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EMPLOYMENT AGREEMENT
This agreement made as of the 16th day of September, 2002
BETWEEN:
ALDERWOODS GROUP SERVICES INC.
(the "Company")
-And-
ROSS S. CARADONNA
(the "Executive")
WHEREAS:
The Company is a wholly-owned subsidiary of Alderwoods Group, Inc.
("AGI"), a Delaware corporation that is the holding entity for a
corporate group engaged in the operation of funeral homes, insurance
and cemeteries in Canada, the United States and England; and
The Company and the Executive wish to enter into a written Employment
Agreement in order to confirm the terms of the Executive's employment
as Senior Vice President, Chief Information Officer of the Company for
the term of the agreement.
IN CONSIDERATION of the mutual covenants contained herein, the parties agree as
follows:
DEFINITIONS
1. "CHANGE IN CONTROL" means any one of the following events that occurs
during the term of this Agreement other than pursuant to a plan of
reorganization submitted by AGI and confirmed by the U.S. Bankruptcy Court:
a) the acquisition by any individual, entity or group (a "Person") of
beneficial ownership of 30% or more of the combined voting power of
the then-outstanding Voting Stock (as defined below) of AGI; provided,
however, that the following acquisitions will not constitute a Change
in Control: (1) any issuance of Voting Stock of AGI directly from AGI
that is approved by the Incumbent Board (as defined below), (2) any
acquisition by AGI of Voting Stock of AGI, (3) any acquisition of
Voting Stock of AGI by any employee benefit plan (or related trust)
sponsored or maintained by AGI or any subsidiary of AGI, or (4) any
acquisition of Voting Stock of AGI by any Person pursuant to a
Business Combination (as defined below) that would not constitute a
Change in Control;
b) the consummation of a reorganization, amalgamation, merger or
consolidation, a sale or other disposition of all or substantially all
of the assets of AGI, or any other transaction (each, a "Business
Combination") in which all or substantially all of the individuals and
entities who were the beneficial owners of Voting Stock of AGI
immediately prior to such Business Combination
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beneficially own, directly or indirectly, immediately following such
Business Combination less than 40% of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from
such Business Combination;
c) individuals who, as of the Effective Date, constitute the Board of
Directors of AGI (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a Director subsequent to such Effective Date
whose election, or nomination for election by AGI's stockholders, was
approved by a vote of at least two-thirds of the Directors then
comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of AGI in which such person is named
as a nominee for director, without objection to such nomination) will
be deemed to have been a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest
with respect to the election or removal of Directors or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
d) the approval by the stockholders of AGI of a complete liquidation or
dissolution of AGI, except pursuant to a Business Combination that
would not constitute a Change in Control.
2. "CONSTRUCTIVE DISCHARGE" means the termination of the Executive's
employment by the Executive following the occurrence of one or more of the
following events (regardless of whether any other reason, other than Just
Cause, exists for the termination of Executive's employment):
a) the geographic relocation of the Executive's place of employment by
the Company by more than 50 miles from Toronto, Ontario;
b) any material reduction by the Company in the Executive's job duties or
responsibilities;
c) any material reduction by the Company in the Executive's level of
compensation or benefits;
d) any adverse change by the Company or AGI to the Executive's title or
function;
e) harassment by a representative or affiliate of the Company; or
f) any circumstance in which the Executive was induced by the actions of
the Company to terminate his employment other than on a purely
voluntary basis.
3. "EFFECTIVE DATE" has the meaning set forth in the "Fourth Amended Joint
Plan of Reorganization of Loewen Group International, Inc., Its Parent
Corporation and Certain of Their Debtor Subsidiaries."
4. "JUST CAUSE" means willful misconduct or willful neglect of duty by the
Executive, including, but not limited to, intentional wrongful disclosure
of confidential or proprietary information of the Company or AGI or any of
its subsidiaries; intentional wrongful engagement in any competitive
activity prohibited by paragraph 20; and the intentional material breach of
any provision of this Agreement.
5. "SERVICES" has the meaning set forth in the Management Services Agreements,
dated as of January 2, 2002, by and between the Company and AGI and the
Company and certain subsidiaries of AGI.
6. "TERMINATION WITHOUT JUST CAUSE" includes, but is not limited to, any
unilateral change in the material terms and conditions of the Executive's
employment.
7. "VOTING STOCK" means securities entitled to vote generally in the election
of directors.
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ENTIRE AGREEMENT
8. The Executive and the Company agree that this Agreement represents the
entire agreement between the parties and that any and all prior agreements,
written or verbal, express or implied, between the parties relating to or
in any way connected with the employment of the Executive by the Company or
any related, associated, affiliated, predecessor or parent corporations are
declared null and void and are superseded by the terms of this Agreement.
There are no representations, warranties, forms, conditions, undertakings,
or collateral agreements, express, implied or statutory between the parties
other than as expressly set forth in this Agreement. No waiver or
modification of this Agreement shall be valid unless in writing and duly
executed by both the Company and the Executive.
EMPLOYMENT
9. The Company agrees to employ the Executive, and the Executive agrees to be
employed by the Company, in the position of Senior Vice President, Chief
Information Officer for the term of this Agreement. The Executive also
agrees that, as part of the Executive's duties, the Executive shall occupy
and perform the office of Senior Vice President, Chief Information Officer
of AGI, on behalf of the Company, for the term of this Agreement. As used
in this Agreement, the phrase "term of this Agreement" means the period
beginning on September 16, 2002 and ending on the earlier of January 2,
2004, or the effective date of the termination of Executive's employment.
Notwithstanding anything to the contrary in this Agreement, paragraph 16(b)
shall survive and remain in effect following the term of this Agreement.
10. The Executive agrees that he will at all times faithfully, industriously,
and to the best of his skill, ability, and talents, perform all of the
duties required of his position in a manner which is in the best interests
of the Company and in accordance with the Company's objectives, and will
devote his full working time and attention to these duties. The Executive
acknowledges and agrees that the duties required of his position include,
without limitation, the provision of Services on behalf of, and for the
account of, the Company.
COMPENSATION
11.
a) In consideration for the Executive's continued performance of his
duties as Senior Vice President, Chief Information Officer, the
Executive will receive a base salary of $200,000 U.S. per annum. The
amount of such salary shall be subject to review and improvement on a
periodic basis in accordance with Company practice, but in no event
shall such amount be reduced. The Executive's base salary is payable
in accordance with the Company's customary payroll practices and is
subject to deductions required by applicable law.
b) The Company shall reimburse the Executive for all reasonable expenses
incurred by the Executive during the term of this Agreement in the
course of the Executive performing his duties under this Agreement.
These reimbursements shall be consistent with the Company's policies
in effect from time to time with respect to travel, entertainment and
other reimbursable business expenses, subject to the Company's
requirements applicable generally with respect to reporting and
documentation of such expenses.
SHORT TERM INCENTIVE PLAN - ANNUAL BONUS
12. The Executive will be entitled to participate in a short term incentive
plan as adopted by the Company from time to time, in a manner commensurate
with his position and level of responsibility with the Company. The bonus
payable under such plan will be paid in full within 90 days after the end
of each year.
13. The short term incentive plan bonus is subject to the following conditions
and exceptions:
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a) In order to qualify for and receive the annual bonus, the Executive
must be employed by the Company or its successor at the time the bonus
is paid unless the Executive is terminated (1) without Just Cause or
(2) by reason of Constructive Discharge in compliance with paragraph
17. If the Executive's employment is terminated without Just Cause or
by reason of Constructive Discharge after the end of the year but
before the bonus amount is paid, the Executive shall receive the bonus
for that completed year calculated in accordance with terms of the
short term incentive plan. The payment shall be made by the Company
within seven days of the termination and will be subject to deductions
required by applicable law. If the bonus amount has not been
determined within seven days of the termination it will be paid in
full within 90 days of the subject year end.
b) If, before the end of a year, the Executive's employment is terminated
by the Company or its successor without Just Cause, the bonus which
the Executive will be entitled to receive under paragraph 16 for that
year will be equal to the Executive's pro rata portion of the bonus
for the year of termination (for the number of days elapsed in the
current year), based on the achievement of the applicable performance
criteria through the date of termination.
STOCK OPTION PLAN
14. The Executive is eligible for participation in AGI's equity incentive plan
or plans. Stock options will be granted to the Executive as determined by
the Board of Directors of AGI.
BENEFITS
15. The Executive will be eligible to participate in the following benefit
plans:
a) GROUP BENEFITS. The Executive will participate in the Company's Group
Benefit Plan and any other group perquisites all as in effect from
time to time, including the Company's RRSP Program
b) VEHICLE ALLOWANCE. The Executive will be entitled to a vehicle
allowance of $600.00 US per month plus operating expenses with no
allowance for auto insurance coverage.
c) CLUB MEMBERSHIP - The Executive will be entitled to the amount of
$1,000.00 per year for club memberships as directed by the Executive.
c) EXECUTIVE MEDICAL - The Executive will be entitled to participate in
the Company's Executive Annual Medical Program.
d) OTHER BENEFITS - The Executive will be entitled to participate in the
Company's Health Services Spending Account Program.
HIRING BONUS
16. The Company will pay the Executive a hiring bonus in the grouss amount of
$100,000 US, payable on or about September 16, 2002.
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TERMINATION OF EMPLOYMENT
17) The parties agree that the Executive's employment under this Agreement may
be terminated as follows:
a) by the Company, without notice of termination or pay in lieu thereof,
for Just Cause;
b) by the Company, not following a Change in Control as set forth in
paragraph 17 below, at its sole discretion and for any reason other
than Just Cause upon payment to the Executive in a lump sum, within
seven days of such termination, of an amount equal to:
i) 24 months' base salary;
ii) The amount of any unpaid bonus earned by the Executive up to and
including the date of termination calculated in accordance with
paragraph 13(b); and
iii) The amount of any unpaid salary or vacation earned by the
Executive up to and including the date of termination.
Payments identified in sub paragraphs (i) - (iii) will be subject to
deductions required by applicable law;
c) by the Company for any reason other than Just Cause or by reason of
Constructive Discharge, following a Change in Control, both in
compliance with paragraph 17 below; or
d) by the Executive, for any reason, upon thirty (30) days advance
written notice to the Company in which case the Company will have no
further obligation to the Executive under this Agreement or otherwise
except to pay the Executive the unpaid portion, if any, of the
Executive's base salary payable for the period through the date of
termination of the Executive's employment.
CHANGE IN CONTROL
18) If a Change in Control occurs and, within two years of the effective date
of the Change in Control, the Executive's employment is terminated by the
Company without Just Cause or by reason of Constructive Discharge, the
Company shall, within seven days of the date of termination, pay to the
Executive in a lump sum the following payments:
i) 24 months' base salary;
ii) The replacement value of all Executive's benefit coverage, including
the full vesting of all stock options (exercised or not) granted to
the Executive, and all monies due from the Registered Retirement
Savings Plan, following the date of the Executive's termination (such
benefit coverage being calculated over 24 months following
termination);
iii) Two times the amount of incentive pay (in an amount equal to not less
than the highest aggregate incentive pay earned by the Executive in
any of the three fiscal years immediately preceding the year in which
the Change in Control occurred);
iv) The amount of any unpaid bonus earned by the Executive for a completed
year, calculated in accordance with paragraph 13; and
v) The amount of any unpaid salary or vacation earned by the Executive up
to and including the date of termination.
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Payments identified in paragraphs (i) - (v) will be subject to deductions
required by applicable law. Any termination of employment of the Executive by
the Company or the removal of the Executive from the office or position in the
Company or AGI that occurs (A) not more than 365 days prior to the date on which
a Change in Control occurs and (B) following the commencement of any discussion
with a third party that ultimately results in a Change in Control will be deemed
to be a termination or removal of the Executive after a Change in Control for
purposes of this Agreement.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
19) In the event that it is determined (as hereinafter provided) that any
payment (other than the Gross-Up Payments provided for in this paragraph 18
and Annex A) or distribution by the Company, AGI or any of its affiliates
to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including, without limitation, the lapse or
termination of any restriction on the vesting or exercisability of any
benefit under any of the foregoing (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the United States Internal Revenue
Code of 1986, as amended (the "Code") (or any successor provision thereto),
by reason of being considered "contingent on a change in ownership or
control," within the meaning of Section 280G of the Code (or any successor
provision thereto) or to any similar tax imposed by U.S. state or local
law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive will be
entitled to receive an additional payment or payments (collectively, a
"Gross-Up Payment"). The Gross-Up Payment will be in an amount such that,
after payment by the Executive of all U.S. taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For
purposes of determining the amount of the Gross-Up Payment, the Executive
will be considered to pay any applicable U.S. federal, state and local
income taxes at the highest rate applicable to the Executive in effect in
the year in which the Gross-Up Payment will be made, net of the maximum
reduction in U.S. federal income tax that could be obtained from deduction
of such state and local taxes.
20) The obligations set forth in paragraph 18 will be subject to the procedural
provisions described in Annex A.
CONFIDENTIAL INFORMATION; COMPETITIVE ACTIVITY
21) The Executive agrees that he will not, without the prior written consent of
the Company, during the term of this Agreement or at any time thereafter,
disclose to any person not employed by the Company, or use in connection
with engaging in competition with the Company, any confidential or
proprietary information of the Company. For purposes of this Agreement, the
term "confidential or proprietary information" includes all information of
any nature and in any form that is owned by the Company and that is not
publicly available (other than by Executive's breach of this paragraph 20)
or generally known to persons engaged in businesses similar or related to
those of the Company. Confidential or proprietary information will include,
without limitation, the Company's financial matters, customers, employees,
industry contracts, strategic business plans, product development (or other
proprietary product data), marketing plans, and all other secrets and all
other information of a confidential or proprietary nature. The foregoing
obligations imposed by this paragraph 20 will not apply (i) during the
Term, in the course of the business of and for the benefit of the Company,
(ii) if such confidential or proprietary information has become, through no
fault of the Executive, generally known to the public or (iii) if the
Executive is required by law to make disclosure (after giving the Company
notice and an opportunity to contest such requirement).
22) In addition, during the term of this Agreement and for a period of 12
months thereafter, the Executive will not, without the prior written
consent of the Company, which consent will not be unreasonably withheld:
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a) Engage in any Competitive Activity. For purposes of this Agreement,
"Competitive Activity" means the Executive's participation in the
management of any business enterprise if such enterprise engages in
substantial and direct competition with the Company and such
enterprise's sales of any product or service competitive with any
product or service of the Company amounted to 10% of such enterprise's
net sales for its most recently completed fiscal year and if the
Company's net sales of said product or service amounted to 10% of the
Company's net sales for its most recently completed fiscal year.
"Competitive Activity" will not include (i) the mere ownership of
securities in any such enterprise and the exercise of rights
appurtenant thereto or (ii) participation in the management of any
such enterprise other than in connection with the competitive
operations of such enterprise.
b) On behalf of the Executive or on behalf of any person, firm or
company, directly or indirectly, attempt to influence, persuade or
induce, or assist any other person in so persuading or inducing, any
employee of the Company or any of its subsidiaries to give up, or to
not commence, employment or a business relationship with the Company
or any of its subsidiaries.
23) The Executive and the Company agree that the covenants contained in
paragraphs 20 and 21 are reasonable under the circumstances, and further
agree that if, in the opinion of any court of competent jurisdiction, any
such covenant is not reasonable in any respect, such court will have the
right, power and authority to excise or modify any provision or provisions
of such covenants as to the court will appear not reasonable and to enforce
the remainder of the covenants as so amended. The Executive acknowledges
and agrees that the remedy at law available to the Company for breach of
any of his obligations under this paragraph 22 would be inadequate and that
damages flowing from such a breach may not readily be susceptible to being
measured in monetary terms. Accordingly, the Executive acknowledges,
consents and agrees that, in addition to any other rights or remedies that
the Company may have at law, in equity or under this Agreement, upon
adequate proof of his violation of any such provision of this Agreement,
the Company will be entitled to immediate injunctive relief and may obtain
a temporary order restraining any threatened or further breach, without the
necessity of proof of actual damage.
24) For purposes of paragraphs 20, 21 and 22, the term "Company" will also
include AGI and any subsidiary of AGI.
GENERAL
25) The parties confirm that the provisions of this Agreement are fair and
reasonable and that the total compensation and benefits payable under
paragraphs 16, 17 or 18 are reasonable estimates of the damages which would
be suffered by the Executive. Any amount paid under paragraphs 16, 17 or 18
shall be in full satisfaction of all claims whatsoever relating to the
Executive's employment or for the termination of the Executive's
employment, including claims for salary, bonus, benefits, vacation pay,
termination pay and/or severance pay pursuant to the Ontario EMPLOYMENT
STANDARDS ACT, as amended, including sections 57 and 58 thereof.
26) Any payment made to the Executive under paragraphs 16, 17 or 18 of this
Agreement shall be paid to the Executive by the Company regardless of any
offer of alternate employment made to the Executive by the Company or by
any other prospective employer, whether accepted by the Executive or not.
The Executive will not be required to mitigate any damages arising from
this Agreement and any amounts and benefits to be provided to the Executive
hereunder shall not be reduced or set off against any amounts earned by the
Executive from alternate employment, including self-employment, or by other
means.
27) Any payment other than for base salary made to the Executive under this
Agreement shall be made by way of a lump sum payment or, at the Executive's
option, in such other manner as he may direct, less deductions required by
applicable law.
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28) Where the context requires, the singular shall include the plural and the
plural shall include the singular. Masculine pronouns shall be deemed to be
read as feminine pronouns and VICE VERSA. Words importing persons shall
include individuals, partnerships, associations, trusts, unincorporated
organizations and corporations and VICE VERSA.
29) The division of this Agreement into paragraphs and the insertion of
headings are for the convenience of reference only and shall not affect the
construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement only and not to any particular paragraph and include any
agreement or instrument supplemental or ancillary to the Agreement.
References herein to paragraphs are to paragraphs of this Agreement unless
something in the subject matter or context is inconsistent therewith.
30) All dollar amounts identified in this contract are in U.S. currency.
31) The parties' respective rights and obligations under paragraphs 16(b), 18,
19, 20, 21, 22, 34 and 35 will survive any termination or expiration of
this Agreement or the termination of the Executive's employment for any
reason whatsoever.
GOVERNING LAWS
32) This Agreement shall be governed by the laws of the Province of Ontario
without giving effect to the principles of conflict of laws thereof. Each
party to this Agreement hereby consents and submits himself or itself to
the jurisdiction of the courts of the Province of Ontario for the purposes
of any legal action or proceeding arising out of this Agreement.
SEVERABILITY
33) All terms and covenants contained in this Agreement are severable and in
the event that any of them is held to be invalid by any competent court in
the Province of Ontario, the invalid provision shall be deleted and the
balance of this Agreement shall be interpreted as if such invalid clause or
covenant were not contained herein.
CONTINUITY
34) This Agreement shall be binding upon and enure to the benefit of (i) the
Executive and his heirs, executors, administrators and legal
representatives and (ii) the Company, its related corporations, affiliates,
and associates, and any other entity or organization which shall succeed to
substantially all or any distinct portion of the business, divisions or
property of the Company or its related corporations, affiliates, and
associates, whether by means of amalgamation, merger, consolidation,
acquisition, and/or sale of all or part of the shares or assets of the
Company or otherwise, including by operation of law or by succession to the
business of AGI pursuant to a Plan of Reorganization approved by a
Bankruptcy Court. In addition, the Company will require any such successor
expressly to assume and agree, by written agreement, to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place.
LEGAL ADVICE
35) The Executive acknowledges that he has obtained or has had an opportunity
to obtain independent legal advice in connection with this Agreement, and
further acknowledges that he has read, understands, and agrees to be bound
by all of the terms and conditions contained herein.
36) The Company agrees to reimburse the Executive for all reasonable legal
expenses incurred in connection with any dispute involving the Executive,
the Company, its related corporations, affiliates, successors, or assigns,
or any other third party, as between any of them, arising from the
validity, interpretation, or enforcement of this Agreement or any of its
terms, including all reasonable legal expenses incurred by the Executive in
respect of
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any action or actions commenced by the Executive to obtain, enforce,
or retain any right, benefit or payment provided for in this Agreement
regardless of whether such expenses are incurred during the term
of the Agreement or after; provided that, in regard to such matters, the
Executive has not acted in bad faith or with no colorable claim of success.
However, the Company shall not be required to reimburse the Executive for
any legal costs or expenses in relation to any action commenced by the
Company to enforce the confidentiality or non-competition provisions hereof
and in respect of which in a court of competent jurisdiction the Company is
the prevailing party for either preliminary or final remedy.
NOTICE
37) Any demand, notice or other communication to be given in connection with
this Agreement shall be given by personal delivery, by registered mail or
by electronic means of communication addressed to the recipient as follows:
TO THE EXECUTIVE:
Ross S. Caradonna
11th Floor, Atria III
2225 Sheppard Avenue East
Toronto, Ontario M2J 5C2
TO THE COMPANY:
Alderwoods Group Services Inc.
11th Floor, Atria III
2225 Sheppard Avenue East
Toronto, Ontario M2J 5C2
Attention: Senior Vice-President, Legal & Compliance
WITH A COPY TO:
Alderwoods Group, Inc.
311 Elm Street
Suite 1000, First Floor
Cincinnati, OH 45202
Attention: Senior Vice-President, Legal & Compliance
or such other address, individual or electronic communication as may be
designated by notice given by either party to the other.
ADDITIONAL
38) The failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver of such party's
rights or deprive such party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
39) Nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person, other than (1) the parties to this
Agreement, (2) any permitted assignees of the Company and the Executive,
and (3) AGI, as contemplated by paragraphs 8(b), 9, 10, 14, 20, 21, 22 and
23, any rights or remedies under or by reason of this Agreement and AGI
shall be a third party beneficiary of this Agreement.
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...CONTINUED
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IN WITNESS WHEREOF the Executive has executed and the Company has caused its
duly authorized representative to execute this Agreement as of the date set
forth on the first page of this Agreement.
ALDERWOODS GROUP SERVICES INC.
By: _________________________________
Name: Paul A. Houston
Title: President and Chief Executive Officer
WITNESS:
____________________________ ______________________________________________
Ross S. Caradonna
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ANNEX A
EXCISE TAX GROSS-UP PROCEDURAL PROVISIONS
1. Subject to the provisions of paragraph 5 of this Annex, all determinations
required to be made under paragraph 18 of this Agreement and this Annex A,
including whether an Excise Tax is payable by the Executive and the amount
of such Excise Tax and whether a Gross-Up Payment is required to be paid by
the Company to the Executive and the amount of such Gross-Up Payment, if
any, will be made by a U.S. nationally recognized accounting firm (the
"National Firm") selected by the Executive in his sole discretion. The
Executive will direct the National Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive
within 30 calendar days after the date of his termination of employment, if
applicable, and any such other time or times as may be requested by the
Company or the Executive. If the National Firm determines that any Excise
Tax is payable by the Executive, the Company will pay the required Gross-Up
Payment to the Executive within five business days after receipt of such
determination and calculations with respect to any Payment to the
Executive. If the National Firm determines that no Excise Tax is payable by
the Executive with respect to any material benefit or amount (or portion
thereof), it will, at the same time as it makes such determination, furnish
the Company and the Executive with an opinion that the Executive has
substantial authority not to report any Excise Tax on his U.S. federal,
state or local income or other tax return with respect to such benefit or
amount. As a result of the uncertainty in the application of Section 4999
of the Code and the possibility of similar uncertainty regarding applicable
U.S. state or local tax law at the time of any determination by the
National Firm hereunder, it is possible that Gross-Up Payments that will
not have been made by the Company should have been made (an
"Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts or fails to pursue its
remedies pursuant to paragraph 5 of this Annex and the Executive thereafter
is required to make a payment of any Excise Tax, the Executive will direct
the National Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting
calculations to both the Company and the Executive as promptly as possible.
Any such Underpayment will be promptly paid by the Company to, or for the
benefit of, the Executive within five business days after receipt of such
determination and calculations.
2. The Company and the Executive will each provide the National Firm access to
and copies of any books, records and documents in the possession of the
Company or the Executive, as the case may be, reasonably requested by the
National Firm, and otherwise cooperate with the National Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by paragraph 1 of this Annex. Any determination by the
National Firm as to the amount of the Gross-Up Payment will be binding upon
the Company and the Executive.
3. The U.S. federal, state and local income or other tax returns filed by the
Executive will be prepared and filed on a consistent basis with the
determination of the National Firm with respect to the Excise Tax payable
by the Executive. The Executive will report and make proper payment of the
amount of any Excise Tax, and at the request of the Company, provide to the
Company true and correct copies (with any amendments) of his federal income
tax return as filed with the U.S. Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents reasonably requested
by the Company, evidencing such payment. If prior to the filing of the
Executive's federal income tax return, or corresponding state or local tax
return, if relevant, the National Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive will within five business
days pay to the Company the amount of such reduction.
4. The fees and expenses of the National Firm for its services in connection
with the determinations and calculations contemplated by paragraph 1 of
this Annex will be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company will reimburse the Executive
the full amount of such fees and expenses within five business days after
receipt from the Executive of a statement therefor and reasonable evidence
of his payment thereof.
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5. The Executive will notify the Company in writing of any claim by the U.S.
Internal Revenue Service or any other U.S. taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment.
Such notification will be given as promptly as practicable but no later
than 10 business days after the Executive actually receives notice of such
claim and the Executive will further apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid (in
each case, to the extent known by the Executive). The Executive will not
pay such claim prior to the expiration of the 30-calendar-day period
following the date on which he gives such notice to the Company or, if
earlier, the date that any payment of amount with respect to such claim is
due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive will:
(A) provide the Company with any written records or
documents in his possession relating to such claim reasonably requested
by the Company;
(B) take such action in connection with contesting
such claim as the Company reasonably requests in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(C) cooperate with the Company in good faith in order
effectively to contest such claim; and
(D) permit the Company to participate in any
proceedings relating to such claim;
PROVIDED, HOWEVER, that the Company will bear and pay directly all costs
and expenses (including interest and penalties) incurred in connection with
such contest and will indemnify and hold harmless the Executive, on an
after-tax basis, for and against any Excise Tax or income or other tax,
including interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without limiting
the foregoing provisions of this paragraph 5, the Company will control all
proceedings taken in connection with the contest of any claim contemplated
by this paragraph 5 and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim (provided, however, that the
Executive may participate therein at his own cost and expense) and may, at
its option, either direct the Executive to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company determines; PROVIDED, HOWEVER, that
if the Company directs the Executive to pay the tax claimed and sue for a
refund, the Company will advance the amount of such payment to the
Executive on an interest-free basis and will indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income or
other tax, including interest or penalties with respect thereto, imposed
with respect to such advance; and PROVIDED FURTHER, HOWEVER, that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of any such contested claim will be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive will be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
6. If, after the receipt by the Executive of an amount advanced by the Company
pursuant to paragraph 5 of this Annex, the Executive receives any refund
with respect to such claim, the Executive will (subject to the Company's
complying with the requirements of such paragraph 5) promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to paragraph
5 of this Annex, a determination is made that the Executive is not entitled
to any refund with respect to such claim and the Company does not notify
the Executive in writing of its intent to contest such
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denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be required
to be repaid and the amount of any such advance will offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to paragraph 18 of this Agreement and
this Annex A.
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