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Exhibit 10.12
LONG-TERM INCENTIVE AGREEMENT
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This Long-Term Incentive Agreement (the "Agreement") is dated as of
February 29, 1996 between TASC, Inc., a Massachusetts corporation ("TASC") and
Xxxx X. Xxxx (the "Executive").
WHEREAS, TASC, the Executive and Primark Corporation ("Primark" or the
"Company") are parties to a certain Employment Agreement dated as of February
28, 1994 (the "Employment Agreement") pursuant to which the Executive would be
entitled to receive a cash payment (the "EVA Agreement") if TASC achieved a
certain amount of economic value-added ("EVA"); and
WHEREAS, since entering into the Employment Agreement, the Company and TASC
have determined that using the full 5-year performance period and EVA criteria
contained in the Employment Agreement would penalize the Executive for
operations and strategic decisions made prior to his becoming President and
Chief Executive Officer of TASC; and
WHEREAS, in order to correct the unintentional results described above and
provide the Executive with an effective incentive, the Employment Agreement was
amended in the summer of 1995 to commence a new performance period on January 1,
1995 (the "1995 Amendment"); and
WHEREAS, subsequently the Company and TASC sought, but were unable to
obtain from the Internal Revenue Service, a change in the requirements of the
performance-based compensation exception contained in Section 162(m) of the
Internal Revenue Code ("Code") that would have allowed the use of an EVA
performance period commencing on January 1, 1995; and
WHEREAS, the final regulations relating to Section 162(m) of the Code were
promulgated on December 19, 1995; and
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WHEREAS, the parties now desire to terminate the EVA provision of the
Employment Agreement and the entire 1995 Amendment and establish a new long-term
incentive compensation plan for the Executive that would commence on January 1,
1996 and otherwise comply with the requirements of Section 162(m) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in the Employment Agreement, the parties hereto agree as follows:
1. In consideration of the payment to the Executive of $516,316, the
parties hereto agree that Paragraphs 3(b), 3(c), and 3(d) of the Employment
Agreement and the 1995 Amendment are hereby cancelled and superceded by the
terms and provisions of this Agreement, and the Executive hereby releases TASC
and Primark and their respective officers, directors and employees from any and
all claims, debts, obligations and liabilities arising from or in connection
with the aforementioned paragraphs and the 1995 Amendment.
2. (a). The Executive shall be entitled to receive from TASC, subject
to the payment limitations and forfeiture provisions described below, a
cash payment in the event TASC achieves a certain cumulative amount of
"economic value-added" ("EVA") from calendar year 1996 through each
calendar year up to and including 1998. Notwithstanding anything herein
to the contrary and subject to the provisions of Paragraph 3 hereof,
any such cash payment shall be made in accordance with Paragraph (b)
hereof. "Economic value-added" is defined as operating income before
goodwill and other acquisition costs arising from acquisitions made
prior to 1995 minus interest expense incurred by TASC (plus any
interest income accrued by TASC) and minus a capital charge. Interest
includes interest expense associated with external debt, inter-company
loans and capital leases. The capital charge shall be calculated
annually as 10% of the average of the net book value of TASC at the
opening and close of the year. All figures shall be determined in
accordance with generally accepted accounting principles and in a
manner consistent with past practices. For purposes of this Paragraph
(a), Executive understands and agrees that he shall forfeit his
entitlement to any amounts that he may have earned under this Paragraph
(a) if (i) he terminates his employment with TASC prior to December 31,
1998 or his employment with
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TASC is terminated for "cause" as that term is defined in Paragraph
9(a) of the Employment Agreement prior to December 31, 1998; or (ii)
TASC does not achieve an annual compound growth rate of EVA on a
cumulative basis of greater than 10% for the three full years ended
December 31, 1998. No payment shall be made before the Compensation
Committee of the Board of Directors of Primark (the "Committee") shall
have certified in writing that the relevant standard for EVA growth
(determined under the table below) shall have been attained and that
other material terms shall have been satisfied.
The impact of the settlement of any items shall be excluded from
the computation of EVA, but only to the extent of the amount of the
reserve that may have been established prior to 1996 to cover any such
settlement. The expenses incurred by TASC to satisfy a judgment in, or
to settle, a lawsuit or proceeding in which TASC was involved as of
February 28, 1994, the date Xx. Xxxx entered into the Employment
Agreement, shall be added to EVA.
The release of any portion of a general reserve of $350,000
established in 1995 will be deducted from the EVA calculation in any
year in which any portion of this reserve may be released.
Additionally, with respect to other reserves, it is the intention
of this Agreement that EVA be calculated throughout the Agreement
using consistently applied methodologies in arriving at such reserves
recorded both directly and indirectly (indirect methods include such
means as estimates to complete on long-term contracts or overhead
rates).
The amount of cash payment shall be determined at the end of each
calendar year from the following table (all amounts shall be
interpolated):
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($) (ii) ($000s) ($) (iii) ($000s) ($)
Cumulative EVA as Determined Cumulative 32.57% Cumulative Cumulative
(i) ($000s) ----------- ------------------ ----------- ------------------ ----------
Year 10% Cumulative EVA Payment from 1995 Plan Payment EVA Payment
---- ------------------ ------- -------------- ------- --- -------
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1996 14,779 0 15,702 289,000 21,373 1,056,000
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1997 31,036 0 34,303 632,000 49,706 2,474,000
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1998 48,919 0 57,193 1,053,000 87,267 4,379,000
=====================================================================================================================
Notes: EVA and cumulative EVA figures are reduced for expenses incurred
and/or accrued under this Agreement. References in column (ii)
hereinabove to "Plan" shall mean the 1995-1999 Plan. References in
column (iii) hereinabove to "32.57% Cumulative EVA" shall mean 32.57%
compounded annual growth of EVA from the 1995 EVA originally
anticipated in the 1995-1999 Plan.
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TASC agrees to provide Executive with an annual statement,
starting in 1997, showing the EVA for the previous year and the
calculations used in deriving the EVA. The Executive shall have the
opportunity to review such calculations with the Board of Directors of
TASC or its designee. The failure to provide such a statement shall
not in any way inure to the benefit of the Executive or to the
detriment of TASC.
In no event shall the cash payment exceed $4.379 million.
(b). As an example, if cumulative EVA from 1996 through 1998
was $82,000,000, the entitlement for payment from TASC would be
$3,796,502. This is calculated by $1,053,000 + [($82,000,000 -
$57,193,000) / ($87,267,000 - $57,193,000)] x ($4,379,000 -
$1,053,000).
(c). The parties hereto agree that if the payment hereunder is
greater than $2 million, TASC may make such payment over a 3-year
period in three equal annual installments with interest at the rate of
one percent above the prime rate (defined as the base rate on
corporate loans at large U.S. money center commercial banks as
published by the Wall Street Journal). The first such installment
shall be paid not later than March 31, 1999, the second installment
shall be paid not later than March 31, 2000 and the third installment
shall be paid not later than March 31, 2001. If the payment hereunder
is less than $2 million, such payment shall be made not later than
March 31, 1999.
3. Notwithstanding anything to the contrary in the Employment Agreement
and in lieu of the EVA amount payable under Section 9(b) of the Employment
Agreement, if the Executive's employment with TASC is terminated without cause
in 1997 or 1998, TASC shall be obligated, concurrently with such termination, to
make a cash payment to the Executive (in addition to any other severance amount
payable under the Employment Agreement), the amount of which shall be calculated
as follows:
(a). Commencing with calendar year 1996, determine the sum of the
EVA for each full year ended December 31st in which the Executive was
actually employed by TASC;
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(b). Using the table in Paragraph 2(a) above, determine the
dollar amount of payment, interpolating if necessary;
(c). The amount derived in (b) above minus applicable taxes shall
be the amount of the cash payment.
Thus, for purposes of illustration only, if the Executive was
terminated on January 1, 1998 and assuming that EVA for 1996 and 1997
was $20 million and $25 million, respectively, the cumulative EVA
would be $45 million. Interpolating in the 1997 row of the table in
Paragraph 2(a) above, the cash payment would be $1,911,223, i.e.
$632,000 + [($45,000,000 - $34,303,000)/($49,706,000 - $34,303,000)] x
($2,474,000 - $632,000).
Such amount shall constitute the sole obligation of TASC with respect to
the payment of any amount calculated on the basis of EVA. Upon payment of such
amount, the Executive shall have no further rights or claims with respect
thereto and expressly waives all liabilities and cause of actions that he may
have against TASC with respect to any payment calculated on the basis of EVA. No
amount referred to in this Paragraph 3 shall be made unless and until the
Committee shall have certified the extent to which the relevant standard for EVA
growth shall have been obtained for the relevant periods.
4. This Agreement shall be administered by the Committee.
5. This Agreement is in no way intended to guarantee continued
employment for the Executive with TASC or any affiliated company or entity.
6. This Agreement shall be governed by the laws of the United States
to the extent applicable and otherwise by the Commonwealth of Massachusetts.
7. Any controversy or claim arising out of or relating to this Agreement
or the breach thereof shall be settled by arbitration in accordance with the
laws of the Commonwealth of Massachusetts by three arbitrators, one of whom
shall be appointed by TASC, one by the Executive and the third by the first two
arbitrators. TASC and the Executive agree to appoint their arbitrator within 90
days of receipt of a notice delivered in accordance with Paragraph 8 hereunder
from the
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other party setting forth a description of the controversy or claim and
requesting that the arbitrators be appointed. If either party fails to select an
arbitrator within such 90 day period the non-failing party may appoint a second
arbitrator and the failing party shall be deemed to have waived its or his
rights to appoint an arbitrator. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall be
appointed by the American Arbitration Association. Such arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this Paragraph 7. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event that it shall be
necessary or desirable for the Executive to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
Executive's rights under this Agreement and assuming that the Executive is more
successful in such enforcement than TASC, TASC shall pay or the Executive shall
be entitled to recover from TASC, as the case may be, the Executive's reasonable
attorneys' fees and other reasonable costs and expenses in connection with the
enforcement of said rights (including the enforcement of any arbitration award
in court).
8. For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States Registered mail,
return receipt requested, postage prepaid, as follows:
If to TASC:
TASC
00 Xxxxxxx Xxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: General Counsel
If to the Executive:
Xx. Xxxx X. Xxxx
000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
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9. This Agreement shall be subject to the approval of the shareholders of
Primark at the 1996 Annual Meeting of Shareholders and shall be of no further
force or effect unless such approval is obtained in a separate vote by the
affirmative vote of a majority of the voting shares present or represented and
entitled to vote at such meeting.
ATTEST: TASC, INC.
Xxxxxxx X. Xxxxxxx By: /s/ XXXXXX X. XXXXXXXX
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Chairman
WITNESS: EXECUTIVE
/s/ XXXXXXX XXXXXX /s/ XXXX X. XXXX
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Xxxx X. Xxxx
ACKNOWLEDGED:
PRIMARK CORPORATION
By: /s/ XXXXXX X. XXXXXXXX
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Title: Chairman, President and CEO
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