Exhibit 10.14
Execution Copy
RESTATED ADDITIONAL INCENTIVE AGREEMENT
This Restated Additional Incentive Agreement (this "Agreement") is hereby
entered into as of March __, 2002, by and among Advantage Payroll Services, Inc.
(the "Company"), Xxxxxxx X. Xxxxxxx, Xx. ("Xxxxxxx"), Xxxxx X. Xxxxxx
("French"), Xxxxx X. Xxxxxxx ("Xxxxxxx"), Xxxxx X. XxXxxxx ("XxXxxxx" and
together with Lathrop, French and Xxxxxxx, the "Executives"), and Xxxxxx Xxxxx &
Partners, L.P. (the "Investor"). The main purpose of this Agreement is to reward
the Executives for services performed for the Company and its affiliates and to
provide additional incentives to maximize each such Executive's efforts to
develop the Company to the fullest extent possible.
WHEREAS, on February 10, 1998, the Company was recapitalized (the
"Recapitalization"), and, in connection therewith or as contemplated thereby,
the Investor purchased from the Company on the date thereof or thereafter an
aggregate of (i) 7,785,032.80 shares of Common Stock, par value $.01 per share
(the "Common Stock"), (ii) 7,620,289.70 shares of Preferred Stock, par value
$.01 per share (the "Preferred Stock") and (iii) Junior Subordinated Notes (the
"Notes") in the aggregate principal amount of $14,616,811, which Notes together
with all accrued and unpaid interest thereon were subsequently exchanged for
17,922,237 shares of Preferred Stock;
WHEREAS, in connection with the Recapitalization, the Investor and certain
of the Executives entered into an Additional Incentive Agreement (the "Original
Agreement"), which entitles each Executive to receive a certain percentage of
the amounts which are received by the Investor with respect to the securities
purchased by the Investor in connection with the Recapitalization (the
"Investment") after the Investor has earned certain target rates of return with
respect to the Investor's aggregate investment in the Company (the "Target
Return");
WHEREAS, the parties anticipate that the Company will effect an initial
public offering of its Common Stock at some time prior to June 30, 2002 (the
"IPO"), and, in connection therewith, the Company will redeem all of its
outstanding Preferred Stock and the Investor will sell a portion of its shares
of Common Stock in the IPO, which together is expected to result in the Investor
achieving the Target Return on its Investment under the Original Agreement;
WHEREAS, immediately after the completion of the IPO and the transactions
contemplated hereby, the Investor will own a total of approximately 5,685,000
shares of Common Stock on account of its Investment in connection with the
Recapitalization (the "Investor Shares"); and
WHEREAS, in light of the IPO and the on-going potential accounting effects
of the Original Agreement, the parties wish to terminate the Original Agreement
and enter into this Agreement to continue to provide each Executive with
additional incentives to maximize such Executive's efforts to develop the
Company to the fullest extent possible.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned parties hereby
agree as follows:
1. Establishment of Trust.
(a) Immediately prior to the consummation of the IPO, the Company shall
establish an irrevocable grantor trust (as described in Section 671 of the
Internal Revenue Code of 1986) for the purpose of holding assets to be
transferred thereto by the Investor in accordance with this Agreement (the
"Trust"). The Trust shall be established in accordance with the terms of that
Trust Under Restated Additional Incentive Agreement dated the date hereof (the
"Trust Agreement"). The individual that occupies the position of Chairman of the
Compensation Committee of the Board of Directors shall serve as trustee under
the Trust (the "Trustee") in accordance with the terms of the Trust Agreement.
If at any time such position is not occupied for any reason, the Trustee shall
be a Non-Employee Director (as that term is defined in Rule 16b-3 under the
Securities Exchange Act of 1934) as appointed by the Company's Board of
Directors. In no event shall an Executive serve as the Trustee.
(b) Immediately following the establishment of the Trust, the Investor
shall transfer an aggregate of 300,000 shares of Common Stock to the Trust (the
"Trust Shares"). The Trust Shares together with any securities or other property
on account of, in substitution of, or in exchange for, any of the Trust Shares
held by the Trust are collectively referred to herein as the "Trust Assets."
Until such time as the Trust Assets are distributed to the Executives or their
respective beneficiaries in accordance with Article 5, the Trust Assets shall be
subject to the claims of the general creditors of the Company.
(c) The Executives and any of their respective beneficiaries named in
accordance with Article 8 hereof shall be the sole beneficiaries of the Trust.
Each Executive's right to receive distributions of the Trust Assets in
accordance with Article 5 is unconditional and without risk of forfeiture.
(d) Nothing in this Agreement shall be construed as granting the Executives
a direct or secured claim in any of the Trust Assets or in specific assets of
the Company.
(e) During the term of this Agreement, neither the Trustee nor the Company
shall pledge, mortgage or otherwise encumber or subject to any lien any of the
Trust Assets.
2. Allocation of Trust Assets. The Trust Shares shall be allocated among
the Executives as follows:
Executive Number of Shares Percentage of Shares
--------- ---------------- --------------------
Lathrop ................ 180,000 60%
French ................. 30,000 10%
Xxxxxxx ................ 45,000 15%
XxXxxxx ................ 45,000 15%
---------------- --------------------
Total ............. 300,000 100%
======= ====
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3. Dividends and Other Distributions. If the Trust receives any securities
or other property on account of, in substitution of, or in exchange for, any of
the Trust Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), the Trust shall accept such securities and/or other property on
behalf of the Executives and such securities and/or other property shall be
allocated to each Executive in the same proportion as the number of Trust Shares
set forth above bears to the total number of Trust Shares.
4. Voting Rights. The Trustee shall be entitled to exercise all voting
rights with respect to the Trust Shares held by the Trust (and any other voting
securities held by the Trust on account of, in substitution of, or in exchange
for, any of the Trust Shares).
5. Distributions of Trust Assets. The Trust will distribute to the
Executives (or any of their respective beneficiaries named in accordance with
Article 8) all Eligible Assets (as defined below) immediately following any
distribution by the Investor to the Investor's general and limited partners of
any cash, securities (including the Investor Shares) or other property received
by the Investor on account of, in substitution of or in exchange for, the
Investor Shares (whether such consideration is received from the Company or any
third party and whether such consideration is received directly for the Investor
Shares or is received indirectly from other securities and/or property received
with respect to or in exchange for the Investor Shares) (each, an "Eligible
Distribution"). Upon the earlier of (i) tenth anniversary of the consummation of
the IPO or (ii) such time as the Investor ceases to hold any cash, securities
(including the Investor Shares) or other property received by the Investor on
account of, in substitution of or in exchange for, the Investor Shares, the
Trustee shall distribute in accordance with Article 2 to the Executives or their
respective beneficiaries all of the Trust Assets not previously distributed
pursuant to this Article 5.
"Eligible Assets" means, with respect to any Eligible Distribution, those
assets held by the Trust that are of the same form and type as those being
distributed by the Investor to its partners in an amount equal to the product of
the Fair Market Value of the Trust Assets as of the date of the Eligible
Distribution and a fraction, the numerator of which is the Fair Market Value of
the assets being distributed by the Investor on account of its Investment to its
partners and the denominator of which is total Fair Market Value of the assets
held by the Investor (before giving effect to the relevant Eligible
Distribution) on account of its Investment (including the Investor Shares and
any cash, securities or other property received by the Investor on account
thereof).
"Fair Market Value" means,
(i) with respect to any Listed Security, the last closing sale price
of the Listed Security on the securities exchange on which the Listed
Security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked
prices on such exchange at the end of such day, or, if on any day the
Listed Security is not so listed, the average of the representative bid and
asked prices quoted in the Nasdaq System as of 3:00 p.m., Chicago time, or,
if on any day the Listed Security is not quoted in the Nasdaq System, the
average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated, or any similar successor organization, in
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each case on the last business day immediately preceding the date of the
Eligible Distribution; or
(ii) with respect to any other security or asset that is not a Listed
Security, the fair value of such security or asset shall be determined
jointly in good faith by the Investor and Lathrop on behalf of the
Executives; provided that if, within 15 days, the Investor and Lathrop
cannot so agree, then such value will be determined by an independent
appraiser reasonably acceptable to the Investor and Lathrop, which
appraiser will submit to the Investor and Lathrop a written report setting
forth such determination. If the Investor and Lathrop are unable to so
agree on an appraiser within 15 days after the end of such 15-day period,
each of the Investor and Lathrop will promptly select an independent
appraiser and the two appraisers so selected by the Investor and Lathrop
will promptly select a third independent appraiser to determine the Fair
Market Value based upon information provided by the Investor and Lathrop.
The appraiser appointed hereunder will allocate its costs and expenses
incurred in determining Fair Market Value based upon the relative
differences between each of the Investor's and Xxxxxxx'x respective
determinations of Fair Market Value and such appraiser's determination of
Fair Market Value.
"Listed Security" means any security that is listed on any securities
exchange or quoted in the Nasdaq System or the over-the-counter market.
6. Participation Arrangement.
(a) The Trust shall participate in any sale, transfer or other disposition
(a "Transfer") of Investor Shares by the Investor (other than a Transfer by the
Investor to its partners, which is addressed by Article 5), at the same price
and on the same terms. The Trust shall participate in any such contemplated
Transfer, with respect to that number of Trust Shares equal to 5.0% of the total
number of securities (or the Fair Market Value of any non-security assets) to be
sold or otherwise disposed of in the contemplated Transfer. Any fractional
shares shall be rounded to the nearest whole number, with fractions of 0.50 or
more being rounded to the next highest whole number and fractions less than 0.50
being rounded to the immediately preceding whole number. In the event that the
Investor intends to Transfer shares of more than one class of capital stock, the
Trust will be required to sell or otherwise dispose of in the contemplated
Transfer a pro rata portion of shares of all such classes of capital stock,
which portion will be determined in the manner set forth immediately above.
For example (by way of illustration only), if the contemplated
Transfer involves a sale of an aggregate of 127,525 shares of Common
Stock, the Trust would be entitled to sell 6,376 shares (127,525 x
5.0%) and the Investor would be entitled to sell the remaining shares,
or 121,149 shares.
(b) The Investor will use reasonable best efforts to obtain the agreement
of the prospective transferee(s) to the participation of the Trust in any
contemplated Transfer, and the Investor will not Transfer any of its Investor
Shares to the prospective transferee unless (A) the prospective transferee
agrees to allow the participation of the Trust or (B) simultaneously with
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such Transfer, the Investor purchases the number of shares of such class of
Common Stock from the Trust which would have been entitled to sell pursuant to
this Article 6.
7. Termination of Original Agreement. In consideration of the execution of
this Agreement and effective as of the consummation of the IPO, each party
hereto: (a) irrevocably terminates, releases and cancels the Original Agreement;
(b) irrevocably terminates, releases and cancels all of its rights, title and
interest under the Original Agreement against each other party to this
Agreement; and (c) irrevocably terminates, releases and cancels all rights,
claims and causes of action arising out of the Original Agreement against the
Company and the Investor. In the event this Agreement is terminated in
accordance with Article 12, the provisions of this Article 7 shall not become
operative and the Original Agreement shall not be interpreted as being
terminated, amended, modified or altered in any manner by this Article 7 or this
Agreement.
8. Designation of Beneficiaries. Each Executive may name any person (who
may be named concurrently, contingently or successively) to whom any
distributions to which the Executive is entitled under the terms of this
Agreement may be made if the Executive dies before such distributions are made
in full. Each such beneficiary designation will revoke all prior designations by
the Executive, shall not require the consent of any previously named
beneficiary, shall be in a written form prescribed by or otherwise acceptable to
the Company and will be effective only when filed with the Company (attn: Chief
Executive Officer) during the Executive's lifetime. If an Executive fails to
designate a beneficiary before his or her death, as provided above, or if the
beneficiary designated by an Executive dies before the date of the Executive's
death or before complete distribution of all amounts to which the Executive is
entitled is made, the Company, in its discretion, may pay such amounts to either
(i) one or more of the Executive's relatives by blood, adoption or marriage and
in such proportions as the Company determines, or (ii) the legal representative
or representatives of the estate of the last to die of the Executive and his
designated beneficiary.
9. Plan Not to Affect Employment Relationship. The adoption of this
Agreement shall not in any way affect the right and power of the Company or any
of its affiliates to dismiss or otherwise terminate the employment or change the
terms of the employment or amount of compensation of any Executive at any time
for any reason or without cause. By accepting any distribution pursuant to the
terms of this Agreement, each Executive, former Executive, designated
beneficiary and each person claiming under or through such person, shall be
conclusively bound by any action or decision taken or made under this Agreement
by the Company.
10. Registration Rights. Subject to the lock-up agreement to be executed by
the Company in connection with the IPO, the Company hereby agrees to prepare, or
cause to be prepared, a registration statement on Form S-8 or such other
appropriate form if Form S-8 is not available to cover the sale of the Trust
Shares by the Trust or the Executive, if applicable, in accordance with the
terms of this Agreement and to file such registration statement with the
Securities and Exchange Commission and to use its reasonable best efforts to
cause such registration statement to become effective under the Securities Act
and remain effective until such time as all such Trust Shares have been sold by
the Trust or the Executive.
11. Withholding for Taxes. Notwithstanding anything contained in this
Agreement to the contrary, the Company or the Trustee appointed under Article 1,
as appropriate, shall
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withhold from any distribution made under this Agreement such amount or amounts
as may be required for purposes of complying with the tax withholding provisions
of the Internal Revenue Code or any state income tax act for purposes of paying
any income, estate, inheritance or other tax attributable to any amounts
distributable or creditable under this Agreement, or otherwise require the
Executive to contribute such amount in cash in the case of an in-kind
distribution.
12. Effective Date; Termination. This Agreement shall become effective
immediately upon its execution by all of the parties hereto. This Agreement
shall terminate and the transactions contemplated by this Agreement shall be
abandoned if the IPO is not consummated prior to July 31, 2002.
13. Miscellaneous.
(a) Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company, the Investor or any Executive unless such
modification, amendment or waiver is approved in writing by the Company, the
Investor or such Executive.
(b) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of and shall be enforceable by and against the Company, its
successors and assigns and each Executive, his heirs, beneficiaries and legal
representatives, except that no party hereto may assign his or its rights or
delegate his or its obligations hereunder without the prior written consent of
each of the other parties hereto (provided that if any party assigns its rights
hereunder, such party shall nonetheless remain responsible for the performance
of all of his or its obligations hereunder).
(c) Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(d) Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
(e) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a substantive part of this
Agreement.
(f) Governing Law. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(g) Entire Agreement. Except as otherwise expressly set forth herein or in
the Trust Agreement, this Agreement embodies the complete agreement and
understanding among the parties hereto with respect to the incentive payment
program described herein and supersedes
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and preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the incentive payment
program described herein in any way.
(h) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall either be
personally delivered, or received by certified mail, return receipt requested,
or sent by reputable overnight courier service (charges prepaid) to the
addresses indicated below (or such other address as the recipient party has
specified by prior written notice to the sending party). Notices will be deemed
to have been given hereunder when delivered personally, three days after deposit
in the U.S. mail and one day after deposit with a reputable overnight carrier
service.
To the Company:
Advantage Payroll Services, Inc.
000 Xxxxxx Xxxx
X.X. Xxx 0000
Xxxxxx, XX 00000
Attn: Chief Executive Officer
To the Investor:
Xxxxxx Xxxxx & Partners, L.P.
000 X. Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxx
With a Copy to:
Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx
Xxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxxx
To the Executives:
Xxxxx X. Xxxxxx
00 Xxxxx Xxxxxx
Xxxxxxxx Xxxxx, XX 00000
Xxxxxxx X. Xxxxxxx, Xx.
c/o Advantage Payroll Services, Inc.
000 Xxxxxx Xxxx
X.X. Xxx 0000
Xxxxxx, XX 00000
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Xxxxx X. Xxxxxxx
000 Xxx Xxxxx Xxxxx Xxxx
Xxxx Xxxxxxxxx, XX 00000
Xxxxx X. XxXxxxx
c/o Advantage Payroll Services, Inc.
000 Xxxxxx Xxxx
X.X. Xxx 0000
Xxxxxx, XX 00000
(i) IPO Adjustments. The number of shares of Common Stock to be owned by
the Investor after the IPO as contemplated by fourth recital hereof, the number
of shares of Common Stock to be transferred to the Trust by the Investor as
contemplated by Article 1(b) and the number of shares of Common Stock allocated
to each of the Executives as contemplated by Article 2 hereof shall each be
appropriately adjusted to reflect any stock split implemented in connection with
the IPO.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE COMPANY:
ADVANTAGE PAYROLL SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxxxx, Xx.
----------------------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx.
--------------------------------------
Title: Chief Executive Officer
-------------------------------------
THE INVESTOR:
XXXXXX XXXXX & PARTNERS, L.P.
By: Xxxxxx Xxxxx & Partners, L.L.C.
Its: General Partner
By: /s/ Xxxx X. Xxxxxx
----------------------------------------
Its: Managing Director
---------------------------------------
THE EXECUTIVES:
/s/ Xxxxxxx X. Xxxxxxx, Xx.
--------------------------------------------
Xxxxxxx X. Xxxxxxx, Xx.
/s/ Xxxxx X. Xxxxxx
--------------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxxx
--------------------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxxx X. XxXxxxx
--------------------------------------------
Xxxxx X. XxXxxxx
