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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) August 19, 1996
THE ASSOCIATED GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-24924 51-0260858
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(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification No.)
200 Gateway Towers, Pittsburgh, PA 15222
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (412) 281-1907
PAGE 1 OF 4 CONSECUTIVELY NUMBERED PAGES.
EXHIBIT INDEX IS ON PAGE 4
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Item 5. Other Events.
On August 19, 1996, The Associated Group, Inc. (the "Company") announced
that Alex J. Mandl ("Mandl"), president and chief operating officer of AT&T
Corporation, will become chairman and chief executive officer of Associated
Communications, L.L.C. ("ACOM"). ACOM is a majority owned subsidiary of the
Company, and is a joint venture between Microwave Services, Inc. ("MSI"), a
wholly-owned subsidiary of the Company, and Digital Services Corporation
("DSC"). Mandl's appointment is effective September 1, 1996 pursuant to an
Employment Agreement dated as of August 19, 1996 (the "Employment Agreement").
The Company issued a press release regarding this development on August 19,
1996, which press release is filed as an exhibit to this report and is
incorporated herein by reference. In addition, the Employment Agreement is filed
as an exhibit to this report and is incorporated herein by reference.
Item 7. Exhibits.
The following Exhibits are filed as part of this Report on Form 8-K:
(c) Exhibits
99.1 Press Release dated August 19, 1996.
99.2 Employment Agreement dated as of August 19, 1996, effective
as of September 1, 1996.
Page 2 of 4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE ASSOCIATED GROUP, INC.
Dated: September 6, 1996 By: /s/ Myles P. Berkman
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Myles P. Berkman
President and Chief Executive Officer
Page 3 of 4
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THE ASSOCIATED GROUP, INC.
CURRENT REPORT ON FORM 8-K
EXHIBIT INDEX
Exhibit No. Page
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99.1 Press Release dated August 19, 1996 5
99.2 Employment Agreement dated as of August 19, 1996, effective
as of September 1, 1996 8
Page 4 of 4
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THE ASSOCIATED GROUP, INC.
Contacts: Scott Bruce Dick Kosmicki (Media)
Associated Group Ken Di Paola (IR)
(610) 660-4910 The Dilenschneider Group
(212) 922-0900
FOR IMMEDIATE RELEASE
ALEX J. MANDL TO HEAD
NEW WIRELESS TELECOMMUNICATIONS VENTURE
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AT&T President and Chief Operating Officer
To Join Associated Communications
NEW YORK, NY, August 19, 1996 -- The Associated Group, Inc. (NASDAQ: AGRPA,
AGRPB) today announced that Alex J. Mandl, AT&T's president and chief operating
officer, will become chairman and chief executive officer of Associated
Communications, L.L.C. Mandl's appointment is effective September 1, 1996.
Associated Communications , a new company that will play a leadership role
in providing broadband wireless multimedia local services in key U.S. markets,
is majority owned by The Associated Group, which is engaged primarily in
communications and related services.
In leaving AT&T, Mandl expressed gratitude for the leadership of AT&T
chairman and chief executive officer Robert Allen, and thanked him for the
opportunity to participate in the farsighted moves AT&T has made.
-more-
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"Bob Allen has a keen and far-reaching vision, and I am grateful to have
had the opportunity to work with him in positioning AT&T to lead the global
communications industry into the future," Mandl said. "I will sincerely miss my
many friends and colleagues at AT&T. But I cannot resist the challenge of
pioneering a very significant telecommunications venture in the new regulatory
environment. Associated Communications offers a unique opportunity to succeed
personally, professionally and financially on an entirely new level. It's the
chance of a lifetime to create a communications company from the group up."
Associated Communications will manage the networks and markets providing
voice, high-speed data, Internet access and video conferencing services. Initial
operations are at 18 GHz frequencies in the top 31 metropolitan areas. These
networks are designed to provide an integral broadband component of a fully
integrated suite of switched and dedicated telecommunications facilities.
Initial marketing will be aimed both at the business market for such services,
and, ultimately, residential users.
Myles P. Berkman, chairman, president and chief executive officer of The
Associated Group, said: "We are extremely pleased that Alex Mandl has agreed to
head this exciting new enterprise. He is a strong organizer who was quick to
grasp the tremendous market opportunity that this business represents. Alex
provides superb leadership and experience in a world rushing into the 21st
century."
The new venture is co-owned by Digital Services Corporation, an affiliate
of Telecom Ventures, L.L.C. Dr. Rajendra Singh, who founded and is Chairman of
Telecom Ventures and Digital Services Corporation, said, "Alex's foresight in
helping to shape the new electronic information age that we now live in will
continue with Associated Communications."
-more-
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Mandl, 52, was the architect of AT&T's highly successful 1994 acquisition
of McCaw Cellular Communications, Inc., and headed AT&T's long distance,
wireless, on-line and multimedia service businesses before being appointed
AT&T's president and chief operating officer. Prior to joining AT&T in 1991,
Mandl was chairman and chief executive officer of Sea-Land Services, Inc., the
world's largest ocean transportation company.
The Associated Group, Inc., is a leading telecommunications organization
with ownership and operation of a variety of wireless communications businesses
and interests, including True PositionTM, a provider of wireless location
services, broadband wireless services, cellular telephony , enhanced specialized
mobile radio, cable, and radio broadcasting.
# # #
Photo of Alex J. Mandl available from AP PhotoExpress (photo FPS-1 of August
19).
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EMPLOYMENT AGREEMENT
AGREEMENT made as of the 19th day of August 1996, to be effective September
1, 1996 (the "Effective Date"), between Associated Communications, L.L.C.
(formerly DMT, L.L.C.), a Delaware limited liability company (the "Company"),
and Alex J. Mandl (the "Executive"), and, as to the last sentence of Section
4(d)(I) and Sections 4(d)(II), 4(d)(III), 4(f), 8(a)(ii), 10(c) and 14 hereof
only, Microwave Services, Inc., a Delaware corporation ("MSI"), and Digital
Services Corporation, a Virginia corporation ("DSC", and collectively with MSI,
the "Original Shareholders").
The Board of Directors of the Company (the "Board") desires to provide for
the employment of the Executive as a member of the Company's management. The
Executive is willing to commit himself to serve the Company, on the terms and
conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein.
2. Term. The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the sixth anniversary of the Effective Date, unless further extended
as provided in this Section 2 or sooner terminated in the event that Executive's
employment is terminated pursuant to Section 6 hereof (the "Term of
Employment"). On the sixth and each subsequent anniversary of the Effective
Date, the Term of Employment shall automatically be extended for an additional
year unless, not later than 180 days prior to any such anniversary, the Company
or the Executive shall have given notice not to extend the Term of Employment.
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3. Position and Duties. Commencing on the Effective Date and continuing for
the remainder of the Term of Employment, the Executive shall be employed as
Chairman of the Board and Chief Executive Officer of the Company. He shall have
such authorities, duties and responsibilities customarily assigned to a Chairman
of the Board and Chief Executive Officer of an enterprise like the company
(including those associated with a public company if the Company becomes a
Public Company, as such term is defined in Section 4(d)(I) below). The Executive
shall be assigned no duties or responsibilities that are materially inconsistent
with, or that materially impair his ability to discharge, the foregoing duties
and responsibilities. He shall report solely and directly to the Board. Upon any
termination of the Executive's employment with the Company, the Executive shall
resign from the Board. The Executive shall devote substantially all his working
time and efforts to the business and affairs of the Company; provided, however,
that the Executive may also (a) serve on the boards of directors or trustees of
the business enterprises listed on Exhibit A hereof, as well as any others to
which the Board gives its written consent, which shall not be unreasonably
withheld, (b) serve on the boards of directors or trustees of trade associations
and/or charitable organizations or engage in charitable activities and community
affairs, and (c) manage his personal investments and affairs, provided that such
activities do not interfere with the proper performance of his duties and
responsibilities under this Agreement.
4. Compensation and Related Matters.
(a) Salary. The Company shall pay Executive a base salary ("Base
Salary") during the period of the Executive's employment hereunder, which shall
be at an initial rate of five-hundred-thousand dollars ($500,000) per annum. The
Base Salary may be adjusted from time to time as provided in the next paragraph
and shall be paid in accordance with the Company's standard payroll procedure.
Prior to the third anniversary of the Effective Date, the Base Salary shall
be reviewed for increase effective on such third anniversary in the
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discretion of the Board. Thereafter, the Base Salary shall be reviewed at least
annually for increase in the discretion of the Board. The Executive's Base
Salary may not be decreased at any time during the Term of Employment.
(b) Annual Bonus. For the Company's fiscal year in which the Term of
Employment begins, the Company shall pay the Executive an amount equal to the
product of five-hundred-thousand dollars ($500,000) multiplied by a fraction,
the numerator of which is the number of calendar days of such fiscal year during
which the Executive is employed hereunder, and the denominator of which is 366.
With respect to each of the first three full fiscal years of the Company during
the period of the Executive's employment hereunder, the Company shall pay the
Executive an annual bonus of five-hundred-thousand dollars ($500,000). The
respective bonus amounts referred to in the preceding sentences of this Section
4(b) shall be paid within thirty (30) days after the end of the Company's fiscal
year in respect of which such bonus amount is payable. With respect to the
fourth and subsequent full fiscal years of the Company during the period of the
Executive's employment hereunder, the Executive shall be entitled to an annual
bonus in such amount and based upon such criteria as the Board may determine in
its discretion.
(c) Non-Equity-Based Annual Compensation Programs. Beginning on the
third anniversary of the Effective Date, the Executive shall participate in all
annual (but not long-term) executive compensation plans and programs of the
Company which are not equity-based at a level commensurate with his seniority
and position at the Company, provided that this Section 4(c) shall not duplicate
the amount of any benefit provided pursuant to the last sentence of Section 4(b)
hereof.
(d) Company Appreciation Rights.
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(I) As of the Effective Date, the Company shall grant the
Executive six separate Company Appreciation Rights ("CARs") which will expire on
the tenth anniversary of the Effective Date and which will vest on the first
through sixth anniversaries of the Effective Date, respectively, if the
Executive shall be employed by the Company on the respective six anniversaries;
provided, however, that, if the Executive's employment shall be terminated for
any reason (other than a termination by the Company for "Cause," as defined in
Section 6(c) hereof), the CAR which would otherwise have vested on the
anniversary of the Effective Date next following the issuance of a Notice of
Termination (as defined in Section 6(e) hereof, except in the case of
termination due to death in which event the date of death shall be deemed to be
the issuance of such Notice for this purpose) in connection with such
termination shall vest on the Executive's Date of Termination (as defined in
Section 6(f) hereof). Each vested CAR will entitle the Executive to receive, as
soon as practicable after its Settlement Date (defined below) in accordance with
the terms hereof, an amount equal to three percent (3%) (subject to adjustment
as described below) of the amount by which the equity value of the Company on
the Settlement Date (calculated based on the Fair Market Value, as defined
below) exceeds the applicable Target Value, as set forth in the table below
(subject to adjustment as described below). If on a Settlement Date the
Company's equity securities which may be paid to the Executive upon settlement
of a CAR are not listed and traded on a national securities exchange or on the
Nasdaq National Market (if such equity securities are so listed and traded, the
Company shall be deemed to be a "Public Company"), the amount to be paid to the
Executive shall be paid as soon as practicable, and in any event within 120
days, after the Company has received notice of the final determination of the
Company's Fair Market Value made in accordance with Section 4(d)(VI) hereof. In
the discretion of the Board, the amount to be paid to the Executive may be paid
in cash, equity securities of the Company, or any combination thereof, and/or
such other form of consideration as the Board may determine in good faith;
provided, that, if equity securities of the Company are used and more than one
class of equity securities is outstanding, the Executive shall have the right to
request an appraisal of the fair market value of such
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equity securities in accordance with the procedures set forth in Section
4(d)(VI) hereof for determining the Fair Market Value of the Company; and
provided, further, that a form of consideration other than cash or equity
securities of the Company can be used only with the consent of the Executive,
which shall not be unreasonably withheld. If the Executive gives the Company
notice that he does not consent to payment in such form, the Company shall pay
him promptly in cash and/or equity securities of the Company. If equity
securities of the Company are paid to the Executive, all such securities shall
be of the same type as the securities owned at the time of payment by the
Original Shareholders. If the equity securities of the Company delivered to the
Executive upon the settlement of a CAR are of more than one class of security,
the number of securities of each class so delivered shall bear the same
proportionate relationship as the securities of such classes then owned by the
Original Shareholders (including for purposes of this Section 4(d)(I), their
respective successors) bear to each other. If the Company becomes a Public
Company pursuant to an initial public offering (the "IPO") of equity securities
pursuant to a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or otherwise, (A) the Company will, if requested
in writing by the Executive, use its reasonable best efforts to cause to be
included in any registration statement with respect to a public offering
(including the IPO) of equity securities of the class or classes issued to the
Executive upon settlement of a CAR or issued or issuable to the Executive upon
exercise of an Option (as defined in Section 4(d)(V) below) an amount of such
equity securities so issued to and owned by, or so issuable to, the Executive,
as of the Conversion Date (as defined in Section 4(d)(V) below) (the total
number of such equity securities, subject to adjustments for splits,
combinations and the like, being referred to as the "Maximum Amount"),
proportionate to the amount of such equity securities then owned by the Original
Shareholders which are included in such registration statement (based on the
total amount of such equity securities then owned by the Original Shareholders,
and the Maximum Amount, respectively), and (B) in each of the four successive
twelve-month periods, the first of which commences on the Conversion Date and
each of the remaining three of which commences on each of the three respective
subsequent anniversaries thereof, the
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Company will, if requested in writing by the Executive (which request with
respect to the first such twelve-month period may not be made prior to six
months after consummation of the IPO), use its reasonable best efforts to
promptly cause to be registered under the Securities Act, and registered or
qualified under such state securities laws as the Executive may reasonably
request (provided that the Company shall not be required to consent to general
service of process in any jurisdiction where it is not then so subject), for
public sale by the Executive an amount of such equity securities constituting at
least 25% of the difference between the Maximum Amount and the number of such
equity securities, if any, sold by the Executive in the IPO (such difference
being referred to as the "Maximum Annual Amount"); provided that in no event
will the Executive sell publicly more than the Maximum Annual Amount in any such
twelve-month period. Such registration rights shall not be transferable to any
transferee of such equity securities (except to transferees referred to in
clauses (i) and (ii) of the last sentence of Section 4(d)(IV) or in the last
sentence of Section 4(d)(V)). In addition, such registration rights shall be
subject to the Executive entering into underwriting (if applicable),
indemnification, and other customary agreements, and to the Company's right to
defer (or require the Executive to suspend sales pursuant to) any such
registration if (but only for so long as) it determines in good faith that such
registration (or continued sales) would require disclosure which would be
materially adverse to the Company's interests. The Company shall keep any
registration statement filed under clause (B) above effective for at least 90
days (increased by the number of days, if any, that sales under any such
registration statement are suspended as provided above). If sold in the public
market, shares registered pursuant to this Section 4(d)(I) shall not be subject
to the first refusal rights set forth below in Section 4(d)(III). The Company
shall bear all registration expenses (exclusive of underwriting discounts and
commissions) under this Section 4(d)(I) and shall provide the Executive with
indemnification against liabilities under the securities laws in customary form.
Vesting Target
CAR Date Value
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6
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1 1st Anniversary $200 million
2 2nd Anniversary $250 million
3 3rd Anniversary $325 million
4 4th Anniversary $425 million
5 5th Anniversary $500 million
6 6th Anniversary $2.75 billion
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The applicable percentage (initially three percent (3%)) shall be appropriately
adjusted downward by the Board in good faith to reflect equity investments in
the Company (whether such investments are made in cash or in kind and whether
made prior to, on or after the Effective Date); provided, however, that (i) no
such adjustment shall be made in respect of up to $25 million of equity
investments in the Company to the extent such investments were or are made by
the Original Shareholders or their respective affiliates prior to one year after
the Effective Date, (ii) if equity investments in the Company in excess of $25
million up to a total of $75 million (i.e., $50 million over and above such $25
million) were or are made by the Original Shareholders or their respective
affiliates prior to one year after the Effective Date, in lieu of adjusting the
applicable percentage, the applicable Target Value of each CAR shall be adjusted
upward by the amount of such excess equity investments and (iii) if equity
investments in the Company not covered by clause (i) or (ii) above were or are
made by the Original Shareholders or their respective affiliates, the
appropriate adjustment in the applicable percentage in respect of such equity
investments shall be based on (A) the amount of such equity investment, and (B)
the Fair Market Value of the Company (determined in accordance with Section
4(d)(VI)) at the time of such equity investment. For purposes of this Section
4(d), equity investments made by the Original Shareholders or their respective
affiliates shall include (and shall be deemed made at the time of the payment or
advancement of), in addition to actual capital contributions or investments,
amounts paid by the Original Shareholders or their respective affiliates to the
Company in reimbursement of costs or expenses incurred by or on behalf of the
Company and the amount of the loan advanced by the Original Shareholders to the
Executive pursuant to Section 4(d), provided that if the "DTS Systems Transfers"
are "consummated" (with such quoted terms having the same meaning as in the
Limited Liability Company Agreement, dated as of March 5, 1996 between the
Original Shareholders (the "DMT L.L.C. Agreement")), the contribution to the
Company of "DTS Licenses" (with such quoted term having the same meaning as in
the DMT L.L.C. Agreement) pursuant thereto shall not be considered an investment
for purposes of this Section 4(d).
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The applicable Target Value of each CAR shall be appropriately adjusted downward
dollar for dollar by the Board in good faith to reflect distributions from the
Company in respect of equity interests in the Company (whether such
distributions are made in cash or in kind); provided, however, that no
adjustment shall be made with respect to distributions for tax liabilities
attributable to such equity interests. For the thirty-day period immediately
following the Company's notice to the Executive that an additional non-cash
equity investment has been made in the Company (other than a non-cash equity
investment pursuant to the DTS Systems Transfers), or that the Company has made
a non-cash distribution in respect of equity interests in the Company (which
notice the Company agrees to provide within fifteen (15) days following any such
investment or distribution) the Executive shall have a right to request an
appraisal of the fair market value of such equity investment or distribution in
accordance with the procedures set forth in Section 4(d)(VI) hereof. In the
event the Company fails to give notice to the Executive as provided in the
preceding sentence, the thirty-day period during which the Executive may request
such appraisal shall commence on the first date, after the end of the fifteen
(15) day notice period for the Company, on which the Executive knows of the
applicable equity investment or distribution. Any appraisal so requested shall
be made only at the first subsequent Settlement Date, unless the Company, in its
discretion, decides to have the appraisal made earlier; provided, however, that
if the aggregate value of all such non-cash equity investments or distributions,
respectively, would reasonably be estimated to exceed $50 million, the Executive
may include in the foregoing request a request for a current appraisal
(including of the dilutive effect of such investments) in which event an
appraisal thereof in accordance with Section 4(d)(VI) shall be made as promptly
as reasonably possible. In the case of an equity investment in cash whereby
equity interests in the Company of a different class from the equity interests
held by the Original Shareholders are issued, the Executive may request an
appraisal of the dilutive effect of such investment on equity interests and the
CARs, in which event an appraisal in accordance with Section 4(d)(VI) shall be
made as promptly as practicable. It shall be a condition to the Executive's
receipt of an Equity Interest (as defined in Section
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4(d)(II) below) that, if requested by the Company, the Executive becomes a party
to the DMT L.L.C. Agreement as then in effect, or any analogous partnership,
stockholders or other governance agreement (with respect to any successor
partnership or corporate entity) to which the Original Shareholders (or their
successors) are parties (such DMT L.L.C. Agreement or analogous agreement being
sometimes referred to as a "Company Governance Agreement"). The Company shall
give the Executive written notice of any changes (which notice shall include the
full text of such changes) which are made in the Company Governance Agreement
from time to time, such notice to be given within fifteen (15) days following
any such change. It is agreed that if the Executive becomes a party to a Company
Governance Agreement, in the event of any conflict or inconsistency between the
respective rights and obligations of the Executive, the Company and the Original
Shareholders thereunder and under this Agreement, the provisions of this
Agreement shall control.
(II) If the Original Shareholders (including for purposes of this
Section 4(d)(II) and Section 4(d)(III), their respective successors) shall sell
to a third party any of their equity interests in the Company at a time (whether
or not during the Term of Employment) when the Executive holds vested CARs or
owns any equity interest in the Company as a result of the settlement of any CAR
or otherwise (an "Equity Interest"):
(A) The Original Shareholders shall require the purchaser of their
equity interests to purchase, at the Executive's election, the same percentage
of the aggregate of the Executive's vested CARs (treating such vested CARs as if
the date of purchase were a Settlement Date and the vested CARs had been
converted into an Equity Interest as provided in Section 4(d)(I) above
immediately prior to such purchase) and Equity Interest as the percentage of the
aggregate equity interests of the Original Shareholders which is being
purchased; the purchase from the Executive shall be made on the same terms and
for the same consideration as the purchase from the Original Shareholders; and
(B) The Original Shareholders, at their election, may require the
purchaser of their equity interests
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to purchase, and the Executive to sell, the same percentage of the aggregate of
the Executive's vested CARs (treating such vested CARs as if the date of
purchase were a Settlement Date and the vested CARs had been converted into an
Equity Interest as provided in Section 4(d)(I) immediately prior to such
purchase) and Equity Interest as the percentage of the aggregate equity
interests of the Original Shareholders which is being purchased; the Original
Shareholders, in their discretion, may direct the Company to vest part or all of
the Executive's unvested CARs immediately prior to such date of purchase; any
purchase from the Executive shall be made on the same terms and for the same
consideration as the purchase from the Original Shareholders.
(III) Upon the terms and subject to the conditions of this
Section 4(d)(III), the Executive grants the Original Shareholders a right of
first refusal with respect to any sale or other disposition for value by the
Executive (a "Transfer") of any Equity Interest.
(i) If the Executive desires to effect a Transfer of some or all
of his Equity Interest pursuant to a bona fide offer (an "Offer") from any
person or entity (an "Offeror"), the Executive shall give written notice of such
Offer (a "First Refusal Notice") to each of the Original Shareholders. The First
Refusal Notice shall specify the number or amount of securities comprising the
Equity Interest proposed to be transferred pursuant to such Offer (the "First
Refusal Interest"), the price proposed to be paid by the Offeror (the "Offer
Price"), the identity of the Offeror and the other terms and conditions of such
Offer, and shall be accompanied by a true and correct copy of the Offer. If any
part of the consideration proposed in the Offer consists of other than cash, the
price proposed to be paid pursuant to such Offer shall be deemed to include the
fair market value of such non-cash consideration, as determined in good faith by
the Board. If the Executive objects to the fair market value, as so determined,
the Executive may require that the Company obtain a determination of the fair
market value of such non-cash consideration pursuant to the procedures set forth
in Section 4(d)(VI) hereof for determining the fair market value of the Company,
and such determination shall be final and binding on all parties.
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(ii) Each Original Shareholder shall have the option to purchase
the First Refusal Interest at the Offer Price and on such other terms as are set
forth in the Offer, by giving notice to the Executive within thirty (30) days of
receipt by such Original Shareholder of the First Refusal Notice (an Original
Shareholder which gives such notice being referred to as an "Accepting Original
Shareholder"), and by purchasing such First Refusal Interest for the Offer Price
in cash, against delivery of the First Refusal Interest (with appropriate
transfer documentation) free and clear of any liens or encumbrances within
fifteen (15) days following the expiration of such thirty (30) day period;
provided, however, that if Accepting Original Shareholders elect in the
aggregate to purchase more than 100% of the First Refusal Interest, then the
portion of the First Refusal Interest which may be purchased by any Accepting
Original Shareholder that has elected to purchase more than such Accepting
Original Shareholder's Pro Rata Share (as defined below) of the First Refusal
Interest shall be reduced (based on each such Accepting Original Shareholder's
Pro Rata Share), but not below such Accepting Original Shareholder's Pro Rata
Share; and provided, further, that the date for such purchase may be deferred
solely to the extent necessary to obtain any governmental consents or approvals
required to complete such purchase or, if applicable, to the extent necessary to
complete the determination of the fair market value of any non-cash
consideration proposed to be paid by the Offeror, as provided in subparagraph
(i) above. For purposes of this paragraph (ii) of this Section 4(d)(III), an
Accepting Original Shareholder's "Pro Rata Share" shall be the percentage which
such Accepting Original Shareholder's ownership interest in the Company
represents of the ownership interest in the Company of all Accepting Original
Shareholders.
(iii) If the Original Shareholders do not give timely notice of
their election to purchase the entire First Refusal Interest, or if such notice
is timely given but the Accepting Original Shareholders fail to purchase the
entire First Refusal Interest within the applicable time period specified in
this Section 4(d)(III), then the Executive may, within the 90-day period
immediately following the expiration of the period
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during which the Original Shareholders may give notice of such election, or, if
applicable, within the 90-day period immediately following such failure to
purchase the entire First Refusal Interest, transfer the First Refusal Interest
to the Offeror at a price not less than the Offer Price and on the same terms
and subject to the same conditions as were set forth in the First Refusal
Notice. If the Executive does not complete such Transfer within such 90-day
period, no subsequent Transfer of all or any part of his Equity Interest may be
made without again complying with this Section 4(d)(III), it being understood
and agreed that the retention by the Executive of a security interest in some or
part of the First Refusal Interest which is transferred shall not mean that such
Transfer has not been completed.
(iv) If the Executive fails to comply with this Section 4(d)(III)
with respect to all or any part of his Equity Interest (including without
limitation any beneficial interest therein), any attempted or purported Transfer
thereof shall be void and of no force or effect.
(IV) Upon any termination of Executive's employment, the
Executive's CARs which have not vested on or before the Date of Termination
shall be forfeited. No Settlement Date shall occur with respect to forfeited
CARs. Except to the extent provided in Section 4(d)(II) hereof, CARs held by the
Executive (whether vested or not) can be transferred (i) during his lifetime
only by gratuitous transfers to immediate family members or to trusts for their
benefit, and (ii) upon his death by his will or the laws of descent and
distribution.
(V) Except to the extent previously settled pursuant to Section
4(d)(II) hereof, the Settlement Date of each vested CAR shall occur, at the
Executive's election, at any time after its vesting and before the tenth
anniversary of the Effective Date, even if the Term of Employment shall have
already ended. Notwithstanding the foregoing, if any vested CAR shall still be
outstanding on the tenth anniversary of the Effective Date, such anniversary
shall be its Settlement Date (and it shall automatically be settled and thereby
expire). If the Company becomes a Public Company, the Board shall effect as
promptly as practicable the conversion (the
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"Conversion") of each outstanding CAR (whether or not vested) into a stock
option ("Option"), effective as of the date the Company becomes a Public Company
(such date being referred to as the "Conversion Date"), having the same vesting
schedule, vesting rights (including upon termination of employment) and term as
the CAR being converted, commencing with the Effective Date. In converting the
CARs into Options, the Board shall proceed in good faith and on an equitable
basis so as to preserve the value and economic opportunities previously
represented by the CARs. If on the Conversion Date there are outstanding equity
interests of the Company of a different class than the shares of common stock
for which, as a result of the Conversion, the Options will be exercisable, the
terms of the Conversion as determined by the Board shall be subject to review,
at the Executive's request, in accordance with the procedures described in
Section 4(d)(VI), including, without limitation, determination of the exercise
price and the number of shares subject to the Options. Each Option shall be
exercisable for shares of a class of common stock of the Company that is listed
on a national securities exchange or on the Nasdaq National Market. Pursuant to
the Conversion, each CAR shall become an Option to acquire shares having an
aggregate value (valued at the average closing price of a share over the first
twenty (20) days of public trading of such class of shares commencing on the
Conversion Date or, if, in accordance with Section 4(d)(I), the Executive is
selling shares in the IPO whereby the Company becomes a Public Company, valued
at the price per share to the public of such shares in the IPO (the "Share
Value")) equal to the product of multiplying (1) the equity value of the Company
on the Conversion Date, which, unless on the Conversion Date there are
outstanding equity interests of the Company of a different class than the shares
of common stock for which, as a result of the Conversion, the Options will be
exercisable, shall be the Share Value times the number of outstanding shares of
common stock of the Company as of the Conversion Date (and in any event the
determination of such equity value shall take the Share Value into account) by
(2) the applicable percentage for the CAR as set forth in Section 4(d)(I), as
adjusted in accordance with that Section (the "CAR Percentage"). Such Option
shall have an aggregate exercise price equal to the product of multiplying (1)
the Target Value of the CAR, as adjusted if applicable, on the
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Conversion Date by (2) the CAR Percentage. Such Option shall provide that in the
event that any dividend or other distribution (whether in the form of cash,
stock, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange, liquidation, dissolution, or other similar corporate transaction or
event occurs that affects the stock subject to the Option so that an adjustment
is appropriate in order to prevent dilution or enlargement of the rights of the
Option holder, then the Option shall, in such manner as is equitable, be
adjusted as to any or all of (i) the number and kind of shares of stock which
may thereafter be issued in connection with the Option and (ii) the exercise
price of the Option. Any dispute arising under the prior sentence shall be
resolved in accordance with the procedures described in Section 15. Each Option
(when otherwise exercisable) may be exercised in full, or in part, at the
Executive's election. Any part of the exercise price of any Option may, at the
Executive's election, be paid through the withholding of shares subject to the
Option with a value equal to the portion of the exercise price to be paid in
shares. In addition, any part of the exercise price of any Option and any
related tax withholding amount may, at the Executive's election, be paid through
a cashless exercise procedure that affords the Executive the opportunity to sell
immediately some or all of the shares underlying the exercised portion of the
Option in order to generate sufficient cash to pay the Option exercise price
and/or to satisfy tax withholding obligations relating to the Option (and if
such tax withholding obligations are not satisfied through such cash, the
Executive shall, as a condition of such exercise, pay to the Company, or make
arrangements satisfactory to the Company for the payment of, the full amount of
such tax withholding obligations), provided that such cashless exercise
procedure shall be available only if at the time of such exercise the shares
subject to the Option being exercised are freely transferable without
restriction under the Securities Act, state securities or "blue sky" laws or
otherwise. Any Option held by the Executive (whether vested or not) may be
transferred (1) during his lifetime only by gratuitous transfers to immediate
family members or to trusts for their benefit, and (2) upon his death by his
will or the laws of descent and distribution.
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(VI) For purposes of this Agreement, except as otherwise
expressly provided in this Agreement, (A) the "Fair Market Value" of the Company
on any Settlement Date on which the Company is not a Public Company (or on any
other date for which a valuation of the Company is required by this Agreement),
(B) the fair market value of any non-cash consideration or property the value of
which is to be determined under this Section 4(d) (including, if required by
Section 4(d)(V), the terms of the Conversion) and (C) if required by Section
4(d)(V), the dilutive effect of any equity investments or distributions on
equity, shall be determined in accordance with the following procedure: The
Executive and the Company shall each select a nationally recognized appraiser,
which shall determine the valuation or other issue in question. If, in the case
of a valuation issue, the higher of the two original appraisal values is not
more than ten percent (10%) above the lower appraisal value, the value in
question shall be the value agreed upon by the two original appraisers or, in
the absence of such an agreement, the value in question shall be the average of
the two original appraisal values. If, in the case of a valuation issue, the
higher of the two original appraisal values is more than ten percent (10%) above
the lower appraisal value, the two appraisers shall select a third nationally
recognized appraiser who shall determine a value which shall be at least equal
to the lower appraisal value and whose determination of the value in question
shall be final and binding on all parties. In the case of any other issue, if
either appraiser concludes that the two appraisers are not in substantial
agreement, the two appraisers shall select a third nationally recognized
appraiser who shall resolve the remaining differences and whose determination
shall be final and binding on all parties. All costs and expenses relating to
any appraisal or review conducted under this Section 4(d)(VI) shall be borne by
the Company.
(VII) For purposes of this Section 4(d), equity securities of the
Company which are identical except for voting rights shall not be deemed to be
equity securities of different classes.
(e) Special Payment. During the Term of Employment, the Company shall
make no distributions to
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its members (other than for tax liabilities attributable to their interests in
the Company) until the fifth anniversary of the Effective Date unless the
Company first makes a payment to the Executive in the amount of five million
dollars ($5,000,000). Promptly upon the fifth anniversary of the Effective Date,
if the Executive has not previously received a payment of five million dollars
($5,000,000) pursuant to either the immediately preceding sentence or clause
(iii) of Section 8(a) hereof, the Company shall pay the Executive the following
amount, and the Executive shall have no further rights under this Section 4(e):
(i) If the Executive is employed hereunder on such fifth
anniversary of the Effective Date, the amount of five million dollars
($5,000,000);
(ii) If the Executive's employment has been terminated by the
Company for Cause prior to such fifth anniversary, an amount equal to one
million dollars ($1,000,000) for each completed year of employment hereunder;
(iii) If the Executive's employment has been terminated by the
Executive without Good Reason prior to such fifth anniversary, an amount equal
to eighty-three thousand three hundred and thirty-three dollars ($83,333) for
each completed month of employment hereunder; and
(iv) If the Executive's employment has been terminated for any
other reason prior to such fifth anniversary, the amount of five million dollars
($5,000,000).
Any payment made pursuant to this Section 4(e) shall not be offset by any
payment received, or to be received, by the Executive pursuant to any other
provision of this Agreement.
(f) Recourse Loan. As of the Effective Date, the Original Shareholders
shall loan the Executive (in proportion to their respective equity interests in
the Company) the aggregate amount of fifteen million dollars ($15,000,000). The
Executive shall be personally liable, subject to the terms of this Agreement,
for the
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repayment of such loans, which shall become due and payable in full on the fifth
anniversary of the Effective Date. Interest shall accrue on such loans at the
"Applicable Federal Rate", determined in accordance with section 1274(d) of the
Internal Revenue Code of 1986, as amended from time to time (the "Code"). On
each of the first two anniversaries of the Effective Date, if, and only if, the
Executive shall be employed by the Company on such anniversary date, all
interest then accrued on such loans and one-fifth (1/5) of the principal amount
of such loans shall automatically be forgiven. Upon any termination of the
Executive's employment for Cause prior to the fifth anniversary of the Effective
Date, the entire outstanding principal balance of such loans and all accrued
interest thereon shall become due and payable immediately. Upon the earlier to
occur of the fifth anniversary of the Effective Date (if, and only if the
Executive shall be employed by the Company on such date) or any termination of
the Executive's employment prior to the fifth anniversary of the Effective Date
by the Company (other than for Cause), by the Executive for Good Reason (as
defined in Section 6(d)(i) hereof), or by reason of the Executive's death or
Disability, the entire outstanding principal balance of such loans and the
accrued interest thereon shall automatically be forgiven. If the Executive's
employment is terminated by the Executive prior to the fifth anniversary of the
Effective Date (other than for Good Reason or by reason of his death or
Disability), forgiveness of outstanding principal and accrued interest of such
loans (beyond amounts required to be forgiven pursuant to the fourth sentence of
this Section 4(f)) shall not occur, and the remaining principal and accrued
interest of such loans shall immediately become due and payable. On September 3,
1996, the Executive shall execute promissory notes evidencing such loans
substantially in the forms attached hereto as Exhibits B-1 and B-2,
respectively. The parties acknowledge that such promissory notes may be assigned
by the Original Shareholders to the Company, in which case the rights and
obligations under such notes shall inure to the benefit of and be binding upon,
and shall be enforceable by, the Company; provided that no such assignment shall
occur prior to the earlier of (i) the second anniversary of the Effective Date
and (ii) the Company having raised an aggregate of $150 million of equity or
debt financing.
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(g) Non-Equity-Based Benefit Plans. The Executive shall be entitled to
participate in or receive benefits under any "employee benefit plan" (as
currently defined in section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) or employee benefit arrangement which is not
equity-based and is made available by the Company from time to time during the
period of the Executive's employment hereunder to its executives and key
management employees, on terms and conditions commensurate with his position at
the Company, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements; provided, however, that
there shall be no duplication of the benefits or compensation elements created
by this Agreement; and provided, specifically, without limitation, that there
shall be no duplication of amounts paid in respect of the annual bonuses and
annual bonus opportunities provided by Sections 4(b) and 4(c) hereof.
(h) Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable and customary expenses incurred by the
Executive in performing services hereunder during the Term of Employment,
including all expenses of travel and living expenses while away from home on
business or at the request of and in the service of the Company, provided that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company. The Executive shall be entitled to
receive prompt reimbursement for his reasonable legal and public relations
expenses incurred in connection with the execution of this Agreement.
(i) Place of Employment; Services Furnished. The Executive shall be
based in the Company's principal executive offices, currently located in the
Washington, D.C. area, except for reasonable required travel on Company
business. The Company shall furnish the Executive with appropriate office space
and such other facilities and services as shall be suitable to the Executive's
position and adequate for the performance of his duties as set forth in Section
3 hereof. If the Company's principal executive offices shall be moved out of the
Washington, D.C. area, the Company shall promptly
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reimburse the Executive for the reasonable costs of relocating his family, and
principal residence, to the new location of such offices.
5. Offices. At the reasonable request of the Company, the Executive agrees
to serve without additional compensation as a director of any of the Company's
subsidiaries and in one or more executive offices of any of the Company's
subsidiaries or affiliates.
6. Termination.
(a) Death. The Executive's employment hereunder shall terminate upon
his death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness (as determined by a medical doctor chosen by the
Company and reasonably satisfactory to the Executive or his legal
representative), the Executive shall have been absent from his duties hereunder
on a full-time basis for the entire period of one-hundred-eighty (180)
consecutive days, the Executive's employment hereunder shall be terminated for
Disability.
(c) Cause. The Company may terminate the Executive's employment
hereunder for "Cause". For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder if (i) the Executive
is convicted of a felony; or (ii) the Executive engages in conduct that
constitutes willful gross neglect or willful gross misconduct in carrying out
his duties under this Agreement, resulting, in either case, in material harm to
the Company, monetarily or otherwise, unless the Executive reasonably believed
in good faith that such act or non-act was in (or not opposed to) the best
interests of the Company). Unless the Executive has been convicted of a felony,
no termination for Cause shall take effect unless the following provisions of
this paragraph shall have been complied with. The Board shall give the Executive
written notice of its intention to terminate him for Cause, such notice (i) to
state in detail the particular circumstances that constitute the grounds on
which the proposed termination for Cause is based and (ii) to be given within
four (4) months of the Board learning of such circumstances. The
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Executive shall have ten (10) days, after receiving such special notice, to cure
such grounds, to the extent such cure is possible. If he fails to cure such
grounds to the Board's satisfaction, the Executive shall then be entitled to a
hearing by the Board, during which he may, at his election, be represented by
counsel. Such hearing shall be held within thirty (30) days of his receiving
such special notice, provided he requests a hearing within fifteen (15) days of
receiving the notice. If the Board gives written notice to the Executive within
five (5) days following such hearing confirming that, in the good faith judgment
of a majority of the Board, Cause for terminating him on the basis set forth in
the original notice exists, he shall thereupon be terminated for Cause.
(d) Termination by the Executive.
(i) The Executive may terminate his employment hereunder for
"Good Reason", which, for purposes of this Agreement, shall mean any failure by
the Company or the Original Shareholders to comply with any material provision
of this Agreement required by the terms hereof to be complied with by such
entity (including, without limitation, any breach of any of the Company's
obligations under Sections 3, 4(a), 4(b), 4(c), 4(d), 4(e), 4(f), 8(a), 9 or 15)
that has not been cured within twenty (20) days after written notice of such
noncompliance (specifying in reasonable detail the particulars of such
noncompliance) has been given by the Executive to the Company.
(ii) The Executive may terminate his employment hereunder without
Good Reason, upon giving four months notice to the Company (which notice period
shall end earlier if the Company's designated successor to the Executive
commences employment with the Company before the end of such period).
(e) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to Section 6(a) hereof) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 17 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
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indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, except that in the case of a termination by the Company
without Cause, or a termination by the Executive without Good Reason, the Notice
may merely state that Cause/Good Reason for termination is not claimed.
(f) Date of Termination. "Date of Termination" shall mean the
following: (i) if the Executive's employment is terminated by his death, the
date of his death; (ii) if the Executive's employment is terminated pursuant to
Section 6(b) hereof, thirty (30) days after the Notice of Termination is given;
(iii) if the Executive's employment is terminated pursuant to Section 6(c)
hereof, the date specified in the Notice of Termination; (iv) if the Executive's
employment is terminated pursuant to Section 6(d)(i) hereof, thirty (30) days
after the Notice of Termination is given; (v) if the Executive's employment is
terminated pursuant to Section 6(d)(ii) hereof, the date determined in
accordance with said Section; and (vi) if the Executive's employment is
terminated by the Company without Cause, thirty (30) days after the Notice of
Termination is given. Notwithstanding the immediately preceding sentence, if
within thirty (30) days after any Notice of Termination is given the party
receiving such Notice of Termination notifies the other party in good faith that
a dispute exists concerning the termination, the Date of Termination shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties or by a binding and final arbitration award. Anything
herein to the contrary notwithstanding, if the Executive gives Notice of
Termination on the basis of Good Reason, his absence from employment after the
30th day following such notice shall not constitute a basis for termination for
Cause.
7. Compensation Upon Termination or During Disability.
(a) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Executive shall continue to receive his
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Base Salary at the rate and frequency then in effect for such period and all
other compensation and benefits provided herein until his employment is
terminated pursuant to Section 6(b) hereof, provided that payments so made to
the Executive shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under disability benefit
plans of the Company or under the Social Security disability insurance program,
and which amounts were not previously applied to reduce any such payment.
(b) If the Executive's employment is terminated (i) by his death, (ii)
for Disability under Section 6(b) hereof, (iii) by the Company for Cause under
Section 6(c) hereof, or (iv) by the Executive without Good Reason, the Company
shall promptly pay the Executive (or the Executive's legal representative in
accordance with Section 15(b) hereof) his (A) Base Salary through the Date of
Termination at the rate in effect on the Date of Termination (plus, in the case
of termination due to death, Base Salary at that rate through the ninetieth
(90th) day after the date of death); (B) any amounts due the Executive through
the Date of Termination pursuant to Section 4 hereof, provided that the
Company's post-termination obligations with respect to CARs shall be as provided
pursuant to Section 4(d) hereof; and (C) any other or additional benefits to be
provided in accordance with pertinent plans, programs, or obligations of the
Company.
(c) If (A) the Company shall terminate the Executive's employment
(other than for Cause), (B) the Executive shall terminate his employment for
Good Reason or (C) the Executive's employment shall be terminated for
Disability, then, subject to the Executive's continuing compliance with Section
12 hereof (provided that the Company's post-termination obligations with respect
to CARs, which are provided for in Section 4(d) hereof, shall not be subject to
such compliance),
(i) the Company shall promptly pay the Executive his Base Salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, any previously awarded but unpaid bonus for any fiscal
year completed prior to the Date of Termination, all other unpaid amounts, if
any, to which the
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Executive is entitled as of the Date of Termination under this Agreement or any
compensation plan or program of the Company, at the time such payments are due,
and a pro-rata bonus for the year of termination based on his prior year's bonus
award (or, if the Date of Termination shall occur prior to the end of the first
full fiscal year of the Company during the Term of Employment, based on an
annual bonus of five-hundred thousand dollars ($500,000));
(ii) in lieu of any further salary or bonus payments to the
Executive for periods subsequent to the Date of Termination, the Company shall
pay as severance to the Executive an amount (the "Severance Amount") equal to
two (2) times the sum of (A) the Executive's annual Base Salary rate in effect
as of the Date of Termination (or, if the termination is for Good Reason based
on a reduction in Base Salary, then the rate shall be the rate in effect
immediately prior to such reduction), plus (B) if the Date of Termination occurs
on or before December 31, 1999, a deemed annual bonus of five-hundred-thousand
dollars ($500,000); the Severance Amount shall be paid in substantially equal
installments and in the same manner and over the same period of time as the
Executive's salary payments would have been made, except that if the Date of
Termination occurs within the two-year period immediately following a "Change in
Control" (as defined in Section 8 hereof) the Severance Amount shall be paid in
a single lump sum payment within the ten-day period immediately following such
Date of Termination;
(iii) the Company shall maintain in full force and effect, for
the continued benefit of the Executive for two years, each "employee welfare
benefit plan" (as defined in section 3(1) of ERISA) in which the Executive was
entitled to participate immediately prior to the Date of Termination (with no
reduction in benefits), provided that the Executive's continued participation is
possible under the general terms and provisions of such plans. In the event that
the Executive's participation in any such plan is barred, the Company shall
arrange to provide the Executive with benefits substantially similar to those
which the Executive would otherwise have been entitled to receive under the plan
from which his continued participation is barred (with no
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reduction in benefits); and
(iv) the Company shall promptly pay to the Executive (A) any
other amounts due and owing to the Executive under Section 4 of this Agreement
and (B) any other or additional benefits to be provided in accordance with
pertinent plans, programs and obligations of the Company.
(d) After completing the payments and providing the benefits required
by this Section 7 and Section 4 hereof, the Company shall have no further
obligations to the Executive under this Agreement except as expressly set forth
in Sections 9, 10, 14 and 15 hereof. Any amounts due under this Section 7 and
Section 4 hereof are in the nature of compensation or severance payments
considered to be reasonable by the Company and are not in the nature of a
penalty.
8. Change in Control of the Company.
(a) Notwithstanding any other provision of this Agreement, if a
"Change in Control" (as defined in Section 8(b) hereof) shall occur while the
Executive is employed by the Company hereunder, (i) all of the Executive's
outstanding CARs shall immediately vest, (ii) the principal balance remaining of
the loans to the Executive pursuant to Section 4(f) hereof (and all accrued
interest thereon) shall automatically be forgiven, and (iii) if the Company has
not previously made a payment in full to the Executive pursuant to Section 4(e)
hereof, the Company shall immediately pay the Executive the sum of five million
dollars ($5,000,000) less any amounts previously paid the Executive pursuant to
Section 4(e), in complete settlement of the Executive's rights pursuant to such
Section 4(e).
(b) For purposes of this Agreement, a Change in Control shall occur if
(i) any person or entity, or group of affiliated persons or entities, other than
the Original Shareholders and/or their respective affiliates (for this purpose,
the Executive shall be deemed to be an affiliate of the Original Shareholders),
acquires membership interests, stock or other equity interests of the Company
representing more than 50% of the voting power of all such outstanding
membership
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interests, stock or other equity interests, (ii) the majority of the Board (or
comparable governing group) consists of persons who are designees of any person
or entity or group of affiliated persons or entities which hold membership
interests, stock or other equity interests in the Company, other than the
Original Shareholders and/or their respective affiliates (for this purpose the
Executive shall be deemed a designee of the Original Shareholders), (iii) the
Company adopts a plan of liquidation providing for the distribution of all or
substantially all of its assets, or (iv) all or substantially all of the
business enterprise of the Company is disposed of pursuant to a sale of assets
transaction or a merger, consolidation or similar transaction in which the
Company is not the surviving entity (unless (A) no person or entity, or group of
affiliated persons or entities, other than the Original Shareholders and/or
their respective affiliates (for this purpose, the Executive shall be deemed to
be an affiliate of the Original Shareholders) owns immediately after such
transaction membership interests, stock or other equity interests of the entity
which succeeds to the business of the Company as a result of such transaction
representing more than 50% of the voting power of all such outstanding
membership interests, stock or other equity interests, (B) a majority of the
board of directors (or comparable governing body) of the entity which succeeds
to the business of the Company as a result of such transaction consists of
persons (or persons designated by such persons) who constituted a majority of
the Board of the Company immediately prior to such transaction, and (C) such
successor entity assumes in writing the Company's obligations hereunder and,
with respect to the CARs, agrees in writing to substitute for the CARs on an
equitable basis equity-based awards having the same vesting schedule as the
CARs, the same period of time during which the Executive can exercise a right
equivalent to the settlement right associated with the CARs and otherwise
providing substantially equivalent economic opportunity to that afforded by the
CARs determined, if the Executive requests, as provided in Section 4(d)(VI) (it
being understood and agreed that if the common stock of such successor entity is
listed and traded on a national securities exchange or the Nasdaq National
Market, such substitution will be effected through the conversion of the CARs
into stock options for the purchase of such common stock, or other equity based
awards of such entity
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having the same economic value, in the manner described in Section 4(d)(V)). For
purposes of this Agreement, "affiliate" (or derivations thereof, i.e.,
"affiliated") of any person or entity means any other person or entity directly
or indirectly controlling or controlled by or under direct or indirect common
control with such person or entity; and for purposes of such definition,
"control" when used with respect to any person or entity means the power to
direct the management and policies of such person or entity, directly or
indirectly, whether through the ownership of voting securities or other equity
interests, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
9. Gross-Up Payment. In the event that the aggregate of any
payments or benefits made or provided to the Executive under this Agreement
(other than any payment pursuant to this Section 9) and under any other plans,
programs or arrangements of the Company (the "Aggregate Payment") is determined
to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2)
of the Code, or any successor provision, then, subject to the last sentence of
this Section 9, the Company shall pay to the Executive, prior to the time any
excise tax imposed by Section 4999 of the Code, or any successor provision
("Excise Tax"), is payable with respect to such Aggregate Payment, an additional
amount which, after the imposition of all income and excise taxes thereon, is
equal to the Excise Tax on the Aggregate Payment. The determination of whether
an Aggregate Payment constitutes a Parachute Payment and, if so, the amount to
be paid to the Executive and the time of payment shall be made by an independent
Tax Auditor (the "Tax Auditor") jointly selected by the Company and the
Executive and paid by the Company. The Tax Auditor shall be a nationally
recognized United States public accounting firm that has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Company or any affiliate thereof. If the Executive and the Company cannot agree
on a firm to serve as the Tax Auditor, then the Executive and the Company shall
each select one nationally recognized United States accounting firm and those
two firms shall jointly select the accounting firm to serve as the Tax Auditor.
Notwithstanding the foregoing (but subject to the last sentence of
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this Section 9), in the event that the amount of the Executive's Excise Tax
liability is subsequently determined to be greater than the Excise Tax liability
with respect to which an initial payment to the Executive under this Section 9
has been made, the Company shall pay to the Executive an additional amount with
respect to such additional Excise Tax (and any interest and penalties thereon)
at the time that the amount of the actual Excise Tax liability is finally
determined, such additional amount to be calculated in the same manner as such
initial payment. The Executive and the Company shall cooperate with each other
in connection with any proceeding or claim relating to the existence or amount
of liability for Excise Tax, and all expenses relating to any such proceeding or
claim (including all reasonable attorney's fees and other expenses incurred by
the Executive in connection therewith) shall be paid by the Company promptly
upon written demand by the Executive. Notwithstanding any of the foregoing
provisions of this Section 9, the aggregate amounts payable to the Executive
pursuant to this Section 9 with respect to the Excise Tax liability (exclusive
of the aforesaid expenses incurred by the Executive in connection therewith)
shall not exceed one million dollars ($1,000,000).
10. Indemnification.
(a) The Company agrees that (i) if the Executive is made a party, or
is threatened to be made a party, to any proceeding, by reason of the fact that
he is or was a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, member, employee
or agent of another corporation, partnership, joint venture, trust, person or
other entity, including service with respect to employee benefit plans, whether
or not the basis of such proceeding is the Executive's alleged action in an
official capacity while serving as a director, officer, member, employee or
agent, or (ii) if any claim, demand, request, threat, or request for
information, documents or testimony (collectively, "Claim") is made, or is
threatened to be made, that arises out of or relates to the Executive's service
in any of the foregoing capacities, then the Executive shall promptly be
indemnified and held harmless by the Company to the fullest extent permitted or
authorized by the Company's limited liability company
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agreement, certificate of incorporation, bylaws, or other corporate governance
documents or, if greater, by the laws of the State of Delaware, against any and
all costs, expenses, liabilities and losses (including, without limitation,
reasonable attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) incurred or suffered by the
Executive in connection therewith, and such indemnification shall continue as to
the Executive even if he has ceased to be a director, member, employee or agent
of the Company or other person or entity, and shall inure to the benefit of the
Executive's heirs, beneficiaries, executors, administrators and other
representatives and successors. The Company shall pay all reasonable
out-of-pocket costs and expenses incurred by the Executive in connection with
any such proceeding or Claim within fifteen (15) days of receiving written
notice requesting such payment and providing evidence reasonably satisfactory to
the Company of the Executive's incurrence of such costs and expenses. Such
notice shall include an undertaking by the Executive to repay the amount of such
payment if he is ultimately determined not to be entitled to indemnification
against such costs or expenses. Notwithstanding the foregoing provisions of this
Section 10(a), the Company shall not indemnify and hold harmless the Executive,
and shall not pay any costs or expenses incurred by the Executive, in connection
with any action, suit or proceeding by the Executive against the Company or any
of its directors, officers, subsidiaries or affiliates; provided that this
sentence shall not affect the Executive's right to indemnification and payment
of costs and expenses if the Company is made a party to a third party action,
suit or proceeding against the Executive, but no such right to indemnification
or payment shall apply with respect to any claim (other than a claim for
indemnification under this Section 10(a) to which the Executive is otherwise
entitled), counterclaim or cross-claim by the Executive against the Company or
any of its directors, officers, subsidiaries or affiliates.
(b) Neither (i) the failure of the Company (including its Board,
independent legal counsel or stockholders) to have made a determination, in
connection with any request for payment or reimbursement under Section 10(a),
that the Executive has satisfied any applicable standard of conduct, nor (ii) a
determination by the
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Company (including its Board, independent legal counsel or stockholders) that
the Executive has not satisfied any applicable standard of conduct, shall create
a presumption that the Executive has not met an applicable standard of conduct.
(c) Until such time as the Company shall obtain officers' and
directors' liability insurance coverage providing protections to the Executive
(as part of a policy covering officers and directors of the Company, generally)
as comprehensive as possible (taking into account scope, exclusions,
deductibles, maximum liability and other factors) for an annual premium not
exceeding $100,000, the guarantee provided in Section 14 hereof shall remain in
full force and effect with respect to Section 10(a) hereof (whether or not it
has terminated for all other purposes); it being understood and agreed that from
and after the time such guarantee is no longer in effect with respect to Section
10(a) hereof until the termination of the Executive's employment with the
Company, the Company will continue to maintain the aforesaid officers' and
directors' liability insurance to the extent available at an annual premium not
exceeding $100,000.
11. No Offset; No Mitigation. If the Executive's employment is terminated
for any reason during the Term of Employment, the Executive shall not be
required to mitigate damages by seeking other employment, and there shall be no
offset against amounts due the Executive under this Agreement on account of (i)
any remuneration or benefits attributable to any subsequent employment that the
Executive may obtain or (ii) any claims the Company or any of its affiliates may
have against the Executive.
12. Confidentiality, Noncompetition and Nonsolicitation.
(a) The Executive will not, during or after the Term of Employment,
disclose to any entity or person any information (including, but not limited to,
information about customers or about the design, manufacture or marketing of
products or services) (i) which is not generally known to the public (other than
through the Executive's own breach of this Agreement); (ii) which
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relates to the business of the Company or any of its subsidiaries; (iii) which
is treated as confidential by the Company; and (iv) to which the Executive gains
access by reason of his position as an employee or director of the Company,
except as such disclosure (i) is required or appropriate in connection with his
work as an employee of the Company, or (ii) is required by a court of law, by
any governmental agency having supervisory authority over the business of the
Company, or by any other person or body with apparent jurisdiction to order him
to disclose such information.
(b) While the Executive continues to be an employee of the Company and
for the two-year period immediately following his Date of Termination (or if the
Executive's employment is terminated by the Company without Cause or by the
Executive with Good Reason, for the one-year period immediately following his
Date of Termination), the Executive shall not, except as permitted by the
Company upon its prior written consent, (i) enter, directly or indirectly, into
the employ of or render or engage in, directly or indirectly, any services to
any person, firm, corporation or other entity that is in competition (or is
actively planning to engage in competition) with the Company with respect to (x)
any local loop business (if the Company is engaged in such business on the Date
of Termination), (y) any business actively conducted by the Company on the Date
of Termination or (z) any business which, on the Date of Termination, the
Company plans to enter pursuant to a business strategy in the development of
which the Executive actively participated and which was adopted by the Board
before the Executive's termination of employment (any of the foregoing being
referred to herein as a "Competitive Business"), or (ii) become interested,
directly or indirectly, in any such person, firm, corporation or other entity as
an individual, partner, member, shareholder, creditor, director, officer,
principal, agent, employee, trustee, consultant, advisor or in any other
relationship or capacity. The ownership of three percent (3%) of any class of
the outstanding securities of any corporation, even though such corporation may
conduct (or be planning to conduct) a Competitive Business, shall not be deemed
as constituting an interest which violates clause (ii) of the immediately
preceding sentence. Further, the Executive shall not be deemed to have violated
the first
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sentence of this Section 12(b) solely by reason of the fact that the Executive
is employed by, or rendering services to, a person, firm, corporation or other
entity which conducts or provides services to (or may be planning to conduct or
provide services to) a Competitive Business, so long as the Executive's
employment is, or his services rendered are, solely in connection with
businesses of such person, firm, corporation or other entity which are not
Competitive Businesses and which do not involve the provision of services to any
Competitive Business, and the Executive has no direct or indirect authority or
involvement in connection with any Competitive Business conducted (or planned to
be conducted), or any services provided (or planned to be provided) to any
Competitive Business, by such person, firm, corporation or other entity.
(c) While the Executive continues to be an employee of the Company and
for the two-year period immediately following his Date of Termination, the
Executive shall not, except as permitted by the Company upon its prior written
consent, attempt, directly or indirectly, to induce any employee employed by or
performing services for the Company, or any subsidiary or affiliate of the
Company ("Another Employee"), to be employed or perform services elsewhere;
provided, however, the Executive shall not be deemed to have induced Another
Employee to be employed or perform services elsewhere solely as a result of any
actions properly taken in the performance of his duties hereunder. If the
Executive engages in discussions with an entity other than the Company, its
subsidiaries or affiliates about his own subsequent employment or performance of
services for such entity or makes plans to establish an entity by which he will
be employed or for which he will perform services (in either case, the
"Subsequent Employer"), the Executive shall not discuss with Another Employee
(or communicate to Another Employee in any manner) the possibility of the
employment of Another Employee, or the engagement of Another Employee to perform
services, by the Subsequent Employer.
(d) Any violation by the Executive of Section 12 hereof, occurring
after the Date of Termination, shall entitle the Company to cease making any
payments and providing any welfare benefits otherwise required under Section
7(c) hereof (provided that the
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Company's post-termination obligations with respect to CARs which are provided
for in Section 4(d) hereof shall not be subject to this provision).
Additionally, the Company shall have the right and remedy to have the provisions
of this Section 12 specifically enforced, including by temporary and/or
permanent injunction, it being acknowledged and agreed that any such violation
may cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company. The Company shall in any event have
the right to seek damages for any breach of this Section 12.
13. Independence and Severability of Section 12 Provisions. Each of the
rights and remedies enumerated in Section 12 shall be independent of the others
and shall be severally enforceable and all of such rights and remedies shall be
in addition to, and not in lieu of, any other rights and remedies available to
the Company under law or in equity. If any of the covenants contained in Section
12 or if any of the rights or remedies enumerated in Section 12, or any part of
any of them, is hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants or rights or
remedies which shall be given full effect without regard to the invalid
portions. If any of the covenants contained in Section 12 is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court or arbitrator making such
determination shall have the authority to reduce the duration and/or area of
such provision, and in its reduced form said provision shall then be
enforceable.
14. Guarantee. The Original Shareholders, in proportion to their respective
ownership interests (as such interests may vary from time to time) in the
Company, severally and unconditionally guarantee prompt payment of all amounts
that become due and owing to the Executive from the Company under this
Agreement; provided that at such time, if any, as the "DTS Systems Transfers"
are fully "consummated" (with the quoted terms having the same meaning as in the
DMT, L.L.C. Agreement), such guarantee shall automatically terminate and be of
no further force or effect, except with respect to the guarantee of the
Company's obligations under Section 10(a) hereof, which guarantee shall be
governed by the
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provisions of Section 10(c) hereof. Each of the Original Shareholders hereby
represents and warrants, as to itself, that it is fully authorized and empowered
to enter into this Agreement to the extent provided in the first paragraph
hereof and that the performance of its obligations under this Agreement does not
violate any law, regulation or order, or any agreement between it and any other
person or entity.
15. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, any amendment of this Agreement, or any breach of any of the
foregoing, shall, at the election of the Company or the Executive, be settled by
confidential arbitration, to be held in Washington D.C., in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator(s) shall apply the provisions of this Agreement strictly as written
(unless doing so violates the clear intent of this Agreement), and shall explain
the reasons and basis of his (their) award in detail and in writing. Judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. All costs and expenses relating to any controversy or
claim that is arbitrable under this Section (including reasonable attorney's
fees of the Executive) shall be paid by the Company promptly on written demand,
except that the arbitrator(s) are authorized to require reimbursement of the
Company for moneys paid by it pursuant to this sentence if the arbitrator(s)
determine that the substantive positions of the Executive in the arbitration
were entirely without merit. Pending final resolution of any arbitration or
court proceeding, the Company shall continue prompt payment of all amounts due
the Executive under this Agreement or any amendment thereof and prompt provision
of all benefits to which the Executive or his beneficiaries are entitled.
Notwithstanding the foregoing, nothing contained in this Section 15 shall limit
a party's right to seek equitable relief in any court of competent jurisdiction.
16. Successors; Binding Agreement.
(a) No rights or obligations of the Company under this Agreement may
be assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger
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or consolidation in which the Company is not the continuing entity, or in
connection with the sale or liquidation of all or substantially all of the
assets of the Company, or in connection with the disposition of the business of
the Company substantially as an entirety, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee assumes the liabilities, obligations and
duties of the Company under this Agreement, either contractually or as a matter
of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
17. Notice.
(a) For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
addressed as follows:
If to the Executive:
Mr. Alex J. Mandl
If to the Company:
Associated Communications, L.L.C.
c/o The Associated Group, Inc.
680 Fifth Avenue
11th Floor
New York, NY 10019
Attention: William H. Berkman
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Facsimile No.: 212-265-6443,
with copies to:
The Associated Group, Inc.
Three Bala Plaza East
Suite 502
Bala Cynwyd, PA 19004
Attention: David J. Berkman
Scott G. Bruce, Esq.
Facsimile No.: 610-660-4920;
Skadden, Arps, Slate, Meagher & Flom
One Beacon Street
Boston, MA 02108
Attention: Kent A. Coit
Facsimile No.: 617-573-4822;
and
Digital Services Corporation
2300 Clarendon Boulevard
Suite 800
Arlington, Virginia 22201
Attention: President
Attention: General Counsel
Facsimile No.: 703-234-4960
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) Notices and communications given in accordance with the foregoing
shall conclusively be deemed to have been received and to be effective on the
day on which delivered to the designated recipient, or, if sent by United States
certified or registered mail, postage prepaid, on the fifth business day after
the day on which mailed, provided that a telecopy or cable of identical content
has been sent to the relevant address specified above within two days after the
posting date of such mail. "Business day" shall mean any day not a Saturday,
Sunday or a legal holiday for non-government employees in the District of
Columbia.
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18. Miscellaneous. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and such officer of the Company as may be duly
authorized by the Board. No waiver by either party hereto at any time of any
prospective or past breach of any condition or provision of this Agreement by
the other party hereto shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time (unless
otherwise specified in the waiver). No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and, performance and enforcement of
this Agreement shall be governed by the laws of the State of Delaware without
regard to its conflicts of law principles. To the extent that the rights and
obligations under this Agreement of the parties hereto and their successors, as
such rights and obligations are described herein, may require performance after
the termination or expiration of this Agreement, such rights and obligations
shall survive the Term of this Agreement and shall be fully enforceable
thereafter. In the event that any portion or aspect of any provision of this
Agreement shall be deemed to be invalid or unenforceable for any reason, in
whole or in part, the remainder of this Agreement shall remain in full force and
effect to the fullest extent permitted by law so as to achieve the purposes of
this Agreement. The Executive shall be entitled, to the fullest extent permitted
by law, to select and change a beneficiary or beneficiaries to receive any
compensation or benefit hereunder following the Executive's death. In the event
of the Executive's death or a judicial determination of his incompetence,
references in this Agreement to the Executive shall be deemed, where
appropriate, to refer to his beneficiary, estate or other legal representative.
The Executive agrees that he will cooperate with any application by the Company
to obtain insurance to assist in funding its obligations to him under this
Agreement. The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement does not violate any law, regulation or order,
or any agreement between it and any other person or entity.
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The Executive represents that there are no restrictions or limitations of any
kind imposed by his current employer which would affect his ability to execute
this Agreement and perform his obligations hereunder and further represents that
such execution and performance will not create any liabilities to his current
employer or breach the terms of any agreement to which the Executive is a party
(except to the extent of triggering loss of various rights, options, and other
benefits from the Executive's current employer), including without limitation,
any agreement to keep in confidence the confidential or proprietary information
of his current (or any prior) employer. The Executive shall not, during his
employment with the Company or thereafter, disclose to the Company or otherwise
use in an unauthorized manner any confidential or proprietary information of any
third party, including his current (or any prior) employer. All payments and
benefits provided to Executive hereunder shall be subject to applicable
withholding taxes, and no such payments or benefits shall be made without
adequate arrangement, reasonably acceptable to the Company, for the satisfaction
of such withholding taxes. Notwithstanding any other provision of this
Agreement, wherever this Agreement provides for an action to be taken, or a
decision to be made, by the Company, the action or decision shall be taken or
made by the Company's Board, or by such individual (including, without
limitation, the Executive) or a group of individuals as shall have been duly
authorized by the Company's Board.
19. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
21. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties,
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whether oral or written, by any officer, employee or representative of any party
hereto; and any prior agreement of the parties hereto in respect of the subject
matter contained herein is hereby terminated and cancelled.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
ASSOCIATED COMMUNICATIONS, L.L.C.
By: /s/ David J. Berkman
-------------------------------------
Name: David J. Berkman
Title:
EXECUTIVE
/s/ Alex J. Mandl
----------------------------------------
Alex J. Mandl
Signed and agreed upon, as to the last sentence of Section 4(d)(I) and Sections
4(d)(II), 4(d)(III), 4(f), (8)(a)(ii), 10(c) and 14 hereof only.
MICROWAVE SERVICES, INC.
By: /s/ David J. Berkman
-------------------------------
Name: David J. Berkman
Title: Executive Vice President
DIGITAL SERVICES CORPORATION
By: /s/ Rajendra Singh
-------------------------------
Name: Rajendra Singh
Title: President
40
