Corp., pursuant to which, among other
things, TBS became a wholly owned subsidiary of the Company upon the terms and
subject to the conditions set forth in the Merger Agreement (the "Merger").
Pursuant to the Merger Agreement, the Company wishes to secure
the services of the Executive for the period to and including December 31, 2001
(the "Term Date") on and subject to the terms and conditions set forth in this
Agreement, and the Executive is willing to provide such services on and subject
to the terms and conditions set forth in this Agreement. The parties therefore
agree as follows:
1. Term of Employment. The Executive's "term of employment", as
this phrase is used throughout this Agreement, shall be for the period beginning
on the Effective Date and ending on the Term Date, subject, however, to the
terms and conditions set forth in this Agreement.
2. Employment. During the term of employment, the Company shall
employ the Executive, and the Executive shall serve, as Vice Chairman of the
Company and Chief Executive Officer of the Company's newly created Video
Division (the "Video Division"). The Video Division shall consist of (i) TBS,
including all of the businesses conducted by TBS and its subsidiaries at the
time of the Merger, and any business thereafter conducted by TBS and its
subsidiaries, (ii) the businesses conducted from time to time by the Home Box
Office division of Time Warner Entertainment Company, L.P., including all such
businesses so conducted at the time of the Merger, (iii) the Company's interest
in Court TV, and (iv) subject only
2
to contractual obligations of the Company and its subsidiaries existing at
September 22, 1995, substantially all other nationally distributed cable
networks and nationally distributed cable programming services operated from
time to time by the Company or its subsidiaries or controlled affiliates. The
Executive shall have responsibility for the direction and supervision of the
Video Division with all of the authority, duties, functions and powers
appropriate and customary to discharge such responsibility. The Chief Operating
Officer of the Video Division shall be selected by the Company's Chairman of the
Board subject to the consent of the Executive, which consent shall not be
unreasonably withheld. In addition, the Executive shall be invited to
participate in all meetings of the chief executive officers of the divisions of
the Company held during the term of employment and shall have such other
authority, functions, duties, powers and responsibilities as the Board of
Directors or the Chief Executive Officer of the Company may from time to time
delegate to the Executive in addition thereto, consistent with the terms hereof
and his status as Vice Chairman of the Company and Chief Executive Officer of
the Video Division. The Executive shall, subject to his election as such from
time to time and without additional compensation, serve during the term of
employment in such additional offices of comparable or greater stature and
responsibility in the Company and its subsidiaries and as a director and as a
member of any committee of the Board of Directors of the Company and its
subsidiaries, to which he may be elected from time to time. So long as the
Executive is employed by the Company pursuant to the terms of this Agreement
and subject to the Company's obligations under the provisions of the Investors
Agreement No. 1 dated as of October 10, 1996 between the Company, the Executive
and Turner Outdoor, Inc., the Company shall include the Executive in the
management slate for election as a director at every stockholders' meeting at
which his term as a director would otherwise expire and shall use its best
efforts to cause the Executive to be elected a member of its Board of Directors
at each such meeting.
During the term of employment, (i) the Executive shall report
only to the Company's Board of Directors and its Chief Executive Officer, (ii)
the Executive shall have no other employment and, without the prior written
consent of the Chief Executive Officer of the Company, no outside business
activities which require the devotion of substantial amounts of
3
the Executive's time; provided, however, that the Executive's
engaging in bison raising, the ownership and operation of ranch properties and
other real estate, the management of the Executive's investments, including
without limitation, the operation of venture capital or investment funds or
partnerships that are owned primarily by the Executive and/or members of his
family and activities on behalf of not-for-profit and charitable organizations
or foundations shall not be deemed a breach of this Section 2, and (iii) the
place for the performance of the Executive's services shall be the principal
executive offices of TBS in the Atlanta, Georgia metropolitan area, subject to
such reasonable travel as may be appropriate or required in the performance of
the Executive's duties in the business of the Company, including without
limitation, regular trips to the Company's headquarters in New York City. The
foregoing shall be subject to the Company's policies, as in effect from time to
time, regarding vacations, holidays, illness and the like and shall not prevent
the Executive from devoting such time to his personal affairs as he devoted to
such affairs while serving as Chairman, Chief Executive Officer and President of
TBS prior to the Merger; provided, however, that the Executive shall in any
event comply with the provisions of Sections 9 and 10 and any Company policies
in effect from time to time on conflicts of interest.
3. Compensation.
3.1 Base Salary. The Company shall pay or cause to be paid to
the Executive a base salary of not less than $700,000 per annum during the term
of employment (the "Base Salary"). The Company may increase, but not decrease,
the Base Salary at any time and from time to time during the term of employment
and upon each such increase the term "Base Salary" shall mean such increased
amount. The Company shall consider an increase in the Executive's Base Salary
each time it increases the Base Salary of its Chief Executive Officer. Base
Salary shall be payable in monthly or more frequent installments in accordance
with the Company's then current practices and policies with respect to senior
executives. For the purposes of this Agreement "senior executives" shall mean
the executive officers of the Company.
4
3.2 Bonus. In addition to Base Salary, the Executive shall be
entitled to receive during the term of employment an annual cash bonus based on
the performance of the Company and of the Executive. The Executive's annual
bonus will be targeted at 90% of the annual bonus received by the Company's
Chief Executive Officer, however, the actual amount of the Executive's bonus for
all periods commencing on or after January 1, 1997, shall be determined by the
Compensation Committee of the Company's Board of Directors in accordance with
the provisions of the Company's Annual Bonus Plan for Executive Officers. Such
determination with respect to the amount, if any, of annual bonuses to be paid
to the Executive under this Agreement shall be final and conclusive except as
specifically provided otherwise in this Agreement. If the Executive is not
employed hereunder for a full fiscal year, the bonus provided for herein shall
be prorated based upon the number of full or partial months of actual employment
during such year. Payments of any bonus compensation under this Section 3.2
shall be made in accordance with the Company's then current practices and
policies with respect to senior executives.
3.3 Deferred Compensation. In addition to Base Salary and
bonus as set forth in Sections 3.1 and 3.2, the Executive shall be credited with
deferred compensation which shall be determined and paid out as provided in this
Agreement, including Annex A hereto. Subject to the provisions of Sec tion A.7
of Annex A, during the term of employment, the Company shall credit to a special
account maintained on the Company's books for the Executive (the "Account"),
monthly, an amount equal to 50% of one-twelfth of the Executive's then current
Base Salary. If a lump sum payment is made pursuant to Section 4.2.2 or 4.2.3,
the Company shall credit to the Account at the time of such payment an amount
equal to 50% of the Base Salary portion of such lump sum payment. The Account
shall be maintained by the Company in accordance with the terms of this
Agreement, including Annex A, until the full amount which the Executive is
entitled to receive therefrom has been paid in full.
3.4 Deferred Bonus. In addition to any other deferred bonus
plan in which the Executive may be entitled to participate, the Executive may
elect by written notice delivered to the Company at least 15 days prior to the
5
commencement of any calendar year during the term of employment during which an
annual cash bonus would otherwise accrue or to which it would relate, to defer
payment of and to have the Company credit to the Account all or any portion of
the Executive's bonus for such year. Any such election shall only apply to the
calendar year during the term of employment with respect to which such election
is made and a new election shall be required with respect to each successive
calendar year during the term of employment. Notwithstanding the foregoing, the
Executive hereby elects to defer payment of and have the Company credit to the
Account 100% of the annual bonus payable to the Executive with respect to the
period beginning on the Effective Date and ending on December 31, 1996.
3.5 Reimbursement. The Company shall pay or reimburse the
Executive for all reasonable travel (including use of the Executive's personal
means of transportation), entertainment and other business expenses actually
incurred or paid by the Executive during the term of employment in the
performance of his services under this Agreement provided such expenses are
incurred or paid in accordance with the Company's then current practices and
policies with respect to senior executives of the Company and upon presentation
of expense statements or vouchers or such other supporting information as the
Company may customarily require of its senior executives.
3.6 No Anticipatory Assignments. Except as specifically
contemplated in Section 12.8 or under the life insurance policies and benefit
plans referred to in Sections 7 and 8, respectively, neither the Executive, his
legal representative nor any beneficiary designated by him shall have any right,
without the prior written consent of the Company, to assign, transfer, pledge,
hypothecate, anticipate or commute to any person or any corporation,
partnership, trust or other entity ("Entity") any payment due in the future
pursuant to any provision of this Agreement, and any attempt to do so shall be
void and shall not be recognized by the Company.
3.7 Indemnification. The Executive shall be entitled
throughout the term of employment in his capacity as an officer or director of
the Company or any of its subsidiaries or a member of the Board of
Representatives or other governing body of any partnership or joint venture in
which the Company has an equity interest (and after the term of
6
employment, to the extent relating to his service as such officer, director or
member) to the benefit of the indemnification provisions contained on the date
hereof in the Certificate of Incorporation and By-Laws of the Company (not
including any amendments or additions after the date of execution hereof that
limit or narrow, but including any that add to or broaden, the protection
afforded to the Executive by those provisions), to the extent not prohibited by
applicable law at the time of the assertion of any liability against the
Executive. In addition, if at any time during the term of employment the Company
generally provides indemnification agreements to its other directors or
executive officers, the Company shall provide a substantially similar agreement
to the Executive.
4. Termination.
4.1 Termination for Cause. The Company may terminate the term
of employment and all of the Company's obligations hereunder, other than its
obligations set forth below in this Section 4.1, only for "cause" and only if
the term of employment has not previously been terminated pursuant to any other
provision of this Agreement. Termination by the Company for "cause" shall mean
termination by action of the Company's Board of Directors, or a committee
thereof, because of the Executive's conviction (treating a nolo contendere plea
as a conviction) of a felony (whether or not any right to appeal has been or may
be exercised) or willful refusal without proper cause to perform his obligations
under this Agreement or because of the Executive's material breach of any of the
covenants provided for in Section 9. Such termination shall be effected by
written notice thereof delivered by the Company to the Executive and shall be
effective as of the date of such notice; provided, however, that if (i) such
termination is because of (x) the Executive's willful refusal without proper
cause to perform any one or more of his obligations under this Agreement or (y)
the Executive's breach of any of the covenants in Sections 9.1.2 or 9.1.3 or the
Executive's inadvertent breach of any limitation contained in Section 9.2
relating to the acquisition or ownership of an interest in any Entity, (ii) such
notice is the first such notice of termination for any reason delivered by the
Company to the Executive under this Section 4.1, and (iii) within 15 days
following the date of
7
such notice the Executive shall (x) cease his refusal and shall use his best
efforts to perform such obligations or (y) cure such breach, as applicable, the
termination shall not be effective.
In the event of such termination by the Company for cause in
accordance with the foregoing procedures, without prejudice to any other rights
or remedies that the Company may have at law or in equity, except as set forth
in the last sentence of this Section 4.1, the Executive shall have no further
obligation to the Company under this Agreement and the Company shall have no
further obligations to the Executive under this Agreement other than (i) to pay
Base Salary and make credits of deferred compensation to the Account accrued
through the effective date of termination (including but not limited to pursuant
to Section 3.4),(ii) to pay any annual bonus pursuant to Section 3.2 to the
Executive in respect of the calendar year prior to the calendar year in which
such termination is effective, in the event such annual bonus has been
determined but not yet paid as of the date of such termination and (iii) with
respect to any rights the Executive has in respect of amounts credited to the
Account or pursuant to any insurance or other benefit plans or arrangements of
the Company maintained for the benefit of the Executive or the Company's senior
executives. The Executive hereby disclaims any right to receive a pro rata
portion of the Executive's annual bonus with respect to the year in which such
termination occurs. The last sentence of Section 3.3, the provisions of Section
3.5 with respect to expenses incurred prior to such termination and the
provisions of Sections 3.7, 8.2, 8.3 and 9 through 12 and Annex A shall survive
any termination pursuant to this Section 4.1.
4.2 Termination by Executive for Material Breach by the
Company and Wrongful Termination by the Company. Unless previously terminated
pursuant to any other provision of this Agreement and unless a Disability Period
shall be in effect, the Executive shall have the right, exercisable by written
notice to the Company, to terminate the term of employment effective 15 days
after the giving of such notice, if, at the time of the giving of such notice,
the Company shall be in material breach of its obligations under this Agreement;
provided, however, that, with the exception of clause (i) below, the term of
employment shall not so terminate if such notice is the first such notice of
termination delivered by the
8
Executive pursuant to this Section 4.2 and within such 15-day period the Company
shall have cured all such material breaches of its obligations under this
Agreement. A material breach by the Company shall include, but not be limited
to, (i) the Company failing to cause the Executive to retain any titles
specified in the first two sentences of Section 2; (ii) the Executive being
required to report to persons other than those specified in Section 2; (iii) the
Company violating the provisions of Section 2 with respect to the Executive's
authority, functions, duties, powers or responsibilities (whether or not
accompanied by a change in title); (iv) the Company requiring the Executive's
primary services to be rendered at a place other than at the principal executive
offices of TBS in the Atlanta, Georgia metropolitan area; and (v) the Company
failing to cause any successor to all or substantially all of the business and
assets of the Company expressly to assume the obligations of the Company under
this Agreement.
In the event of a termination pursuant to the preceding
paragraph of this Section 4.2, or in the event of a termination of this
Agreement or the term of employment by the Company in breach of this
Agreement,(A) the Executive shall cease being an employee of the Company and
shall be entitled to receive a lump sum payment as provided in Section 4.2.2;
provided, however, that (B) the Executive may elect by delivery of written
notice to the Company prior to the date written notice of such termination is
given by the Executive pursuant to the preceding paragraph of this Section 4.2
or any time prior to 10 days after written notice of such termination is given
by the Company in breach of this Agreement, to remain an employee of the Company
as provided in Section 4.2.3.
4.2.1 Regardless of whether the election set forth in
clause (B) of Section 4.2 is made by the Executive, (i) after the effective date
of such termination, the Executive shall have no further obligations or
liabilities to the Company whatsoever, except that Section 4.4 and Sections 6
through 12 shall survive such termination, and (ii) the Executive shall be
entitled to receive (A) any earned and unpaid Base Salary and deferred
compensation accrued through the Termination Date, (B) any annual bonus pursuant
to Section 3.2 in respect of the calendar year prior to the calendar year in
which such termination is effective, in the event such
9
annual bonus has been determined but not yet paid as of the Termination Date and
(C) a pro rata portion of the Executive's annual bonus for the year in which
such termination occurs through the date of such termination based on the
average annual bonus received by the Executive from the Company for the two
fiscal years immediately preceding the year of termination (or the prior year's
annual bonus, if only one annual bonus has been received by the Executive, or an
amount equal to 90 percent of the annual bonus earned by the Company's Chief
Executive Officer with respect to 1995, if no annual bonus has been received by
the Executive), all or a portion of which pro rata bonus will be credited to the
Account if the Executive previously elected to defer all or any portion of the
Executive's bonus for such year pursuant to Section 3.4.
4.2.2 In the event the Executive shall not have made the
election provided in clause (B) of Section 4.2 above, the Company shall pay to
the Executive as damages in a lump sum within 30 days thereafter an amount
(discounted as provided in the immediately following sentence) equal to all
amounts otherwise payable pursuant to Sections 3.1, 3.2 and 3.3 for the year or
part thereof in which such termination occurs and for each subsequent year
through and including the Term Date (assuming that annual bonuses are required
to be paid for each such year (or portion thereof, in which case a pro rata
portion of such bonus shall be payable), with each such annual bonus being equal
to the average annual bonus received by the Executive from the Company for the
two fiscal years immediately preceding the year of termination (or the prior
year's annual bonus, if only one annual bonus has been received by the
Executive, or an amount equal to 90 percent of the annual bonus earned by the
Company's Chief Executive Officer with respect to 1995, if no annual bonus has
been received by the Executive), assuming that no portion of such bonus is
deferred pursuant to Section 3.4). Any payments required to be made to the
Executive pursuant to this Section 4.2.2 upon such termination in respect of
Sections 3.1 and 3.2 and the credit to the Account provided for in the
penultimate sentence of Section 3.3 shall be discounted to present value as of
the date of payment from the times at which such amounts would have become
payable absent any such termination at an annual discount rate for the relevant
periods equal to 120% of the "applicable Federal rate" (within the meaning of
Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")), in effect on
the date of such
10
termination, compounded semi-annually, the use of which rate is hereby elected
by the parties hereto pursuant to Treas. Reg. ss.1.280G-1 Q/A 32 (provided that,
in the event such election is not permitted under Section 280G of the Code and
the regulations thereunder, such other rate determined as of such other date as
is applicable for determining present value under Section 280G of the Code shall
be used).
4.2.3 In the event the Executive shall have made the
election provided in clause (B) of Section 4.2 above, the term of employment
shall continue and the Executive shall remain an employee of the Company until
the Term Date and during such period the Executive shall be entitled to receive,
whether or not he becomes disabled during such period but subject to Section 6,
(a) Base Salary at an annual rate equal to his Base Salary in effect immediately
prior to the date of the notice of termination, (b) an annual bonus (all or a
portion of which may be deferred by the Executive pursuant to Section 3.4) in
respect of each calendar year or portion thereof (in which case a pro rata
portion of such annual bonus will be payable) during such period equal to the
average annual bonus received by the Executive from the Company for the two
years immediately preceding the year in which the notice of termination is given
(or the prior year's annual bonus if only one annual bonus has been received by
the Executive, or an amount equal to 90 percent of the annual bonus earned by
the Company's Chief Executive Officer with respect to 1995, if no annual bonus
has been received by the Executive), and (c) deferred compensation as provided
in Section 3.3. Except as provided in the next sentence, if the Executive
accepts full-time employment with any other Entity during such period or
notifies the Company in writing of his intention to terminate his status as an
employee during such period, then the term of employment shall end and the
Executive shall cease to be an employee of the Company effective upon the
commencement of such employment or the effective date of such termination as
specified by the Executive in such notice, whichever is applicable, and the
Executive shall be entitled to receive as damages in a lump sum within 30 days
after such commencement or such effective date an amount (discounted as provided
in the second sentence of Section 4.2.2) for the balance of the Base Salary,
deferred compensation (which shall be credited to the Account as provided in the
penultimate sentence of Section 3.3) and regular annual bonuses (assuming no
deferral pursuant to
11
Section 3.4) the Executive would have been entitled to receive pursuant to this
Section 4.2.3 had the Executive remained on the Company's payroll until the Term
Date. Notwithstanding the preceding sentence, if the Executive accepts
employment with any not-for-profit or charitable organization or foundation,
then the Executive shall be entitled to remain an employee of the Company and
receive the payments as provided in the first sentence of this Section 4.2.3;
and if the Executive accepts full-time employment with any affiliate of the
Company, then the payments provided for in this Section 4.2.3 and the term of
employment shall cease and the Executive shall not be entitled to any such lump
sum payment. For purposes of this Agreement, the term "affiliate" shall mean any
Entity which, directly or indirectly, controls, is controlled by, or is under
common control with, the Company.
4.3 Office Facilities. In the event the Executive shall make
the election provided in clause (B) of Section 4.2, then for the period
beginning on the day the Executive makes such election and ending one year
thereafter, the Company shall, without charge to the Executive, make available
to the Executive office space at the Executive's principal job location
immediately prior to his termination of employment, or other location reasonably
close to such location, together with secretarial services, office facilities,
services and furnishings, in each case reasonably appropriate to an employee of
the Executive's position and responsibilities prior to such termination of
employment.
4.4 Mitigation. In the event of termination of the term of
employment by the Executive pursuant to Section 4.2 as a result of a material
breach by the Company of any of its obligations hereunder, or in the event of
termination of the term of employment by the Company in breach of this
Agreement, the Executive shall not be required to seek other employment in order
to mitigate his damages hereunder; provided, however, that, notwithstanding the
foregoing, if there are any damages hereunder by reason of the events of
termination described above which are "contingent on a change" (within the
meaning of Section 280G(b)(2)(A)(i) of the Code), the Executive shall be
required to mitigate such damages hereunder, including any such
damages theretofore paid, but not in excess of the extent, if any, necessary to
prevent the Company from losing any tax deductions to which it otherwise would
be entitled in
12
connection with such damages if they were not so "contingent on a change". With
respect to the preceding sentence, any payments or rights to which the Executive
is entitled by reason of the termination of the term of employment by the
Executive pursuant to Section 4.2 or in the event of the termination of the term
of employment by the Company in breach of this Agreement shall be considered as
damages hereunder. Any obligation of the Executive to mitigate his damages
pursuant to this Section 4.4 shall not be a defense or offset to the Company's
obligation to pay the Executive in full the amounts provided in Section 4.2.2 or
4.2.3, at the time provided therein or the timely and full performance of any of
the Company's other obligations under this Agreement.
4.5 Payments. So long as the Executive remains on the payroll
of the Company or any subsidiary of the Company, payments of salary, deferred
compensation and bonus required to be made pursuant to Section 4.2 shall be made
at the same times as such payments are made to senior executives of the Company
or such subsidiary
4.6 Termination by the Executive Without Cause. If the term
of employment has not previously been terminated pursuant to any other provision
of this Agreement, the Executive may terminate the term of employment and all of
his obligations hereunder on 90 days prior written notice to the Company. In the
event of such termination, the Company shall have no further obligations to the
Executive other than (i) to pay Base Salary and make credits of deferred
compensation to the Account accrued through the effective date of termination,
(ii) to pay any annual bonus pursuant to Section 3.2 to the Executive in respect
of the calendar year prior to the calendar year in which such termination is
effective, in the event such annual bonus has been determined but not yet paid
as of the date of such termination, (iii) to pay the Executive a pro rata annual
bonus for the portion of the year in which such termination occurs based on the
average annual bonus received by the Executive from the Company for the two
fiscal years immediately preceding the year of termination (or the prior year's
annual bonus, if only one annual bonus has been received by the Executive), or
an amount equal to 90 percent of the annual bonus earned by the Company's Chief
Executive Officer with respect to 1995, if no annual bonus has been received by
the Executive, all or a portion of which pro rata bonus will be
13
credited to the Account if the Executive previously elected to defer all or any
portion of the Executive's bonus for such year pursuant to Section 3.4 and (iv)
with respect to any rights the Executive has in respect of amounts credited to
the Account or pursuant to any insurance or other benefit plans or arrangements
of the Company maintained for the benefit of the Executive or the Company's
Senior executives. The last sentence of Section 3.3, the provisions of Section
3.5 with respect to expenses incurred prior to such termination and the
provisions of Sections 3.7, 8.2, 8.3 and 9 through 12 and Annex A shall survive
any termination pursuant to this Section 4.6.
5. Disability. If during the term of employment and prior to any
termination of the term of employment or of this Agreement under Section 4.2,
the Executive shall become physically or mentally disabled, whether totally or
partially, so that he is prevented from performing his usual duties for a period
of six consecutive months, or for shorter periods aggregating six months in any
twelve-month period, the Company shall, nevertheless, continue to pay the
Executive his full compensation and continue to credit the Account, when
otherwise due, as provided in Section 3 and Annex A, through the last day of the
sixth consecutive month of disability or the date on which the shorter periods
of disability shall have equaled a total of six months in any twelve-month
period (such last day or date being referred to herein as the "Disability
Date"). If the Executive has not resumed his usual duties on or prior to the
Disability Date, the Company shall pay the Executive a pro rata bonus through
the Disability Date for the year in which the Disability Date occurs in an
amount equal to the average annual bonus received by the Executive from the
Company for the two years immediately preceding the year in which the notice of
termination is given, or the prior year's annual bonus if only one annual bonus
has been received by the Executive, or an amount equal to 90 percent of the
annual bonus earned by the Company's Chief Executive Officer with respect to
1995, if no annual bonus has been received by the Executive and shall pay the
Executive disability benefits until the Term Date (the "Disability Period"), in
an amount equal to 75% of (a) the Executive's Base Salary at the time the
Executive becomes disabled (and this reduced amount shall also be deemed to be
the Base Salary for purposes of determining the amounts to be credited to his
Account pursuant to Section 3.3 and Annex A as
14
further disability benefits) and (b) the average of the annual bonuses in
respect of the two calendar years for which the annual bonus received by the
Executive from the Company was the greatest (or if only two annual bonuses have
been received by the Executive, the average of such bonuses or the prior year's
annual bonus if only one annual bonus has been received, or an amount equal to
90 percent of the annual bonus earned by the Company's Chief Executive Officer
with respect to 1995, if no annual bonus has been received by the Executive),
all or a portion of which may be deferred by the Executive pursuant to Section
3.4. If during the Disability Period the Executive shall fully recover from his
disability, the Company shall have the right (exercisable within 60 days after
notice from the Executive of such recovery), but not the obligation, to restore
the Executive to full-time service at full compensation. If the Company elects
to restore the Executive to full-time service, then this Agreement shall
continue in full force and effect in all respects and the Term Date shall not be
extended by virtue of the occurrence of the Disability Period. If the Company
elects not to restore the Executive to full-time service, the Executive shall be
entitled to obtain other employment, subject, however, to the following: (i) the
Executive shall be obligated to perform advisory services during any balance of
the Disability Period, unless he is rendering the services described in clause
(iii) below; (ii) the provisions of Sections 9.1, 9.3 and 10 shall continue to
apply to the Executive during the Disability Period; and (iii) if the Executive
renders any services to any persons that are in competition with the Company or
any of its subsidiaries or affiliates (which, notwithstanding Section 9.2, the
parties agree the Executive shall be permitted to do if the Company elects not
to restore the Executive to full-time service, as described above), the total
cash salary and bonus received in connection therewith, whether paid to the
Executive or deferred for his benefit, prior to the last day of the Disability
Period, shall reduce, pro tanto, any amount that the Company would otherwise be
required to pay to him hereunder. The advisory services referred to in clause
(i) of the immediately preceding sentence shall consist of rendering advice
concerning the business, affairs and management of the Company as requested by
the Chief Executive Officer of the Company but the Executive shall not be
required to devote more than five days (up to eight hours per day) each month to
such services, which shall be performed at a time and place mutually convenient
to
15
both parties. Subject to clause (iii) of the second preceding sentence, any
income from such other employment shall not be applied to reduce the Company's
obligations under this Agreement. The Company shall be entitled to deduct from
all payments to be made to the Executive during the Disability Period pursuant
to this Section 5 an amount equal to all disability payments received by the
Executive during the Disability Period from Workmen's Compensation, Social
Security and disability insurance policies maintained by the Company; provided,
however, that for so long as, and to the extent that, proceeds paid to the
Executive from such disability insurance policies are not includible in his
income for federal income tax purposes, the Company's deduction with respect to
such payments shall be equal to the product of (i) such payments and (ii) a
fraction, the numerator of which is one and the denominator of which is one less
the maximum marginal rate of federal income taxes applicable to individuals at
the time of receipt of such payments. All payments made under this Section 5
after the Disability Date are intended to be disability payments, regardless of
the manner in which they are computed. Except as otherwise provided in this
Section 5, the term of employment shall continue during the Disability Period
and the Executive shall be entitled to all of the rights and benefits provided
for in this Agreement except that, Section 4.2 shall not apply during the
Disability Period and the term of employment shall end and the Executive shall
cease to be an employee of the Company at the end of the Disability Period and
shall not be entitled to notice and severance or to receive or be paid for any
accrued vacation time or unused sabbatical.
6. Death. Upon the death of the Executive during the term of
employment, this Agreement and all obligations of the Company to make any
payments under Sections 3, 4 and 5 shall terminate except that (i) the
Executive's estate (or a designated beneficiary) shall be entitled to receive,
to the extent being received by the Executive immediately prior to his death,
Base Salary and deferred compensation to the last day of the month in which his
death occurs and bonus compensation (at the time bonuses are normally paid)
based on the average of the annual bonuses in respect of the three years for
which the annual bonus received by the Executive from the Company was the
greatest (or if only two annual bonuses have been received, the average of such
bonuses or the prior year's annual bonus if only one annual bonus has been
received, or an amount equal to
16
90 percent of the annual bonus earned by the Company's Chief Executive Officer
with respect to 1995, if no annual bonus has been received by the Executive),
but prorated according to the number of whole or partial months the Executive
was employed by the Company in such calendar year, and (ii) the Account shall be
liquidated and revalued as provided in Annex A as of the date of the Executive's
death (except that all taxes shall be computed and charged to the Account as of
such date of death to the extent not theretofore so computed and charged) and
the entire balance thereof (plus any amount due under the last paragraph of
Section A.6 of Annex A) shall be paid to the Executive's estate (or a designated
beneficiary) in a single payment not later than 75 days following such date of
death.
7. Life Insurance. Subject to the Executive's satisfactory
completion of any applications and other documentation and any physical
examination that may be required by the insurer, the Company shall obtain
$6,000,000 face amount of split ownership, whole or universal life insurance on
the life of the Executive, to be owned by the Executive or the trustees of a
trust for the benefit of the Executive's spouse and/or descendants. The
Executive shall use reasonable efforts to fulfill all requirements necessary to
obtain such insurance. Until the death of the Executive, and irrespective of any
termination of this Agreement except pursuant to Section 4.1, the Company shall
pay all premiums on such policy and shall maintain such policy (without
reduction of the face amount of the coverage). At the death of the Executive, or
on the earlier surrender of such policy by the owner, the Executive agrees that
the owner of the policy shall promptly pay to the Company an amount equal to the
premiums on such policy paid by the Company (net of (i) tax benefits, if any, to
the Company in respect of payments of such premiums, (ii) any amounts payable by
the Company which had been paid by or on behalf of the Executive with respect to
such insurance, (iii) dividends received by the Company in respect of such
premiums, but only to the extent such dividends are not used to purchase
additional insurance on the life of the Executive, and (iv) any unpaid
borrowings by the Company on the policy), whether before, during or after the
term of this Agreement. The owner of the policy from time to time shall execute,
deliver and maintain a customary split dollar insurance and collateral
assignment form, assigning to the Company the proceeds of such policy
17
but only to the extent necessary to secure the reimbursement obligation
contained in the preceding sentence. The life insurance provided for in this
Section 7 shall be in addition to any other insurance hereafter provided by the
Company on the life of the Executive under any group policy.
8. Other Benefits.
8.1 General Availability. To the extent that (a) the
Executive is eligible under the general provisions thereof and (b) the Company
maintains such plan or program for the benefit of its senior executives, during
the term of employment and so long as the Executive is an employee of the
Company, the Executive shall be eligible to participate in any pension,
profit-sharing, stock option or similar plan or program and in any group
insurance, hospitalization, medical, dental, accident, disability or similar
plan or program of the Company now existing or established hereafter. In
addition, the Executive shall be entitled during the term of employment and so
long as the Executive is an employee of the Company, to receive other benefits
generally available to all senior executives of the Company to the extent the
Executive is eligi ble under the general provisions thereof, including, without
limitation, to the extent maintained in effect by the Company for its senior
executives, an automobile allowance and financial services.
8.2 Stock Options. The Compensation Committee of the Board of
Directors (the "Committee") has approved the Company's commitment to grant to
the Executive options to purchase shares of the Company's Common Stock in the
amounts and at the times and in accordance with the other provisions set forth
in Annex B attached hereto (the "Contract Options"), subject to the execution of
this Agreement by the Executive. All Contract Options granted to the Executive
shall be subject to substantially the same terms and conditions as options
granted to other senior executives of the Company, except as otherwise provided
herein or in Annex B. The Executive shall be eligible to receive grants of stock
options in addition to the Contract Options in the discretion of the Committee.
18
8.3 Benefits After a Termination or Disability. During the
period the Executive remains on the payroll of the Company after a termination
pursuant to Section 4.2 and during the Disability Period the Executive shall
continue to be eligible to receive the benefits required to be provided to the
Executive under Section 8.1 to the extent such benefits are maintained in effect
by the Company for its senior executives; provided, however, that except with
respect to the Contract Options, the Executive shall not be entitled to any
additional awards or grants under any stock option, restricted stock or other
stock based incentive plan. The Executive shall continue to be an employee of
the Company for purposes of any stock option and restricted shares agreements
and any other incentive plan awards during the term of employment and until such
time as the Executive shall leave the payroll of the Company. At the time the
Executive's term of employment with the Company terminates and he leaves the
payroll of the Company pursuant to the provisions of Section 4.1, 4.2, 4.6, 5 or
6, the Executive's rights to benefits and payments under any benefit plans or
any insurance or other death benefit plans or arrangements of the Company or
under any stock option, restricted stock, stock appreciation right, bonus unit,
management incentive or other plan of the Company shall be determined, subject
to the other terms and provisions of this Agreement, in accordance with the
terms and provisions of such plans and any agreements under which such stock
options, restricted stock or other awards were granted; provided, however, that
notwithstanding the foregoing or the provisions of any plan or agreement, all
stock options granted to the Executive by the Company shall become immediately
exercisable at the time the Executive shall leave the payroll of the Company
pursuant to Section 4.2.
8.4 Payments in Lieu of Other Benefits. In the event the term
of employment and the Executive's employment with the Company is terminated
pursuant to Sections 4.1, 4.2, 5 or 6 (and regardless of whether the Executive
elects (B) as provided in Section 4.2), the Executive shall not be entitled to
notice and severance or to be paid for any accrued vacation time or unused
sabbatical, the payments provided for in such Sections being in lieu thereof.
19
9. Protection of Confidential Information; Non- Compete. The
provisions of Section 9.2 shall apply from the Effective Date through the date
the Executive ceases to be an employee of the Company and leaves the payroll of
the Company for any reason. Except as otherwise provided therein, the provisions
of Sections 9.1 and 9.3 shall apply from the Effective Date to the date that is
three years after the event described in the preceding sentence.
9.1 Confidentiality Covenant. The Executive acknowledges that
his employment by the Company (which, for purposes of this Section 9 shall mean
Time Warner Inc. and its affiliates) will, throughout the term of employment,
bring him into close contact with many confidential affairs of the Company,
including information about costs, profits, markets, sales, products, key
personnel, pricing policies, operational methods, technical processes and other
business affairs and methods and other information not readily available to the
public, and plans for future development. The Executive further acknowledges
that the services to be performed under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character. The Executive further
acknowledges that the business of the Company is international in scope, that
its products are marketed throughout the world, that the Company competes in
nearly all of its business activities with other Entities that are or could be
located in nearly any part of the world and that the nature of the Executive's
services, position and expertise are such that he is capable of competing with
the Company from nearly any location in the world. In recognition of the
foregoing, the Executive covenants and agrees:
9.1.1 The Executive shall keep secret all material
confidential matters of the Company and shall not intentionally disclose such
matters to anyone outside of the Company, either during or after the term of
employment, except with the Company's written consent, provided that (i) the
Executive shall have no such obligation to the extent such matters are or become
publicly known other than as a result of the Executive's breach of his
obligations hereunder and (ii) the Executive may, after giving prior notice to
the Company to the extent practicable under the circumstances, disclose such
matters to the extent required by applicable laws or governmental regulations or
judicial or regulatory process;
20
9.1.2 At the Company's request and expense, the Executive
shall deliver promptly to the Company, all memoranda, notes, records, reports
and other documents (and all copies thereof) relating to the Company's business,
which he obtained while employed by, or otherwise serving or acting on behalf
of, the Company and which he may then possess or have under his control; and
9.1.3 If the term of employment is terminated pursuant to
Section 4.1 or 4.2, or ends as scheduled on the Term Date, for a period of one
year after such termina tion, without the prior written consent of the Company,
the Executive shall not solicit the employment of, and shall not cause any
Entity of which he is an affiliate to solicit the employment of, any person who
was a full-time executive employee of the Company at the date of such
termination or within six months prior thereto. The parties agree that the
restrictions set forth in the immediately preceding sentence shall not apply to
any solicitation directed by the Executive at the public in general in
publications available to the public in general or any contact which Executive
can demonstrate was initiated by such employee.
9.2 Non-Compete. The Executive shall not, directly or
indirectly, without the prior written consent of the Chief Executive Officer of
the Company, render any services to any person or Entity or acquire any interest
of any type in any Entity, that is in competition with the Company; provided,
however, that the foregoing shall not be deemed to prohibit the Executive from
(a) acquiring, solely as an investment and through market purchases, securities
of any Entity which are registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 and which are publicly traded, so long as he is
not part of any control group of such Entity and such securities, if converted,
do not constitute more than three percent (3%) of the outstanding voting power
of that Entity, (b) acquiring, solely as an investment, any securities of an
Entity (other than an Entity that has outstanding securities covered by the
preceding clause (a)) so long as he remains a passive investor in such Entity
and does not become part of any control group thereof and so long as such Entity
is not, directly or through subsidiaries, in competition with the Company, or
(c) serving as a director of any Entity that is not
21
in competition with the Company. For purposes of the foregoing, a person or
Entity shall be deemed to be in competition with the Company if such person or
Entity engages in any line of business that is substantially the same as any
line of operating business which the Company engages in, conducts or, to the
knowledge of the Executive, has definitive plans to engage in or conduct.
9.3 Specific Remedy. In addition to such other rights and
remedies as the Company may have at equity or in law with respect to any breach
of this Agreement, if the Executive commits a material breach of any of the
provisions of Section 9.1 or 9.2, the Company shall have the right and remedy to
have such provisions specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
10. Ownership of Work Product. The Executive acknowledges that
during the term of employment, he may conceive of, discover, invent or create
inventions, improve ments, new contributions, literary property, material, ideas
and discoveries, whether patentable or copyrightable or not (all of the
foregoing being collectively referred to herein as "Work Product"), and that
various business opportunities shall be presented to him by reason of his
employment by the Company. The Executive acknowledges that all of the foregoing
shall be owned by and belong exclusively to the Company and that he shall have
no personal interest therein, provided that they are either related in any
manner to the business (commercial or experimental) of the Company, or are, in
the case of Work Product, conceived or made on the Company's time or with the
use of the Company's facilities or materials, or, in the case of business
opportunities, are presented to him for the possible interest or participation
of the Company. The Executive shall (i) promptly disclose any such Work Product
and business opportunities to the Company; (ii) assign to the Company, upon
request and without additional compensation, the entire rights to such Work
Product and business opportunities; (iii) sign all papers necessary to carry out
the foregoing; and (iv) give testimony in support of his inventorship or
creation in any appropriate case. The Executive agrees that he will not
22
assert any rights to any Work Product or business opportunity as having been
made or acquired by him prior to the date of this Agreement except for Work
Product or business opportunities, if any, disclosed to and acknowledged by the
Company in writing prior to the date hereof. The Company hereby agrees that the
Executive shall have all rights and interest in any biographical or
autobiographical materials concerning the Executive's life, which materials
shall be owned by and belong exclusively to the Executive and with respect to
which the Company shall have no interest or rights therein.
11. Notices. All notices, requests, consents and other
communications required or permitted to be given under this Agreement shall be
effective only if given in writing and shall be deemed to have been duly given
if delivered personally or sent by overnight courier, or mailed first-class,
postage prepaid, by registered or certified mail, as follows (or to such other
or additional address as either party shall designate by notice in writing to
the other in accordance herewith):
11.1 If to the Company:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention: Chief Executive Officer
(with a copy, similarly addressed
but Attention: General Counsel)
11.2 If to the Executive, to his residence address set forth
on the records of the Company.
12. General.
12.1 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the substantive laws of the State of
New York applicable to agreements made and to be performed entirely in New York.
12.2 Captions. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
23
12.3 Entire Agreement. This Agreement, including Annexes A
and B, sets forth the entire agreement and understanding of the parties relating
to the subject matter of this Agreement and supersedes all prior agreements,
arrangements and understandings, written or oral, between the parties.
12.4 No Other Representations. No representa tion, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or be liable for any alleged representation,
promise or inducement not so set forth.
12.5 Assignability. This Agreement and the Executive's rights
and obligations hereunder may not be assigned by the Executive. The Company may
assign its rights together with its obligations hereunder, in connection with
any sale, transfer or other disposition of all or substantially all of its
business and assets; and such rights and obligations shall inure to, and be
binding upon, any successor to all or substantially all of the business and
assets of the Company, whether by merger, purchase of stock or assets or
otherwise. The Company shall cause such successor expressly to assume such
obligations.
12.6 Amendments; Waivers. This Agreement may be amended,
modified, superseded, canceled, renewed or extended and the terms or covenants
hereof may be waived only by written instrument executed by both of the parties
hereto, or in the case of a waiver, by the party waiving compliance. The failure
of either party at any time or times to require performance of any provision
hereof shall in no manner affect such party's right at a later time to enforce
the same. No waiver by either party of the breach of any term or covenant
contained in this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
12.7 Legal Fees. In addition to any obligations the Company
may have under Section 3.8, the Company shall promptly pay, upon demand by the
Executive, all legal fees, court costs, fees of experts, and other costs and
24
expenses when incurred by the Executive arising in connection with any actual,
threatened or contemplated litigation or legal, administrative or other
proceeding relating to this Agreement to which the Executive is or expects to
become a party. Subject to any rights of the Executive under Section 3.8, if the
Company or, if the Company is not a party to such litigation or proceeding, the
party opposing the Executive, shall substantially prevail on the material issues
involved in any such litigation or proceeding (but in no other case), then,
after all rights of appeal have been exercised or lapsed, the Executive shall
promptly repay to the Company all amounts previously paid to the Executive under
this Section in respect of such litigation or proceeding, but without interest
thereon.
12.8 Beneficiaries. Whenever this Agreement provides for any
payment to the Executive's estate, such payment may be made instead to such
beneficiary or beneficiaries as the Executive may designate by written notice to
the Company. The Executive shall have the right to revoke any such designation
and to redesignate a beneficiary or beneficiaries by written notice to the
Company (and to any applicable insurance company) to such effect.
12.9 No Conflict. The Executive represents and warrants to
the Company that this Agreement is legal, valid and binding upon the Executive
and the execution of this Agreement and the performance of the Executive's
obligations hereunder does not and will not constitute a breach of, or conflict
with the terms or provisions of, any agreement or understanding to which the
Executive is a party (including, without limitation, any other employment
agreement). The Company represents and warrants to the Executive that this
Agreement is legal, valid and binding upon the Company and the execution of this
Agreement and the performance of the Company's obligations hereunder does not
and will not constitute a breach of, or conflict with the terms or provisions
of, any agreement or understanding to which the Company is a party.
12.10 Withholding Taxes. Payments made to the Executive
pursuant to this Agreement shall be subject to withholding and social security
taxes and other ordinary and customary payroll deductions.
25
12.11 No Offset. Neither the Company nor the Executive shall
have any right to offset any amounts owed by one party hereunder against amounts
owed or claimed to be owed to such party, whether pursuant to this Agreement or
otherwise, and the Company and the Executive shall make all the payments
provided for in this Agreement in a timely manner.
12.12 Severability. If any provision of this Agreement shall
be held invalid, the remainder of this Agreement shall not be affected thereby;
provided, however, that the parties shall negotiate in good faith with respect
to equitable modification of the provision or application thereof held to be
invalid. To the extent that it may effectively do so under applicable law, each
party hereby waives any provision of law which renders any provision of this
Agreement invalid, illegal or unenforceable in any respect.
12.13 Definitions. The following terms are defined in this
Agreement in the places indicated:
Account - Section 3.3
Account Retained Income - Section A.6 of Annex A
affiliate - Section 4.2.3
Applicable Tax Law - Section A.5 of Annex A
Base Salary - Section 3.1
cause - Section 4.1
Code - Section 4.2.2
Company - the first paragraph on page 1
and Section 9.1
Contract Options - Section 8.2
Disability Date - Section 5
Disability Period - Section 5
Effective Date - the first paragraph on page 1
eligible securities - Section A.1 of Annex A
Entity - Section 3.6
Executive - the first paragraph in page 1
fair market value - Section A.1 of Annex A
Investment Advisor - Section A.1 of Annex A
Other Period Deferred Amount - Section A.6 of Annex A
Pay-Out Period - Section A.6 of Annex A
senior executives - Section 3.1
TBS - Section 2
Term Date - the second paragraph on page 1
term of employment - Section 1
26
Valuation Date - Section A.6 of Annex A
Video Division - Section 2
Work Product - Section 10
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first above written.
TIME WARNER INC.
/s/ Gerald M. Levin
By _________________________________
/s/ R.E. Turner
____________________________________
R.E. Turner III
ANNEX A
DEFERRED COMPENSATION ACCOUNT
A.1 Investments. Funds credited to the Account, at the Company's
option, shall either be actually invested and reinvested, or deemed invested and
reinvested, in an account in securities selected from time to time by an
investment advisor designated from time to time by the Company (the "Investment
Advisor"), substantially all of which securities shall be "eligible securities".
The designation from time to time by the Company of an Investment Advisor shall
be subject to the approval of the Executive, which approval shall not be
withheld unreasonably. "Eligible securities" are common and preferred stocks,
warrants to purchase common or preferred stocks, put and call options, and
corporate or governmental bonds, notes and debentures, either listed on a
national securities exchange or for which price quotations are published in
newspapers of general circulation, including The Wall Street Journal, and
certificates of deposit. Eligible securities shall not include the common or
preferred stock, any warrants, options or rights to purchase common or preferred
stock or the notes or debentures of the Company or any corporation or other
entity of which the Company owns directly or indirectly 5% or more of any class
of outstanding equity securities. The Investment Advisor shall have the right,
from time to time, to designate eligible securities which shall be either
actually purchased and sold, or deemed to have been purchased or sold, for the
Account on the date of reference. Such purchases may be made or deemed to be
made on margin; provided that the Company may, from time to time, by written
notice to the Executive and the Investment Advisor, limit or prohibit margin
purchases in any manner it deems prudent and, upon three business days written
notice to the Executive and the Investment Advisor, cause all eligible
securities theretofore purchased or deemed purchased on margin to be sold or
deemed sold. The Investment Advisor shall notify the Executive in writing of
each transaction within five business days thereafter and shall render to the
Executive written monthly reports as to the current status of his Account. In
the case of any purchase, the Account shall be charged with a dollar amount
equal to the quantity and kind of securities purchased or deemed to have been
purchased multiplied by the fair market value of such securities on the date of
reference and shall be credited with the quantity and
A-2
kind of securities so purchased or deemed to have been purchased. In the case of
any sale, the Account shall be charged with the quantity and kind of securities
sold or deemed to have been sold, and shall be credited with a dollar amount
equal to the quantity and kind of securities sold or deemed to have been sold
multiplied by the fair market value of such securities on the date of reference.
Such charges and credits to the Account shall take place immediately upon the
consummation of the transactions to which they relate. As used herein "fair
market value" means either (i) if the security is actually purchased or sold by
the Company on the date of reference, the actual purchase or sale price per
security to the Company or (ii) if the security is not purchased or sold on the
date of reference, in the case of a listed security, the closing price per
security on the date of reference, or if there were no sales on such date, then
the closing price per security on the nearest preceding day on which there were
such sales, and, in the case of an unlisted security, the mean between the bid
and asked prices per security on the date of reference, or if no such prices are
available for such date, then the mean between the bid and asked prices per
security on the nearest preceding day for which such prices are available. If no
bid or asked price information is available with respect to a particular
security, the price quoted to the Company as the value of such security on the
date of reference (or the nearest preceding date for which such information is
available) shall be used for purposes of administering the Account, including
determining the fair market value of such security. The Account shall be charged
currently with all interest paid or deemed payable by the Account with respect
to any credit extended or deemed extended to the Account. Such interest shall be
charged to the Account, for margin purchases actually made, at the rates and
times actually paid by the Account and, for margin purchases deemed to have been
made, at the rates and times then charged by an investment banking firm
designated by the Company with which the Company does significant business. The
Company may, in the Company's sole discretion, from time to time serve as the
lender with respect to any margin transactions by notice to the then Investment
Advisor and in such case interest shall be charged at the rate and times then
charged by an investment banking firm designated by the Company with which the
Company does significant business. Brokerage fees shall be charged to the
Account, for transactions actually made, at the rates and times actually paid
and, for
A-3
transactions deemed to have been made, at the rates and times then charged for
transactions of like size and kind by an investment banking firm designated by
the Company with which the Company does significant business.
A.2 Dividends and Interest. The Account shall be credited with
dollar amounts equal to cash dividends paid from time to time upon the stocks
held or deemed to be held therein. Dividends shall be credited as of the payment
date. The Account shall similarly be credited with interest payable on interest
bearing securities held or deemed to be held therein. Interest shall be credited
as of the payment date, except that in the case of purchases of interest-bearing
securities the Account shall be charged with the dollar amount of interest
accrued to the date of purchase, and in the case of sales of such
interest-bearing securities the Account shall be credited with the dollar amount
of interest accrued to the date of sale. All dollar amounts of dividends or
interest credited to the Account pursuant to this Section A.2 shall be charged
with all taxes thereon deemed payable by the Company (as and when determined
pursuant to Section A.5). The Investment Advisor shall have the same right with
respect to the investment and reinvestment of net dividends and net interest as
he has with respect to the balance of the Account.
A.3 Adjustments. The Account shall be equitably adjusted to
reflect stock dividends, stock splits, recapitalizations, mergers,
consolidations, reorganizations and other changes affecting the securities held
or deemed to be held therein.
A.4 Obligation of the Company. The Company shall not be required
to purchase, hold or dispose of any of the securities designated by the
Investment Advisor; however, whether or not it elects to purchase or sell any
such securities, such transactions shall be deemed to have been made and the
Account shall be charged with all taxes (including stock transfer taxes),
interest, brokerage fees and investment advisory fees, if any, deemed payable by
the Company and attributable to such transactions (in all cases net after any
tax benefits that the Company would be deemed to derive from the payment
thereof, as and when determined pursuant to Section A.5), but no other costs of
the Company. The only obligation of the Company is its contractual obligation to
make payments
A-4
to the Executive measured as set forth below. To the extent that the Company, in
its discretion, purchases or holds any of the securities designated by the
Investment Advisor, the same shall remain the sole property of the Company,
subject to the claims of its general creditors, and shall not be deemed to form
part of the Account. Neither the Executive nor his legal representative nor any
beneficiary designated by him shall have any right, other than the right of an
unsecured general creditor, against the Company in respect of any portion of the
Account.
A.5 Taxes. The Account shall be charged with all federal, state
and local taxes deemed payable by the Company with respect to income recognized
upon the dividends and interest received or deemed to have been received by the
Account pursuant to Section A.2 and gains recognized upon sales of any of the
securities which are deemed to have been sold pursuant to Section A.1 or A.6.
The Account shall be credited with the amount of the tax benefit received or
deemed to be received by the Company as a result of any payment of interest
actually made or deemed to be made pursuant to Section A.1 or A.2 and as a
result of any payment of brokerage fees and investment advisory fees made or
deemed to be made pursuant to Section A.1. If any of the sales of the securities
which are deemed to have been sold pursuant to Section A.1 or A.6 results in a
loss to the Account, such net loss shall be deemed to offset the income and
gains referred to in the second preceding sentence (and thus reduce the charge
for taxes referred to therein) to the extent then permitted under the Internal
Revenue Code of 1986, as amended from time to time, and under applicable state
and local income and franchise tax laws (collectively referred to as "Applicable
Tax Law"); provided, however, that for the purposes of this Section A.5 the
Account shall, except as provided in the third following sentence, be deemed to
be a separate corporate taxpayer and the losses referred to above shall be
deemed to offset only the income and gains referred to in the second preceding
sentence. Such losses shall be carried back and carried forward within the
Account to the extent permitted by Applicable Tax Law in order to minimize the
taxes deemed payable on such income and gains within the Account. For the
purposes of this Section A.5, all charges and credits to the Account for taxes
shall be deemed to be made as of the end of the Company's taxable year during
which the transactions, from which the liabilities for such
A-5
taxes are deemed to have arisen, are deemed to have occurred. Notwithstanding
the foregoing, if and to the extent that in any year there is a net loss in the
Account that cannot be offset against income and gains in any prior year, then
an amount equal to the tax benefit or deemed tax benefit to the Company of such
net loss (after such net loss is reduced by the amount of any net capital loss
of the Account for such year) shall be credited to the Account on the last day
of such year. If and to the extent that any such net loss of the Account shall
be utilized to determine a credit to the Account pursuant to the preceding
sentence, it shall not thereafter be carried forward under this Section A.5. For
purposes of determining taxes payable by the Company under any provision of this
Annex A it shall be assumed that the Company is a taxpayer and pays all taxes at
the maximum marginal rate of federal income taxes and state and local income and
franchise taxes (net of assumed federal income tax benefits) applicable to
business corporations and that all of such dividends, interest, gains and losses
are allocable to its corporate headquarters, which are currently located in New
York City.
A.6 Payments. Subject to the provisions of Section A.7, payments
of deferred compensation shall be made as provided in this Section A.6. Deferred
compensation shall be paid monthly for a period of 60 months (the "Pay-Out
Period") commencing on the first day of the month after the later of (i) the
Term Date and (ii) the date the Executive ceases to be an employee of the
Company and leaves the payroll of the Company for any reason. On each payment
date, the Account shall be charged with the dollar amount of such payment. On
each payment date, the amount of cash held or deemed to be held in the Account
shall be not less than the payment then due and the Company may select the
securities to be sold or deemed sold to provide such cash if the Investment
Advisor shall fail to do so on a timely basis. The amount of any taxes payable
with respect to any such sales shall be computed, as provided in Section A.5
above, and deducted from the Account, as of the end of the taxable year of the
Company during which such sales are deemed to have occurred. Solely for the
purpose of determining the amount of monthly payments during the Pay-Out Period,
the Account shall be valued on the fifth trading day preceding the first monthly
payment of each year of the Pay-Out Period, or more frequently at the Company's
election (the "Valuation Date"), by adjusting all of the securities held or
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deemed to be held in the Account to their fair market value (net of the tax
adjustment that would be made thereon if sold, as estimated by the Company) and
by deducting from the Account the amount of all outstanding indebtedness and all
amounts with respect to which the Executive has elected pursuant to clause (ii)
of Section A.7 to receive payments at times different from the time provided in
this Section A.6 (the "Other Period Deferred Amount"). The extent, if any, by
which the Account, valued as provided in the immediately preceding sentence (but
not reduced by the Other Period Deferred Amount to the extent not theretofore
distributed), exceeds the aggregate amount of credits to the Account pursuant to
Sections 3.3 and 3.4 of the Agreement as of each Valuation Date and not
theretofore distributed or deemed distributed pursuant to this Section A.6 is
herein called "Account Retained Income". The amount of each payment for the
year, or such shorter period as may be determined by the Company, of the Pay-Out
Period immediately succeeding such Valuation Date, including the payment then
due, shall be determined by dividing the aggregate value of the Account, as
valued and adjusted pursuant to the second preceding sentence, by the number of
payments remaining to be paid in the Pay-Out Period, including the payment then
due; provided that each payment made shall be deemed made first out of Account
Retained Income (to the extent remaining after all prior distributions thereof
since the last Valuation Date). The balance of the Account (excluding the Other
Period Deferred Amount), after all the securities held or deemed to have been
held therein have been sold or deemed to have been sold and all indebtedness
liquidated, shall be paid to the Executive in the final payment, which shall be
decreased by deducting therefrom the amount of all taxes attributable to the
sale of any securities held or deemed to have been held in the Account since the
end of the preceding taxable year of the Company, which taxes shall be computed
as of the date of such payment.
If this Agreement is terminated by the Company pursuant to
Section 4.1 or if the Executive terminates this Agreement or the term of
employment in breach of this Agreement, the Account shall be valued as of the
later of (i) the Term Date or (ii) twelve months after termination of the
Executive's employment with the Company, and the balance of the Account, after
the securities held or deemed to have been held therein have been sold or deemed
to have been sold and all related indebtedness liquidated, shall be paid to the
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Executive as soon as practicable and in any event within 75 days following the
later of such dates in a final lump sum payment, which shall be decreased by
deducting therefrom the amount of all taxes attributable to the sale of any
securities held or deemed to have been held in the Account since the end of the
preceding taxable year of the Company, which taxes shall be computed as of the
date of such payment. Payments made pursuant to this Section A.6 shall be deemed
made first out of Account Retained Income.
If the Executive becomes disabled within the meaning of Section 5
of the Agreement and is not thereafter returned to full-time employment with the
Company as provided in said Section 5, then deferred compensation shall be paid
monthly during the Pay-Out Period commencing on the first day of the month
following the end of the Disability Period in accordance with the provisions of
the first paragraph of this Section A.6.
If the Executive shall die at any time whether during or after
the term of employment, the Account shall be valued as of the date of the
Executive's death and the balance of the Account shall be paid to the
Executive's estate or beneficiary within 75 days of such death in accordance
with the provisions of the second preceding paragraph.
Within 90 days after the end of each taxable year of the Company
in which payments have been made from the Account and at the time of the final
payment from the Account, the Company shall compute and shall credit to the
Account, the amount of the tax benefit assumed to be received by it from the
payment to the Executive of amounts of Account Retained Income during such
taxable year or since the end of the last taxable year, as the case may be. No
additional credits shall be made to the Account pursuant to the preceding
sentence in respect of the amounts credited to the Account pursuant to the
preceding sentence. Notwithstanding any provision of this Section A.6, the
Executive shall not be entitled to receive pursuant to this Annex A an aggregate
amount that shall exceed the sum of (i) all credits made to the Account pursuant
to Sections 3.3 and 3.4 of the Agreement to which this Annex is attached, (ii)
the net cumulative amount (positive or negative) of all income, gains, losses,
interest and expenses charged or credited to the Account pursuant to this Annex
A (excluding credits made pursuant to the second preceding sentence), after all
credits
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and charges to the Account with respect to the tax benefits or burdens thereof,
and (iii) an amount equal to the tax benefit to the Company from the payment of
the amount (if positive) determined under clause (ii) above; and the final
payment(s) otherwise due may be adjusted or eliminated accordingly. In
determining the tax benefit to the Company under clause (iii) above, the Company
shall be deemed to have made the payments under clause (ii) above with respect
to the same taxable years and in the same proportions as payments of Account
Retained Income were actually made from the Account. Except as otherwise
provided in this paragraph, the computation of all taxes and tax benefits
referred to in this Section A.6 shall be determined in accordance with Section
A.5 above.
A.7 Other Payment Methods. Notwithstanding the foregoing
provisions of this Annex A, the Executive may, prior to the commencement of any
calendar year elect by written notice to the Company to cause (i) all or any
portion of the amounts otherwise to be credited to the Account in such year
under Section 3.3 of the Agreement not to be so credited but to be paid to the
Executive on the date(s) such credits otherwise would have been made thereunder
and/or (ii) all or any portion of the amounts to be credited to the Account
under Section 3.3 of the Agreement in such year (after giving effect to clause
(i) above) to be payable from the Account at times different from those provided
in Section A.6 above but not earlier than the dates on which such amounts were
to be credited to the Account.
ANNEX B
CONTRACT OPTIONS
To be granted promptly after the Effective Date:
Options to purchase not less than 1,300,000 shares of Common Stock,
allocated as follows:
No. of Shares Exercise Price
------------- --------------
650,000 fair market value*
325,0000 125% of fair market value*
325,0000 150% of fair market value*
To be granted on or before each of the first four anniversaries of the Effective
Date:
Options to purchase not less than 300,000 shares of Common Stock,
to be awarded at exercise prices no less favorable to the Executive (on a
percentage basis) than those most recently granted to the Chief Executive
Officer of the Company.
All Contract Options shall have a term of 10 years from the date of
grant and, upon becoming exercisable, shall remain exercisable by the Executive
(or his estate or beneficiary) for the full ten-year term thereof; provided,
however, that the Contract Options shall (a) terminate immediately if the
Executive's employment is terminated for "cause" pursuant to Section 4.1 of the
Employment Agreement to which this Annex B is attached or pursuant to any
similar provision of any successor employment agreement and (b) terminate one
year after the death of the Executive (but not beyond the option term). All
Contract Options will become vested and exercisable in installments of one-third
on each of the first three anniversaries of the date of grant except that
Contract Options granted after termination of the term of employment pursuant to
Section 4.2 will vest in full on the date of grant and will become exercisable
in full twelve months thereafter. All Contract Options will become immediately
exercisable in full if the Executive's employment terminates by reason of death
or Total Disability.
* In each case, fair market value is determined at date of grant.