Exhibit 10.4
FORM OF EMPLOYMENT AGREEMENT
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THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of the
7th day of April, 1997 between Telegroup, Inc., an Iowa corporation (the
"Company"), and Clifford Rees (the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. EMPLOYMENT.
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(a) The Company hereby employs the Executive as Chief Executive
Officer and President and the Executive hereby accepts such employment,
on the terms and subject to the conditions hereinafter set forth. The
Company will use its best efforts to include Executive in its slate of
candidates for membership on the Company's Board of Directors (the
"Board") and the Executive Committee, if any.
(b) Executive shall report directly to the Board, and shall
perform such duties consistent with his positions as Chief Executive
Officer and President pursuant to the direction of the Board.
(c) Attention and Effort. The Executive shall be required to
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devote his full business time, attention and effort to the Company's
business and affairs except for vacation time and reasonable periods of
absence due to sickness, personal injury or other disability and shall
perform diligently such duties as are customarily performed by executives
in similar positions with companies similar in character or size to the
Company, all subject to the direction of the Board, together with such
other duties as may be reasonably requested from time to time by the
Board, which duties shall be consistent with his positions as set forth
above. The Executive agrees to use all of his skills and business
judgment and render services to the best of his ability to serve the
interests of the Company. Subject to the terms of Section 6, this shall
not preclude Executive from serving on community and civic boards,
participating in industry associations, pursuing his personal financial
and legal affairs, or otherwise engaging in other activities, so long as
such activities do not unreasonably interfere with his duties to the
Company.
(d) Support Services. The Executive shall be entitled to all of
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the administrative, operational and facility support
customary for a similarly situated executive. This support shall
include, without limitation, a suitably appointed private office, a
secretary or administrative assistant, and payment of or reimbursement
for reasonable cellular telephone expenses, business, travel and
entertainment expenses, expenses of the Executive maintaining his
professional license and standing and any and all other business expenses
reasonably incurred on behalf of or in the course of performing duties
for the Company, all in accordance with the expense reimbursement
policies established from time to time by the Company. The Executive
agrees to provide such documentation of these expenses as may be
reasonably required.
2. Term. Subject to the provisions for termination
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hereinafter provided, the Term shall begin on the date hereof, shall continue
through December 31, 2000.
3. Compensation.
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Throughout the Term the Company shall pay or provide, as the case may be,
to the Executive the compensation and other benefits and rights set forth in
this Section 3.
(a) The Company shall pay to the Executive a "Base Salary,"
payable in accordance with the Company's usual pay practices (and in any
event no less frequently than monthly), of $500,000.00 per annum. The
Board shall annually review Executive's Base Salary in light of the Base
Salaries paid to other executives of the Company and the performance of
the Executive and the Company and may, in its discretion, increase such
Base Salary by an amount it determines is appropriate. Once Executive's
Base Salary is increased, it shall not thereafter be reduced.
(b) The Company shall pay to the Executive bonus compensation for
each fiscal year, or part thereof that he is employed by the Company, in
the amount of $500,000 as provided in the Indenture document with
Greenwich Partners dated November 27, 1996, and additional compensation
to be determined at the discretion of the Board, provided that such bonus
shall be commensurate with other bonuses paid to employees of the Company
and shall take into account the total compensation paid to executives of
other companies which would be competitive for Executive's services.
(c) The Company shall provide medical, hospitalization,
disability and dental insurance for Executive, his spouse and eligible
family members, subject to and in accordance with the Company's policy,
the proportion of the cost thereof to be borne by the Company and the
Executive to be in accordance with such policy.
(d) The Executive shall participate in all retirement and other
benefit plans of the Company generally available from time to time to
employees of the Company and for which the Executive qualifies under the
terms thereof (and nothing in this Agreement shall, or shall be deemed
to, in any way affect the Executive's right and benefits thereunder
except as expressly provided herein).
(e) The Executive shall be entitled to at least twenty two (22)
days of vacation allowance each year and a sick leave allowance as
provided under the Company's vacation and sick leave policy for executive
officers.
(f) The Executive shall be entitled to participate in any equity
or other employee benefit plan that is generally available to senior
executive officers, as distinguished from general management, of the
Company, at the highest level provided for any employee. The Executive's
participation in and benefits under any such plan shall be on the terms
and subject to the conditions specified in the governing document of the
particular plan.
4. Permanent Disability.
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(a) For purposes of this Agreement, the Executive's "Permanent
Disability" shall be deemed to have occurred one day after one hundred
eighty (180) days in the aggregate during any consecutive twelve (12)
month period, or one day after one hundred twenty (120) consecutive days,
during which one hundred eighty (180) or one hundred twenty (120) days,
as the case may be, the Executive, by reason of his physical or mental
disability or illness, shall have been unable to discharge fully his
duties under this Agreement.
(b) If either the Company or the Executive, after receipt of
notice of the Executive's Permanent Disability from the other, disputes
that the Executive's Permanent Disability shall have occurred, the
Executive shall promptly submit to a physical examination by the chief of
medicine of any major accredited hospital in the metropolitan Chicago,
Illinois area, and, unless such physician shall issue his written
statement to the effect that, in his opinion, based on his diagnosis, the
Executive is capable of resuming his employment and devoting his full
time and energy to discharging fully his duties hereunder within thirty
(30) days after the date of such statement, such Permanent Disability
shall be deemed to have occurred on the day above specified.
5. Termination.
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(a) The Executive's employment under this Agreement and the
Term shall be terminated immediately on the death of the Executive and
may be terminated by the Board, with the concurrence of the Chairman of
the Board (or the Vice Chairman of the Board):
(i) at any time after the Permanent Disability of the
Executive;
(ii) at any time for "Cause" (as defined below); or
(iii) at any time without Cause.
For purposes hereof, Cause shall mean:
(A) Active participation by the Executive in fraudulent
conduct against the Company, a felony involving
moral turpitude, an act or series of deliberate
acts which were not taken in good faith by
Executive and which, in the reasonable judgment of
the Board, results or will likely result in
material injury to the business, operations or
business reputation of the Company, or an act or
series of acts constituting willful malfeasance or
gross misconduct or the Executive's continued
willful failure to perform any of his duties under
this Agreement.
(B) A substantial and continual refusal by Executive in
breach of this Agreement to perform the duties,
responsibilities or obligations assigned to
Executive pursuant to the terms hereof, which
breach has not been cured (if it is of a nature
that can be cured) to the Board's reasonable
satisfaction within ten (10) days after the Company
gives written notice thereof to the Executive;
(C) Excessive absenteeism by the Executive; provided
that absenteeism (i) related to illness or
otherwise covered by Section 4(a) hereof, (ii)
required to be permitted under applicable federal
or state laws, or (iii) permitted under Company
policy, shall not be deemed to be excessive; or
(D) The voluntary resignation of the Executive without
Good Reason (as defined below) and without the
prior consent of the Board.
Executive shall be permitted to respond and defend himself before the
Board within thirty (30) days after delivery to Executive of written
notification of any proposed termination for Cause which specifies in detail
the reasons for such termination. If the majority of the members of the Board
(excluding Executive) do not confirm that the Company had grounds for a
"Cause" termination, Executive shall have the option to treat his employment
as not having terminated or as having been terminated pursuant to a
termination without Cause.
(b) TERMINATION BY DEATH. If the Executive's employment is
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terminated by death, the Executive's estate shall be entitled to receive (i)
life insurance benefits pursuant to any life insurance purchased by the
Company, (ii) a pro rata portion of the bonus applicable to the calendar year
in which such termination occurs, payable when and as such bonus is determined
under Section 3(b) but no less than a pro rata portion of Executive's bonus
for the prior year, (iii) other benefits, payable within ninety (90) days
after the date of death, accrued by him hereunder up to and including the date
of Executive's death and (iv) reimbursement for all expenses incurred by
Executive pursuant to Section 1(d) prior to his death.
(c) TERMINATION FOR CAUSE. If the Executive's employment is
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terminated by the Company for Cause, the Company shall not have any other or
further obligations to the Executive under this Agreement (except (i) as may
be provided in accordance with the terms of retirement and other benefit plans
pursuant to Section 3(d), (ii) as to that portion of any unpaid Base Salary
and other benefits accrued and earned under this Agreement through the date of
such termination, (iii) as to benefits, if any, provided by any insurance
policies in accordance with their terms, and (iv) reimbursement for all
expenses incurred by Executive pursuant to Section 1(d) prior to his
termination). In addition, if the Executive's employment is terminated by the
Company for Cause at any time during the Term, the Executive shall immediately
forfeit any and all other unvested stock rights and stock options and other
such unvested incentives or awards previously granted to him by the Company.
The foregoing sentence shall be in addition to, and not in lieu of, any and
all other rights and remedies which may be available to the Company under the
circumstances, whether at law or in equity.
(d) TERMINATION WITHOUT CAUSE. If the Executive's employment is
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terminated by the Company without Cause, the Executive shall be entitled to
receive (i) severance compensation equal to what would have been his Base
Salary under Section 3(a), payable at such times as his Base Salary would have
been paid if his employment had not been terminated (or, at the election of
the Executive, in a lump sum without discount), for the longer of one (1) year
or the remainder of what would have been the Term (but not longer than two (2)
years, (ii) other benefits, payable within ninety (90) days after the date of
such termination, accrued by him hereunder up to and including the date of
such termination, (iii) continuation of the insurance provided by the Company
pursuant to Section 3(c) for the longer of one (1) year or the remainder of
the Term (but not longer than two (2) years), or if not available a lump sum
payment of an amount equal to the fair value of such insurance, (iv) a pro
rata portion of the bonus applicable to the calendar year in which such
termination occurs, payable when and as such bonus is determined under Section
3(b), but no less than a pro rata portion of Executive's bonus for the
preceding calendar year, and (v) reimbursement for all expenses incurred by
Executive pursuant to Section 1(d) prior to his termination.
(e) TERMINATION FOR PERMANENT DISABILITY. If the Executive's
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employment is terminated by the Company for Permanent Disability, the
Executive shall be entitled to receive (i) severance compensation equal to
what would have been his Base Salary under Section 3(a) for the longer of one
(1) year or the remainder of what would have been the Term (but not longer
than two (2) years), payable at such times as his Base Salary would have been
paid if his employment had not been terminated (or, at the election of the
Executive, a lump sum without discount), less any disability insurance
benefits pursuant to any disability insurance provided by the Company or
purchased by Executive, the cost of which is reimbursed by the Company,
which are payable in respect of the period after such termination, (ii) other
benefits, payable within ninety (90) days after termination for Permanent
Disability, accrued by him hereunder up to and including the date of
termination for Permanent Disability, (iii) continuation of the insurance
provided by the Company pursuant to Section 3(c) for the longer of one (1)
year and the remainder of the Term (but not longer than two (2) years), or if
not available a lump sum payment of an amount equal to the fair value of such
insurance, (iv) a pro rata portion of the bonus applicable to the calendar
year in which such termination occurs, payable when and as such bonus is
determined under Section 3(b), but no less than a pro rata portion of
Executive's bonus for the preceding calendar year, and (v) reimbursement for
all expenses incurred by Executive pursuant to Section 1(d) prior to his
termination.
(f) TERMINATION BY EXECUTIVE FOR GOOD REASON. If the Executive
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terminates his employment for "Good Reason", the Executive shall be entitled
to receive (i) severance compensation equal to what would have been his Base
Salary under Section 3(a), payable at such times as his Base Salary would have
been paid if his employment had not been terminated (or, at the election of
the Executive, in a lump sum without discount), for the longer of one (1) year
and the remainder of what would have been the Term (but not longer than two
(2) years), (ii) a pro rata portion of the bonus applicable to the calendar
year in which such termination occurs, payable when and as such bonus is
determined under Section 3(b), but no less than a pro rata portion of
Executive's bonus for the preceding calendar year, (iii) other benefits,
payable within ninety (90) days after the date of such termination, accrued by
him hereunder up to and including the date of such termination and (iv)
reimbursement for all expenses incurred by Executive pursuant to Section 1(d)
prior to his termination. "Good Reason" means a termination of Executive's
employment by Executive within ninety (90) days following (i) a reduction in
Executive's annual Base Salary or incentive compensation or equity
participation opportunity, (ii) a material reduction in Executive's positions,
duties and responsibilities or reporting lines from those described in Section
1 hereof, (iii) a change in the location of the Company's headquarters or of
the office of the Executive from the Fairfield, Iowa area or (iv) a material
breach of this Agreement by the Company. Notwithstanding the foregoing, a
termination shall not be treated as a termination for Good Reason (i) if
Executive shall have consented in writing to the occurrence of the event
giving rise to the claim of termination for Good Reason or (ii) unless
Executive shall have delivered a written notice to the Board within thirty
(30) days of his having actual knowledge of the occurrence of one of such
events stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination, and such event, if capable
of being cured, shall not have been cured within ten (10) days of the receipt
of such notice.
(g) MITIGATION. The Executive is not required to mitigate the amount
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of any payments to be made by the Company pursuant to this Agreement following
his termination by seeking other employment or otherwise. In addition, the
amount of any post-termination payments provided for in this Agreement shall
not be reduced by any remuneration earned by the Executive during the period
following the termination of his employment as a result of employment by
another employer or otherwise after the date of termination of his employment
with the Company.
6. COVENANTS AND CONFIDENTIAL INFORMATION.
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(a) The Executive acknowledges the Company's reliance on and
expectation of the Executive's continued commitment to performance of his
duties and responsibilities during the Term. In light of such reliance
and expectation on the part of the Company, during the applicable period
hereafter specified in Section 6(b), the Executive shall not, directly or
indirectly, do or suffer either of the following:
(i) Own, manage, control or participate in the ownership,
management or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant,
independent contractor or otherwise with, any other
corporation, partnership, proprietorship, firm, association
or other business entity engaged in the business of, or
otherwise engage in the business of, marketing or providing
telecommunication services within the United States in
competition with the Company; provided, however, that the
beneficial and/or record ownership of not more than four and
nine-tenths percent (4.9%) of any class of publicly traded
securities of any entity shall not be deemed a violation of
this covenant; or
(ii) Disclose, divulge, discuss, copy or otherwise use or suffer
to be used in any manner, other than in accordance with the
Executive's duties hereunder, any confidential or
proprietary information relating to the Company's business,
prospects, finances, operations, properties or otherwise to
its particular business or other trade secrets of the
Company, it being acknowledged by the Executive that all
such information regarding the business of the Company
compiled or obtained by, or furnished to, the Executive
while the Executive shall have been employed by or
associated with the Company is confidential and/or
proprietary information and the Company's exclusive
property; provided, however, that the foregoing restrictions
shall not apply to the extent that such information:
(A) is clearly obtainable in the public domain;
(B) becomes obtainable in the public domain, except by
reason of the breach by the Executive of the terms
hereof or by another person barred by a similar duty
of confidentiality; or
(C) is required to be disclosed by rule of law or by
order of a court or governmental body or agency.
(b) The applicable periods shall be: (i) so long as the Executive is
an employee of the Company; (ii) as to clause (ii) of Section 6(a), at any
time after the Executive is no longer an employee of the Company; and (iii) as
to clause (i) of Section 6(a), upon the payment by the Company to the
Executive of $1,000,000 in cash as severance (which shall be paid at
termination) in addition to payments otherwise required under this Agreement,
for a period of one year after termination of employment for Cause or for
Permanent Disability or without Good Reason.
(c) The Executive agrees and understands that the remedy at law for
any breach by him of this Section 6 will be inadequate and that the damages
flowing from such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that the Company shall be
entitled to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this Section 6 shall
be deemed to limit the Company's remedies at law or in equity for any breach
by the Executive of any of the provisions of this Section 6 which may be
pursued or availed of by the Company.
(d) THE EXECUTIVE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF
THE RESTRICTIONS UPON HIM AND THE RIGHTS AND REMEDIES CONFERRED UPON THE
COMPANY UNDER THIS SECTION 6, AND HEREBY ACKNOWLEDGES AND AGREES THAT THE SAME
ARE REASONABLE IN TIME AND TERRITORY, ARE DESIGNED TO ELIMINATE COMPETITION
WHICH OTHERWISE WOULD BE UNFAIR TO THE COMPANY, DO NOT STIFLE THE INHERENT
SKILL AND EXPERIENCE OF THE EXECUTIVE, WOULD NOT OPERATE AS A BAR TO THE
EXECUTIVE'S SOLE MEANS OF SUPPORT, ARE FULLY REQUIRED TO PROTECT THE
LEGITIMATE INTERESTS OF THE COMPANY AND DO NOT CONFER A BENEFIT UPON THE
COMPANY DISPROPORTIONATE TO THE DETRIMENT TO THE EXECUTIVE.
(e) The Executive acknowledges that the Executive's obligations under
this Section 6 shall survive in accordance with paragraph (b) above regardless
of whether the Executive's employment by the Company is terminated,
voluntarily or involuntarily, by the Company or the Executive, with Cause or
without Cause, or the Executive with or without Good Reason.
7. INDEMNIFICATION. During the Term, the Company shall indemnify
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Executive and hold Executive harmless from and against any claim, loss or
cause of action arising from or out of Executive's performance as an officer,
director or employee of the Company or any of its subsidiaries or in any other
capacity, including any fiduciary capacity, in which Executive serves at the
request of the Company to the maximum extent permitted by applicable law. If
any claim is asserted hereunder with respect to which Executive reasonably
believes in good faith he is entitled to indemnification, the Company shall
pay Executive legal expenses (or cause such expenses to be paid) on a monthly
basis, provided that Executive shall reimburse the Company for such amounts if
Executive shall be found by a court of competent jurisdiction not to have been
entitled to indemnification. In addition, the Company agrees to provide
Executive with coverage under a directors and officers liability insurance
policy.
8. MISCELLANEOUS.
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(a) The Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or
performing employment in accordance with the terms and conditions of this
Agreement.
(b) The provisions of this Agreement are severable and if any
one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any
partially unenforceable provision to the extent enforceable in any
jurisdiction nevertheless shall be binding and enforceable.
(c) The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding on, the
Company and, if in connection with a transfer of substantially all of its
business, its successors and assigns, and the rights and obligations
(other than obligations to perform services) of the Executive under this
Agreement shall inure to the benefit of, and shall be binding upon, the
Executive and his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by mediation, and if
not settled within 14 days of the submission to mediation, by arbitration
in accordance with the Voluntary Labor Arbitration Rules of the American
Arbitration Association, and the arbitration shall be held in the
metropolitan Kansas City area. The arbitrator shall be acceptable to
both the Company and Executive. If the parties cannot agree on an
acceptable arbitrator, the dispute shall be heard by a panel of three (3)
arbitrators, one appointed by each of the parties and the third appointed
by the other two arbitrators. Judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the
powers to issue mandatory orders and restraining orders in connection
with such arbitration; provided, however, that nothing in this Section
8(d) shall be construed so as to deny the Company the right and power to
seek and obtain injunctive relief in a court of equity for any breach or
threatened breach by the Executive of any of his covenants contained in
Section 6 of this Agreement.
(e) All notices and other communications required or permitted
under this Agreement shall be in writing, and shall be deemed properly
given if delivered personally, mailed by registered or certified mail in
the United States mail, postage prepaid, return receipt requested, sent
by facsimile, or sent by Express Mail, Federal Express or other
nationally recognized express delivery service, as follows:
If to the Company or the Board:
The Corporation System
2222 Grand Avenue
Des Moines, Iowa 50312
With a copy to:
Fred Gratzon
Telegroup, Inc.
2098 Nutmeg Avenue
Fairfield, Iowa 52556
If to the Executive:
Clifford Rees
____________________________
Fairfield, Iowa 52556
With a copy to:
____________________________
____________________________
____________________________
____________________________
Notice given by hand, certified or registered mail, or by Express
Mail, Federal Express or other such express delivery service, shall be
effective upon actual receipt. Notice given by facsimile transmission
shall be effective upon actual receipt if received during the recipient's
normal business hours, or at the beginning of the recipient's next
business day after receipt if not received during the recipient's normal
business hours. All notices by facsimile transmission shall be confirmed
promptly after transmission in writing by certified mail or personal
delivery.
Any party may change any address to which notice is to be given to
it by giving notice as provided above of such change of address.
(f) The failure of either party to enforce any provision or
provisions of this Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations
thereof, nor prevent that party thereafter from enforcing each and every
other provision of this Agreement. The rights granted the parties herein
are cumulative and the waiver of any single remedy shall not constitute a
waiver of such party's right to assert all other legal remedies available
to it under the circumstances.
(g) This Agreement supersedes all prior agreements and
understandings between the parties as to the subject hereof and may not
be modified or terminated orally. No modification or attempted waiver
shall be valid unless in writing and signed by the party against whom the
same is sought to be enforced.
(h) This Agreement shall be governed by, and construed in
accordance with the provisions of, the law of the State of Iowa, without
reference to provisions that refer a matter to the law of any other
jurisdiction. Each party hereto hereby irrevocably submits itself to the
non-exclusive personal jurisdiction of the federal court sitting in Des
Moines, Iowa and state courts sitting in Jefferson County, Iowa;
accordingly, subject to the provisions for mediation and arbitration
provided in Section 8(d), any justiciable matters involving the Company
and the Executive with respect to this Agreement may be adjudicated only
in a federal or state court sitting in the aforementioned jurisdictions.
(i) All payments required to be made by the Company hereunder to
the Executive shall be subject to the withholding of such amounts
relating to taxes and other government assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law,
rule or regulation.
(j) Captions and section headings used herein are for
convenience and are not a part of this Agreement and shall not be used in
construing it.
(k) Where necessary or appropriate to the meaning hereof, the
singular and plural shall be deemed to include each other, and the
masculine, feminine and neuter shall be deemed to include each other.
(l) If the Company fails to make any payment to Executive within
ten (10) days of the date due, the payment shall be made with interest
from the date due to the date of payment, at the rate, compounded
annually, from time to time specified as its prime rate by Citibank, N.A.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first set forth above.
Telegroup, Inc.,
an Iowa corporation
By:
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Name: Fred Gratzon
Title: Chairman of the Board
_______________________________________
Clifford Rees