EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of this 12th day of June,
2000, by and between Stilwell Financial, Inc., a Delaware corporation
("Stilwell") and Gwen E. Royle, an individual ("Executive") to be effective on
the date of the Spin-off Distribution (as defined below).
WHEREAS, the parties expect that all of the issued and outstanding
stock of Stilwell will be distributed (the "Spin-off Distribution") to the
shareholders of Kansas City Southern Industries, Inc. ("KCSI") which has been
the parent of Stilwell since its formation on January 23, 1998; and
WHEREAS, Executive previously was employed by KCSI with duties
primarily relating to Stilwell since its formation in 1998, and Stilwell and
Executive desire for Stilwell to continue to employ Executive on the terms and
conditions set forth in this Agreement and to provide an incentive to Executive
to remain in the employ of Stilwell hereafter, particularly in the event of any
Change in Control (as herein defined) of Stilwell or any Significant Subsidiary
(as herein defined), thereby establishing and preserving continuity of
management of Stilwell.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is agreed by and between Stilwell and Executive as follows:
1. Employment. Stilwell hereby employs Executive as its Vice President
- - Legal to serve at the pleasure of the Board of Directors of Stilwell (the
"Stilwell Board") and to have such duties, powers and responsibilities as may be
prescribed or delegated from time to time by the President or other officer to
whom Executive reports, subject to the powers vested in the Stilwell Board and
in the stockholders of Stilwell. Executive shall faithfully perform her duties
under this Agreement to the best of her ability and shall devote substantially
all of her working time and efforts to the business and affairs of Stilwell and
its affiliates.
2. Compensation.
------------
(a) Base Compensation. Stilwell shall pay Executive as
compensation for her services hereunder an annual base salary at the rate of
$200,000. Such rate shall not be increased prior to January 1, 2003 and shall
not be reduced except as agreed by the parties or except as part of a general
salary reduction program imposed by Stilwell and applicable to all officers of
Stilwell.
(b) Incentive Compensation. For the years 2000, 2001 and 2002,
Executive shall not be entitled to participate in any Stilwell incentive
compensation plan, except that Stilwell shall pay Executive a cash bonus of
$250,000 within ten days after the spin-off Distribution.
3. Benefits and Stock Ownership.
----------------------------
(a) Benefits. During the period of her employment hereunder,
Stilwell shall provide Executive with coverage under such benefit plans and
programs as are made generally available to similarly situated employees of
Stilwell, provided (a) Stilwell shall have no obligation with respect to any
plan or program if Executive is not eligible for coverage thereunder, and (b)
Executive acknowledges that stock options and other stock and equity
participation awards are granted in the discretion of the Stilwell Board or the
Compensation Committee of the Stilwell Board and that Executive has no right to
receive stock options or other equity participation awards or any particular
number or level of stock options or other awards. In determining contributions,
coverage and benefits under any disability insurance policy and under any cash
compensation-based plan provided to Executive by Stilwell, it shall be assumed
that the value of Executive's annual compensation, pursuant to this Agreement,
is the lower of 175% of Executive's annual base salary or $1,000,000. Executive
acknowledges that all rights and benefits under benefit plans and programs shall
be governed by the official text of each such plan or program and not by any
2
summary or description thereof or any provision of this Agreement (except to the
extent this Agreement expressly modifies such benefit plans or programs) and
that Stilwell is not under any obligation to continue in effect or to fund any
such plan or program, except as provided in Paragraph 7 hereof. Stilwell also
shall reimburse Executive for ordinary and necessary travel and other business
expenses in accordance with policies and procedures established by Stilwell.
(b) Stock Ownership. During the period of her employment
hereunder, Executive shall retain ownership in herself or in members of her
immediate family of at least a majority of the number of shares of (i) Stilwell
stock received by Executive or members of her immediate family in the
Distribution, and (ii) Stilwell stock acquired upon the exercise of stock
options, but excluding from such number of shares any such shares transferred to
Stilwell or sold to pay the purchase price upon the exercise of stock options or
to pay or satisfy tax obligations resulting from such exercise.
4. Termination.
-----------
(a) Termination by Executive. Executive may terminate this
Agreement and her employment hereunder by at least thirty (30) days advance
written notice to Stilwell, except that in the event of any material breach of
this Agreement by Stilwell, Executive may terminate this Agreement and her
employment hereunder immediately upon notice to Stilwell.
(b) Death or Disability. This Agreement and Executive's
employment hereunder shall terminate automatically on the death or disability of
Executive, except to the extent employment is continued under Stilwell's
disability plan. For purposes of this Agreement, Executive shall be deemed to be
disabled if he qualifies for disability benefits under Stilwell's long-term
disability plan.
3
(c) Termination by Stilwell For Cause. Stilwell may terminate
this Agreement and Executive's employment "for cause" immediately upon notice to
Executive. For purposes of this Agreement (except for Paragraph 7), termination
"for cause" shall mean termination based upon any one or more of the following:
(i) Any material breach of this Agreement by
Executive;
(ii) Executive's dishonesty involving Stilwell
or any subsidiary of Stilwell;
(iii) Gross negligence or willful misconduct in
the performance of Executive's duties as determined in good faith by
the Stilwell Board;
(iv) Willful failure by Executive to follow
reasonable instructions of the President or other officer to whom
Executive reports concerning the operations or business of Stilwell or
any subsidiary of Stilwell;
(v) Executive's fraud or criminal activity; or
(vi) Embezzlement or misappropriation by
Executive.
(d) Termination by Stilwell Other Than For Cause.
--------------------------------------------
(i) Stilwell may terminate this Agreement and
Executive's employment other than for cause immediately upon notice to
Executive, and in such event, Stilwell shall provide severance benefits
to Executive in accordance with Paragraph 4(d)(ii) below.
(ii) Unless the provisions of Paragraph 7 of this
Agreement are applicable, if Executive's employment is terminated under
Paragraph 4(d)(i), Stilwell shall continue, for a period of one (1)
year following such termination, (a) to pay to Executive as severance
pay a monthly amount equal to one-twelfth (1/12th) of the annual base
salary referenced in Paragraph 2(a) above, at the rate in effect
immediately prior to termination,
4
and, (b) to reimburse Executive for the cost (including state and
federal income taxes payable with respect to this reimbursement) of
continuing the health insurance coverage provided pursuant to this
Agreement or obtaining health insurance coverage comparable to the
health insurance provided pursuant to this Agreement, and obtaining
coverage comparable to the life insurance provided pursuant to this
Agreement, unless Executive is provided comparable health or life
insurance coverage in connection with other employment. The foregoing
obligations of Stilwell shall continue until the end of such one (1)
year period notwithstanding the death or disability of Executive
during said period (except, in the event of death, the obligation to
reimburse Executive for the cost of life insurance shall not
continue). In the year in which termination of employment occurs,
Executive shall be eligible to receive benefits under the Stilwell
Incentive Compensation Plan and the Stilwell Executive Plan (if such
Plans then are in existence and Executive was entitled to participate
immediately prior to termination) in accordance with the provisions of
such plans then applicable, and severance pay received in such year
shall be taken into account for the purpose of determining benefits,
if any, under the Stilwell Incentive Compensation Plan but not under
the Stilwell Executive Plan. After the year in which termination
occurs, Executive shall not be entitled to accrue or receive benefits
under the Stilwell Incentive Compensation Plan or the Stilwell
Executive Plan with respect to the severance pay provided herein,
notwithstanding that benefits under such plan then are still generally
available to executive employees of Stilwell. After termination of
employment, Executive shall not be entitled to accrue or receive
benefits under any other employee benefit plan or program, except that
Executive shall be entitled to participate in the Stilwell Employee
Stock Ownership Plan and the Stilwell Section 401(k) Plan with Profit
Sharing
5
Plan Portion in the year of termination of employment only if
Executive meets all requirements of such plans for participation in
such year.
5. Non-Disclosure. During the term of this Agreement and at all times
after any termination of this Agreement, Executive shall not, either directly or
indirectly, use or disclose any Stilwell trade secret, except to the extent
necessary for Executive to perform her duties for Stilwell while an employee.
For purposes of this Agreement, the term "Stilwell trade secret" shall mean any
information regarding the business or activities of Stilwell or any subsidiary
or affiliate, including any formula, pattern, compilation, program, device,
method, technique, process, customer list, technical information or other
confidential or proprietary information, that (a) derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and (b) is the subject of efforts of Stilwell
or its subsidiary or affiliate that are reasonable under the circumstance to
maintain its secrecy. In the event of any breach of this Paragraph 5 by
Executive, Stilwell shall be entitled to terminate any and all remaining
severance benefits under Paragraph 4(d)(ii) and shall be entitled to pursue such
other legal and equitable remedies as may be available.
6. Duties Upon Termination; Survival.
---------------------------------
(a) Duties. Upon termination of this Agreement by Stilwell or
Executive for any reason, Executive shall immediately return to Stilwell all
Stilwell trade secrets which exist in tangible form and shall sign such written
resignations from all positions as an officer, director or member of any
committee or board of Stilwell and all direct and indirect subsidiaries and
affiliates of Stilwell as may be requested by Stilwell and shall sign such other
documents and papers relating to Executive's employment, benefits and benefit
plans as Stilwell may reasonably request.
6
(b) Survival. The provisions of Paragraphs 5, 6(a) and 7 of
this Agreement shall survive any termination of this Agreement by Stilwell or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Stilwell under Paragraph 4(d)(i).
7. Continuation of Employment Upon Change in Control of Stilwell.
-------------------------------------------------------------
(a) Continuation of Employment. Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control (as defined
in Paragraph 7(d)) at any time during the term of this Agreement, Executive
agrees to remain in the employ of Stilwell for a period of three years (the
"Three-Year Period") from the date of such Change in Control (the "Control
Change Date"). Stilwell agrees to continue to employ Executive for the
Three-Year Period. During the Three-Year Period, (i) the Executive's position
(including offices, titles, reporting requirements and responsibilities),
authority and duties shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned at any time
during the 12 month period immediately before the Control Change Date and (ii)
the Executive's services shall be performed at the location where Executive was
employed immediately before the Control Change Date or at any other location
less than 40 miles from such former location. During the Three-Year Period,
Stilwell shall continue to pay to Executive an annual base salary on the same
basis and at the same intervals as in effect prior to the Control Change Date at
a rate not less than 12 times the highest monthly base salary paid or payable to
the Executive by Stilwell in respect of the 12-month period immediately before
the Control Change Date.
(b) Benefits. During the Three-Year Period, Executive shall be
entitled to participate, on the basis of her executive position, in each of the
following Stilwell plans
7
(together, the "Specified Benefits") in existence, and in accordance with the
terms thereof, at the Control Change Date:
(i) any benefit plan, and trust fund associated
therewith, related to (a) life, health, dental, disability, accidental
death and dismemberment insurance or accrued but unpaid vacation time,
(b) profit sharing, thrift or deferred savings (including deferred
compensation, such as under Section 401(k) plans), (c) retirement or
pension benefits, (d) ERISA excess benefits and similar plans and (e)
tax favored employee stock ownership (such as under ESOP, and Employee
Stock Purchase programs); and
(ii) any other benefit plans hereafter made generally
available to executives of Executive's level or to the employees of
Stilwell generally.
In addition, Stilwell shall use its best efforts to cause all
outstanding options held by Executive under any stock option plan of
Stilwell or its affiliates to become immediately exercisable on the Control
Change Date and to the extent that such options are not vested and are
subsequently forfeited, the Executive shall receive a lump-sum cash payment
within 5 days after the options are forfeited equal to the difference between
the fair market value of the shares of stock subject to the non-vested,forfeited
options determined as of the date such options are forfeited and the exercise
price for such options. During the Three-Year Period Executive shall be entitled
to participate, on the basis of her executive position, in any incentive
compensation plan of Stilwell in accordance with the terms thereof at the
Control Change Date; provided that if under Stilwell programs or Executive's
Employment Agreement in existence immediately prior to the Control Change Date,
there are written limitations on participation for a designated time period in
any incentive compensation plan, such limitations shall continue after the
Control Change Date to the extent so provided for prior to the Control Change
Date.
8
If the amount of contributions or benefits with respect to the
Specified Benefits or any incentive compensation is determined on a
discretionary basis under the terms of the Specified Benefits or any incentive
compensation plan immediately prior to the Control Change Date, the amount of
such contributions or benefits during the Three-Year Period for each of the
Specified Benefits shall not be less than the average annual contributions or
benefits for each Specified Benefit for the three plan years ending prior to the
Control Change Date and, in the case of any incentive compensation plan, the
amount of the incentive compensation during the Three-Year Period shall not be
less than 75% of the maximum that could have been paid to the Executive under
the terms of the incentive compensation plan.
(c) Payment. With respect to any plan or agreement under which
Executive would be entitled at the Control Change Date to receive Specified
Benefits or incentive compensation as a general obligation of Stilwell which has
not been separately funded (including specifically, but not limited to, those
referred to under Paragraph 7(b)(i) and (ii) above), Executive shall receive
within five (5) days after such date full payment in cash (discounted to the
then present value on the basis of a rate of seven percent (7%) per annum) of
all amounts to which he is then entitled thereunder.
(d) Change in Control. Except as provided in the last sentence
of this Paragraph 7(d), for purposes of this Agreement, a "Change in Control"
means any one or more of the following:
(i) the acquisition or holding by any person, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than by
Stilwell or any Subsidiary (as defined below), or any employee benefit
plan of Stilwell or a Subsidiary (and other than by KCSI prior to the
9
Spin-off Distribution), of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of 20% or more of the
then-outstanding common stock or the combined voting power of the
then-outstanding voting securities ("Voting Power") of Stilwell;
provided, however, that no Change in Control shall occur solely by
reason of any such acquisition by a corporation with respect to which,
after such acquisition, more than 60% of both the then-outstanding
common shares and the then-outstanding Voting Power of such corporation
are then beneficially owned, directly or indirectly, by the persons who
were the beneficial owners of the then-outstanding common stock and
Voting Power of Stilwell immediately before such acquisition, in
substantially the same proportions as their respective ownership,
immediately before such acquisition, of the then-outstanding common
stock and Voting Power of Stilwell; or
(ii) individuals who, as of the date of the Spin-off
Distribution, constitute the Stilwell Board (the "Incumbent Board")
cease for any reason to constitute at least 75% of the Stilwell Board;
provided that any individual who becomes a director after the Spin-off
Distribution whose election or nomination for election by the
stockholders of Stilwell was approved by at least 75% of the Incumbent
Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened "election contest" relating to the election of the directors
of Stilwell (as such terms are used in Rule 14a-11 under the Exchange
Act) or "tender offer" (as such term is used in Section 14(d) of the
Exchange Act) or a proposed Extraordinary Transaction (as defined
below)) shall be deemed to be a member of the Incumbent Board; or
10
(iii) approval by the stockholders of Stilwell of any
one or more of the following:
(A) a merger, reorganization,
consolidation or similar transaction (any of the foregoing, an
"Extraordinary Transaction") with respect to which persons who
were the respective beneficial owners of the then-outstanding
common stock and Voting Power of Stilwell immediately before such
Extraordinary Transaction would not, if such Extraordinary Transaction
were to be consummated immediately after such stockholder approval (but
otherwise in accordance with the terms presented in writing to the
stockholders of Stilwell for their approval), beneficially own,
directly or indirectly, more than 60% of both the then-outstanding
common shares and the then-outstanding Voting Power of the corporation
resulting from such Extraordinary Transaction, in substantially the
same proportions as their respective ownership, immediately before
such Extraordinary Transaction, of the then-outstanding common stock
and Voting Power of Stilwell,
(B) a liquidation or dissolution of
Stilwell, or
(C) the sale or other disposition of all
or substantially all of the assets of Stilwell in one transaction
or a series of related transactions; or
(iv) the sale or other disposition by Stilwell,
directly or indirectly, whether by merger, consolidation, combination,
lease, exchange, spin-off, split-off, or other means, of any
Significant Subsidiary or any reduction in Stilwell's direct or
indirect beneficial ownership of any Significant Subsidiary to less
than 50% of the Voting Power of such entity.
11
For purposes of this Agreement, "Subsidiary" shall mean any entity of which at
least 50% of the Voting Power is beneficially owned, directly or indirectly, by
Stilwell and "Significant Subsidiary" shall mean (A) any Subsidiary which
contributed 30% or more of the total combined revenues of Stilwell and all
Subsidiaries for the prior calendar year, and (B) any one or more entities,
businesses or groups of assets directly or indirectly sold or disposed of by
Stilwell (within the meaning of paragraph 7(d)(iv)) within any two year period
that contributed 30% of more of such total combined revenues or would have
contributed such 30% based on revenues of such entities, businesses or groups of
assets for the calendar year prior to their sale or disposition.
Notwithstanding the foregoing provisions of this Paragraph 7(d) to the contrary,
the Spin-off Distribution shall not constitute a Change in Control.
(e) Termination After Control Change Date. Notwithstanding any
other provision of this Paragraph 7, at any time after the Control Change Date,
Stilwell may terminate the employment of Executive (the "Termination"), but
unless such Termination is for Cause as defined in subparagraph (g) or for
disability, within five (5) days of the Termination Stilwell shall pay to
Executive her full base salary through the Termination, to the extent not
theretofore paid, plus a lump sum amount (the "Special Severance Payment") equal
to the product (discounted to the then present value on the basis of a rate of
seven percent (7%) per annum) of (i) 175% of her annual base salary specified in
Paragraph 7(a) multiplied by (ii) two, and Specified Benefits (excluding any
incentive compensation) to which Executive was entitled immediately prior to
Termination shall continue until the end of the 3-year period ("Benefits
Period") beginning on the date of Termination. If any plan pursuant to which
Specified Benefits are provided immediately prior to Termination would not
permit continued participation by
12
Executive after Termination, then Stilwell shall pay to Executive within five
(5) days after Termination a lump sum payment equal to the amount of Specified
Benefits Executive would have received under such plan if Executive had been
fully vested in the average annual contributions or benefits in effect for the
three plan years ending prior to the Control Change Date (regardless of any
limitations based on the earnings or performance of Stilwell) and a continuing
participant in such plan to the end of the Benefits Period. Following the end of
the Benefits Period, Stilwell shall continue to provide to the Executive and the
Executive's family the following benefits ("Post-Period Benefits"): (1) prior to
the Executive's attainment of age sixty (60), health, prescription and dental
benefits equivalent to those then applicable to active peer executives of
Stilwell and their families, as the same may be modified from time to time, and
(2) following the Executive's attainment of age sixty (60) (and without regard
to the Executive's period of service with Stilwell), health and prescription
benefits equivalent to those then applicable to retired peer executives of
Stilwell and their families, as the same may be modified from time to time. The
cost to the Executive of such Post-Period Benefits shall not exceed the cost of
such benefits to active or retired (as applicable) peer executives, as the same
may be modified from time to time. Notwithstanding the preceding two sentences
of this Paragraph 7(e), if the Executive is covered under any health,
prescription or dental plan provided by a subsequent employer, then the
corresponding type of plan coverage (i.e., health, prescription or dental)
required to be provided as Post-Period Benefits under this Paragraph 7(e) shall
cease. The Executive's rights under this Paragraph 7(e) shall be in addition to,
and not in lieu of, any post-termination continuation coverage or conversion
rights the Executive may have pursuant to applicable law, including without
limitation continuation coverage required by Section 4980 of the Code. Nothing
in this Paragraph 7(e) shall be deemed to limit in any manner the reserved
13
right of Stilwell, in its sole and absolute discretion, to at any time amend,
modify or terminate health, prescription or dental benefits for active or
retired employees generally.
(f) Resignation After Control Change Date. In the event of a
Change in Control as defined in Paragraph 7(d), thereafter, upon good reason (as
defined below), Executive may, at any time during the 3-year period following
the Change in Control, in her sole discretion, on not less than thirty (30)
days' written notice (the "Notice of Resignation") to the Secretary of
Stilwell and effective at the end of such notice period, resign her employment
with Stilwell (the "Resignation"). Within five (5) days of such a Resignation,
Stilwell shall pay to Executive her full base salary through the effective date
of such Resignation, to the extent not theretofore paid, plus a lump sum amount
equal to the Special Severance Payment (computed as provided in the first
sentence of Paragraph 7(e), except that for purposes of such computation all
references to "Termination" shall be deemed to be references to "Resignation").
Upon Resignation of Executive, Specified Benefits to which Executive was
entitled immediately prior to Resignation shall continue on the same terms and
conditions as provided in Paragraph 7(e) in the case of Termination (including
equivalent payments provided for therein), and Post-Period Benefits shall be
provided on the same terms and conditions as provided in Paragraph 7(e) in the
case of Termination. For purposes of this Agreement, "good reason" means any one
or more of the following:
(i) the assignment to the Executive of any duties
which result in a material adverse change in the Executive's position
(including status, offices, titles, and reporting requirements),
authority, duties, or other responsibilities with Stilwell, or any
other action of Stilwell which results in a material adverse change in
such position, authority, duties, or responsibilities, other than an
insubstantial and inadvertent action
14
which is remedied by Stilwell promptly after receipt of notice thereof
given by the Executive,
(ii) any relocation of the Executive of more
than 40 miles from the place where the Executive was located at the
time of the Change in Control;
(iii) a material reduction or elimination of any
component of the Executive's rate of compensation, including (x) base
salary, (y) any incentive payment or (z) benefits or prerequisites
which the Executive was receiving immediately prior to a Change in
Control, or;
(iv) any failure by Stilwell to comply with any
of the provisions of Paragraph 7;
A passage of time prior to delivery of the Notice of Resignation or a failure by
the Executive to include in the Notice of Resignation any fact or circumstance
which contributes to a showing of good reason shall not waive any right of the
Executive under this Agreement or preclude the Executive from asserting such
fact or circumstance in enforcing rights under this Agreement.
(g) Termination for Cause After Control Change Date.
Notwithstanding any other provision of this Paragraph 7, at any time after the
Control Change Date, Executive may be terminated by Stilwell "for Cause." Cause
means commission by the Executive of any felony or willful breach of duty by the
Executive in the course of the Executive's employment, except that Cause shall
not mean:
(i) bad judgment or negligence;
(ii) any act or omission believed by the Executive in
good faith to have been in or not opposed to the interest of Stilwell
(without intent of the Executive to gain, directly or indirectly, a
profit to which the Executive was not legally entitled);
15
(iii) any act or omission with respect to which a
determination could properly have been made by the Stilwell Board that
the Executive met the applicable standard of conduct for
indemnification or reimbursement under Stilwell's by-laws, any
applicable indemnification agreement, or applicable law, in each case
in effect at the time of such act or omission; or
(iv) any act or omission with respect to which Notice
of Termination of the Executive is given more than 12 months after the
earliest date on which any member of the Stilwell Board, not a party to
the act or omission, knew or should have known of such act or omission.
Any Termination of the Executive's employment by Stilwell for Cause shall be
communicated to the Executive by Notice of Termination.
(h) Gross-up for Certain Taxes. If it is determined (by the
reasonable computation of Stilwell's independent auditors, which determinations
shall be certified to by such auditors and set forth in a written certificate
("Certificate") delivered to the Executive) that any benefit received or deemed
received by the Executive from Stilwell pursuant to this Agreement or otherwise
(collectively, the "Payments") is or will become subject to any excise tax under
Section 4999 of the Code or any similar tax payable under any United States
federal, state, local or other law (such excise tax and all such similar taxes
collectively, "Excise Taxes"), then Stilwell shall, immediately after such
determination, pay the Executive an amount (the "Gross-up Payment") equal to the
product of:
(i) the amount of such Excise Taxes;
multiplied by
(ii) the Gross-up Multiple (as defined in
Paragraph 7(k).
16
The Gross-up Payment is intended to compensate the
Executive for the Excise Taxes and any federal, state, local or other
income or excise taxes or other taxes payable by the Executive with
respect to the Gross-up Payment.
Stilwell shall cause the preparation and delivery to
the Executive of a Certificate upon request at any time. Stilwell
shall, in addition to complying with this Paragraph 7(h), cause all
determinations and certifications under Paragraphs 7(h)-(o) to be made
as soon as reasonably possible and in adequate time to permit the
Executive to prepare and file the Executive's individual tax returns on
a timely basis.
(i) Determination by the Executive.
(i) If Stilwell shall fail (a) to deliver a
Certificate to the Executive or (b) to pay to the Executive the amount
of the Gross-up Payment, if any, within 14 days after receipt from the
Executive of a written request for a Certificate, or if at any time
following receipt of a Certificate the Executive disputes the amount of
the Gross-up Payment set forth therein, the Executive may elect to
demand the payment of the amount which the Executive, in accordance
with an opinion of counsel to the Executive ("Executive Counsel
Opinion"), determines to be the Gross-up Payment. Any such demand by
the Executive shall be made by delivery to Stilwell of a written notice
which specifies the Gross-up Payment determined by the Executive and an
Executive Counsel Opinion regarding such Gross-up Payment (such written
notice and opinion collectively, the "Executive's Determination").
Within 14 days after delivery of the Executive's Determination to
Stilwell, Stilwell shall either (a) pay the Executive the Gross-up
Payment set forth in the Executive's Determination (less the portion of
such amount, if any, previously paid to the Executive by Stilwell) or
(b) deliver to the Executive a
17
Certificate specifying the Gross-up Payment determined by Stilwell's
independent auditors, together with an opinion of Stilwell's counsel
("Stilwell Counsel Opinion"), and pay the Executive the Gross-up
Payment specified in such Certificate. If for any reason Stilwell
fails to comply with clause (b) of the preceding sentence, the
Gross-up Payment specified in the Executive's Determination shall be
controlling for all purposes.
(ii) If the Executive does not make a request for,
and Stilwell does not deliver to the Executive, a Certificate, Stilwell
shall, for purposes of Paragraph 7(j), be deemed to have determined
that no Gross-up Payment is due.
(j) Additional Gross-up Amounts. If, despite the initial
conclusion of Stilwell and/or the Executive that certain Payments are neither
subject to Excise Taxes nor to be counted in determining whether other Payments
are subject to Excise Taxes (any such item, a "Non-Parachute Item"), it is later
determined (pursuant to subsequently-enacted provisions of the Code, final
regulations or published rulings of the IRS, final IRS determination or judgment
of a court of competent jurisdiction or Stilwell's independent auditors) that
any of the Non-Parachute Items are subject to Excise Taxes, or are to be counted
in determining whether any Payments are subject to Excise Taxes, with the result
that the amount of Excise Taxes payable by the Executive is greater than the
amount determined by Stilwell or the Executive pursuant to Paragraph 7(h) or
Paragraph 7(i), as applicable, then Stilwell shall pay the Executive an amount
(which shall also be deemed a Gross-up Payment) equal to the product of:
(i) the sum of (a) such additional Excise Taxes and
(b) any interest, fines, penalties, expenses or other costs incurred by
the Executive as a result of having taken a position in accordance with
a determination made pursuant to Paragraph 7(h); multiplied by
18
(ii) the Gross-up Multiple.
(k) Gross-up Multiple. The Gross-up Multiple shall equal a
fraction, the numerator of which is one (1.0), and the denominator of which is
one (1.0) minus the sum, expressed as a decimal fraction, of the rates of all
federal, state, local and other income and other taxes and any Excise Taxes
applicable to the Gross-up Payment; provided that, if such sum exceeds 0.8, it
shall be deemed equal to 0.8 for purposes of this computation. (If different
rates of tax are applicable to various portions of a Gross-up Payment, the
weighted average of such rates shall be used.)
(l) Opinion of Counsel. "Executive Counsel Opinion" means a
legal opinion of nationally recognized executive compensation counsel that there
is a reasonable basis to support a conclusion that the Gross-up Payment
determined by the Executive has been calculated in accord with this Paragraph 7
and applicable law. "Company Counsel Opinion" means a legal opinion of
nationally recognized executive compensation counsel that (i) there is a
reasonable basis to support a conclusion that the Gross-up Payment set forth in
the Certificate of Stilwell's independent auditors has been calculated in accord
with this Paragraph 7 and applicable law, and (ii) there is no reasonable basis
for the calculation of the Gross-up Payment determined by the Executive.
(m) Amount Increased or Contested. The Executive shall notify
Stilwell in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by Stilwell of a Gross-up Payment. Such
notice shall include the nature of such claim and the date on which such claim
is due to be paid. The Executive shall give such notice as soon as practicable,
but no later than 10 business days, after the Executive first obtains actual
knowledge of such claim; provided, however, that any failure to give or delay in
giving such
19
notice shall affect Stilwell's obligations under this Paragraph 7 only if and to
the extent that such failure results in actual prejudice to Stilwell. The
Executive shall not pay such claim less than 30 days after the Executive gives
such notice to Stilwell (or, if sooner, the date on which payment of such claim
is due). If Stilwell notifies the Executive in writing before the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give Stilwell any information that it reasonably
requests relating to such claim;
(ii) take such action in connection with contesting
such claim as Stilwell reasonably requests in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
Stilwell;
(iii) cooperate with Stilwell in good faith to
contest such claim; and
(iv) permit Stilwell to participate in any
proceedings relating to such claim; provided, however, that Stilwell
shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including related
interest and penalties, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing, Stilwell
shall control all proceedings in connection with such contest 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 and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner. The Executive agrees to
prosecute such contest to a
20
determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as Stilwell
shall determine; provided, however, that if Stilwell directs the
Executive to pay such claim and sue for a refund, Stilwell shall
advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify the Executive, on an after-tax
basis, for any Excise Tax or income tax, including related interest or
penalties, imposed with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. The Stilwell's control of the contest shall be
limited to issues with respect to which a Gross-up Payment would be
payable. The Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the IRS or other taxing
authority.
(n) Refunds. If, after the receipt by the Executive of an
amount advanced by Stilwell pursuant to Paragraph 7(m), the Executive receives
any refund with respect to such claim, the Executive shall (subject to
Stilwell's complying with the requirements of Paragraph 7(m)) promptly pay
Stilwell the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by Stilwell pursuant to Paragraph 7(m), a determination is
made that the Executive shall not be entitled to a full refund with respect to
such claim and Stilwell does not notify the Executive in writing of its intent
to contest such determination before the expiration of 30 days after such
determination, then the applicable part of such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent
21
thereof, the amount of Gross-up Payment required to be paid. Any contest of a
denial of refund shall be controlled by Paragraph 7(m).
(o) Expenses. If any dispute should arise under this Agreement
after the Control Change Date involving an effort by Executive to protect,
enforce or secure rights or benefits claimed by Executive hereunder, Stilwell
shall pay (promptly upon demand by Executive accompanied by reasonable evidence
of incurrence) all reasonable expenses (including attorneys<180> fees) incurred
by Executive in connection with such dispute, without regard to whether
Executive prevails in such dispute except that Executive shall repay Stilwell
any amounts so received if a court having jurisdiction shall make a final,
nonappealable determination that Executive acted frivolously or in bad faith by
such dispute. To assure Executive that adequate funds will be made available to
discharge Stilwell's obligations set forth in the preceding sentence, Stilwell
has established a trust and upon the occurrence of a Change in Control shall
promptly deliver to the trustee of such trust to hold in accordance with the
terms and conditions thereof that sum which the Stilwell Board shall have
determined is reasonably sufficient for such purpose.
(p) Prevailing Provisions. On and after the Control Change
Date, the provisions of this Paragraph 7 shall control and take precedence over
any other provisions of this Agreement which are in conflict with or address the
same or a similar subject matter as the provisions of this Paragraph 7.
8. Mitigation and Other Employment. After a termination of Executive's
employment pursuant to Paragraph 4(d)(i) or a Change in Control as defined in
Paragraph 7(d), Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
and except as otherwise specifically provided in
22
Paragraph 4(d)(ii) with respect to health and life insurance and in Paragraph
7(e) with respect to health, prescription and dental benefits, no such other
employment, if obtained, or compensation or benefits payable in connection
therewith shall reduce any amounts or benefits to which Executive is entitled
hereunder. Such amounts or benefits payable to Executive under this Agreement
shall not be treated as damages but as severance compensation to which Executive
is entitled because Executive's employment has been terminated.
9. Notice. Notices and all other communications to either party
pursuant to this Agreement shall be in writing and shall be deemed to have been
given when personally delivered, delivered by facsimile or deposited in the
United States mail by certified or registered mail, postage prepaid, addressed,
in the case of Stilwell, to Stilwell at 114 West 11th Street, Kansas City,
Missouri 64105, Attention: Secretary, or, in the case of the Executive, to her
at 4027 N.W. Claymont Drive, Kansas City, MO 64116, or to such other address as
a party shall designate by notice to the other party.
10. Amendment. No provision of this Agreement may be amended, modified,
waived or discharged unless such amendment, waiver, modification or discharge is
agreed to in a writing signed by Executive and the President of Stilwell. No
waiver by any party hereto at any time of any breach by another party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the time or at any prior or subsequent time.
11. Successors in Interest. The rights and obligations of Stilwell
under this Agreement shall inure to the benefit of and be binding in each and
every respect upon the direct and indirect successors and assigns of Stilwell,
regardless of the manner in which such successors or assigns shall succeed to
the interest of Stilwell hereunder, and this Agreement shall not be terminated
by
23
the voluntary or involuntary dissolution of Stilwell or by any merger or
consolidation or acquisition involving Stilwell or upon any transfer of all or
substantially all of Stilwell's assets, or terminated otherwise than in
accordance with its terms. In the event of any such merger or consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon and
shall inure to the benefit of the surviving corporation or the corporation or
other person to which such assets shall be transferred. Neither this Agreement
nor any of the payments or benefits hereunder may be pledged, assigned or
transferred by Executive either in whole or in part in any manner, without the
prior written consent of Stilwell.
12. Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
13. Controlling Law and Jurisdiction. The validity, interpretation
and performance of this Agreement shall be subject to and construed under the
laws of the State of Missouri, without regard to principles of conflicts of law.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and terminates and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the terms of Executive's employment or
severance arrangements.
24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above stated.
STILWELL FINANCIAL, INC.
By /s/ L.H. Rowland
--------------------------------
Name: Landon H. Rowland
Title: President
EXECUTIVE
/s/ Gwen E. Royle
-----------------------------------
Gwen E. Royle