EXHIBIT 10.8
INSTINET GROUP INCORPORATED
XXXXX XXXXX XXXXXX
XXX XXXX, XXX XXXX 00000
June 9, 2002
Xxxxxx X. Xxxxxx
00 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Dear Ed:
Reference is made to (i) the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of the date hereof, among Instinet Group
Incorporated ("Instinet"), Instinet Merger Corporation and Island Holding
Company, Inc. (together with any successor or assign thereto, "Island Holding")
and (ii) the Amended and Restated Employment Agreement (the "Employment
Agreement"), dated as of October 15, 1999, between you and Datek Holdings Corp.
("Datek"). Capitalized terms used and not defined herein shall have the
respective meaning ascribed thereto in the Merger Agreement or the Employment
Agreement, as applicable.
As provided in the Merger Agreement, it is a condition to
Instinet's willingness to enter into the Merger Agreement that you agree to the
provisions set forth in this letter agreement, including, without limitation,
the interpretation of certain terms of the Employment Agreement and your waiver
of certain of your rights under the Employment Agreement. Accordingly, to induce
Instinet to enter into the Merger Agreement and consummate the transactions
contemplated thereby and for other good and valuable consideration, the receipt
and sufficiency of which you hereby acknowledge, you and Instinet hereby agree,
effective as of the date hereof but (except with respect to paragraphs III, IV
and V below) subject to consummation of the Merger, as follows:
I. INTERPRETATION.
(a) Change in Control. You hereby acknowledge and agree that
the consummation of the transactions contemplated by the Merger Agreement and
any changes to the members of the Board of Directors of Island Holding from or
after the Effective Time or otherwise in connection with or in contemplation of
such transactions do not and will not constitute a "Change in Control" as
defined in or for any purpose under the Employment Agreement.
(b) Good Reason. You hereby acknowledge and agree that none of
your ceasing to serve as Chief Executive Officer of, or in any other position
with, Datek, your ceasing to serve as Chairman of Island Holding, the
termination of your employment with Datek or Island Holding or your commencing
employment with Instinet as its Chief Executive Officer will constitute "Good
Reason" as defined in or for any purpose under the Employment
Agreement and, in particular, none of such events will constitute or result in a
reduction of your title or any material reduction in your position, status,
authorities, duties or responsibilities.
II WAIVER OF CERTAIN RIGHTS.
(a) Accelerated Vesting. You hereby waive any and all rights
you may have (including, without limitation, any such rights pursuant to
Paragraph (A)(3) of Schedule I to the Employment Agreement and any rights
pursuant to any option grant agreement or option certificate) to the accelerated
or immediate vesting and/or exercisability of any options to purchase shares of
capital stock of Island Holding or any other equity award or awards in respect
of the capital stock of Island Holding granted to you or otherwise held by you
(such options and other equity awards, the "Island Holding Equity Awards") in
connection with or as a result of any Change in Control, including, without
limitation, in connection with or as a result of the consummation of the
transactions contemplated by the Merger Agreement and the pending transactions
contemplated by Datek and Ameritrade (the "Datek Transaction"); provided that,
effective from and after the Effective Time, to the extent vested, (i) each
Island Holding Equity Award will also be exercisable in accordance with the
terms of the applicable option grant agreement or option certificate and related
equity plan under which such award was granted and (ii) the exercise period of
those Island Holding Equity Awards that are, as of the date hereof, vested or
that, during the period commencing on the date hereof and ending on the three
year anniversary of the date that includes the Effective Time (the "Closing
Date"), become vested in accordance with the terms of the applicable option
grant agreement or option certificate and related equity plan under which such
award was granted will remain exercisable for at least the three year period
following the Closing Date, but in no event longer then their stated term.
(b) Resignation With or Without Good Reason Following a Change
in Control. You hereby acknowledge and agree that you will not have the right to
resign from your employment with Instinet, Island Holding or any of their
respective subsidiaries or affiliates, other than Datek (collectively, the
"Instinet Group"), with or without Good Reason at any time after the date
hereof, including, without limitation, following consummation of the
transactions contemplated by the Merger Agreement, and in connection with or as
a result of such resignation be entitled to receive any severance compensation,
benefit, right or other entitlement pursuant to Paragraph (B)(3) of Schedule I
to the Employment Agreement or otherwise. Notwithstanding the foregoing, subject
to execution of a definitive employment agreement by and between you and
Instinet, as contemplated below, you will be entitled to the severance
compensation and benefits set forth in such agreement in the event of your
resignation from Instinet for "good reason," as defined therein, if, to the
extent and under the circumstances, if any, and in the amounts provided therein.
III EXECUTION OF INSTINET EMPLOYMENT AGREEMENT.
You hereby covenant, acknowledge and agree that the summary of
principal terms attached hereto as Exhibit A (the "Summary") sets forth your
understanding of the principal terms of your compensation and employment
arrangements with Instinet effective as of the Effective Time and that, promptly
following the date hereof, you and Instinet will negotiate in good faith and
execute a definitive employment agreement with Instinet, which agreement will be
based on the Instinet standard form of senior executive employment agreement
previously
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provided to you and will include the terms set forth in such Summary. You
further understand and agree that the terms set forth in the Summary are
intended to be legally binding upon you and Instinet until such terms are
superceded upon the execution of such definitive employment agreement by you and
Instinet.
IV COOPERATION.
You hereby covenant and agree that, promptly following the
date hereof, you will use your best efforts to obtain from each of the
individuals listed on Schedule A attached hereto a written agreement and waiver,
substantially in the form of this letter agreement, as modified to the extent
necessary to conform the provisions hereof to the comparable rights and
agreements of each such individual (any such modification to be subject to the
approval of Instinet). You further acknowledge and agree that it is expected
that you will secure all such waivers and agreements as soon as possible
following the date hereof.
V HOLD HARMLESS.
You hereby agree to refrain from bringing any action, suit,
proceeding or claim against any member of the Instinet Group, and you hereby
release each member of the Instinet Group from any and all liabilities and
obligations, if any, (i) arising out of, in connection with, in respect of or
under the Employment Agreement or any other agreement to which you and Datek are
parties or (ii) otherwise arising out of or in connection with the termination
of your employment with Datek, the consummation of the Datek transaction, the
failure of such truncation to be consummated or the forfeiture of, or the
failure to vest in or acquire the right to exercise, any equity awards or other
rights in respect of any equity interests, direct or indirect, in Datek.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York and may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
Please confirm your agreement to all of the terms and
provisions of this side letter, including Schedule A and Exhibit A hereto, by
signing and dating the enclosed copy of this letter agreement and returning such
executed copy to Instinet.
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Very truly yours,
Instinet Group Incorporated
By: /s/ Xxxx Xxxxxxxxx
-------------------------------
Name: Xxxx Xxxxxxxxx
Title: Chief Executive Officer
Acknowledged, Accepted and
Agreed as of this 9th day of June, 2002:
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxx
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Exhibit A
Summary of Principal Terms of
Employment Arrangements for Xx Xxxxxx
Title: Chief Executive Officer and Member of the
Board of Directors of Instinet Group
Incorporated ("Instinet").
Duties and Authority: Executive will have such duties and
authority as is customarily exercised by
chief executive officers of similar
organizations, including authority to hire,
fire and determine the compensation of
Instinet's senior executives and other key
employees based on Instinet's corporate
governance principals and procedures and
those of the Instinet Compensation Committee
(the "Committee").
Current Directorships: Executive will be permitted to continue his
current outside directorship positions,
subject to the Committee's approval, which
approval will not be unreasonably withheld.
The Committee will review with Executive the
nature and extent of such directorship
positions in connection with its
consideration of the issue.
Reporting Responsibilities: To the Board of Directors of Instinet.
Annual Salary: $600,000
Annual Bonus: 2002: Target bonus of $2 million (pro-rated
rated based on service after closing), based
on achievement of performance goals related
to integration of businesses, as established
and assessed by the Committee. In any event,
Executive will be entitled to a guaranteed
minimum bonus for 2002 of $1 million
(pro-rated as described above) (the
"Post-Closing Minimum Bonus Amount") and an
annual bonus from Island Holding for the
portion of the 2002 year preceding the
Closing Date, as approved by the Island
Holding Compensation Committee, provided
that such annual bonus payable by Island
Holding shall not exceed $500,000, with such
$500,000 amount to be pro-rated for the
portion of the 2002 year preceding the
Closing Date. Executive may elect to receive
50% of the Post-Closing Minimum Bonus Amount
in cash or in Instinet shares (net of
withholding taxes), with the number of
shares payable determined on the basis of
the Parent Share Price (as
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defined in the Agreement and Plan of
Merger).(1) The remaining 50% of the
guaranteed minimum bonus and any portion of
the 2002 target bonus payable to Executive
in excess of the guaranteed minimum bonus
amount (in each case, pro-rated as described
above) will be paid in cash.
(1) Defined, generally, as the average of
the closing prices of Instinet shares for
the 20 trading days ending on the third
trading day prior to the date on which the
merger becomes effective, provided that,
pursuant to the Merger Agreement, the share
price on trading days prior to the record
date for the extraordinary cash dividend
will be adjusted to reflect such dividend.
2003: Target bonus of $2 million, based on
achievement of financial targets and
additional integration goals; targets to be
determined by the Committee after
consultation with Executive.
Long-Term Compensation; On the date of the closing of the merger
Instinet Option Grants: (the "Closing Date"), Executive will receive
a one-time special retention grant of
options to purchase 575,000 Instinet shares,
at an exercise price per share equal to the
closing price of such shares on the last
trading day prior to the Closing Date.(2)
Subject to Executive's continued employment,
25% of the special retention options will
become vested on the eighteen month
anniversary of the Closing Date and the
remaining 75% will become vested in 36 equal
increments, on each monthly anniversary of
the Closing Date, beginning with the
nineteen month anniversary of the Closing
Date. All other terms of the special options
will be governed by the Instinet 2000 Stock
Option Plan (the "Option Plan").
2. Note that the number of option shares to
be granted at the closing and in '03 has
been established after giving effect to the
extraordinary cash dividend to be declared
prior to the closing of the Island Holding
transaction and the exercise price will be
determined based on the market price for
Instinet shares after the record date, which
will also reflect the effects of the
dividend.
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(1) Defined, generally, as the average of the closing prices of Instinet shares
for the 20 trading days ending on the third trading day prior to the date on
which the merger becomes effective, provided that, pursuant to the Merger
Agreement, the share price on trading days prior to the record date for the
extraordinary cash dividend will be adjusted to reflect such dividend.
(2) Note that the number of option shares to be granted at the closing and in
'03 has been established after giving effect to the extraordinary cash dividend
to be declared prior to the closing of the Island transaction and the exercise
price will be determined based on the market price for Instinet shares after the
record date, which will also reflect the effects of the dividend.
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Executive will be eligible for annual option
grants under the Option Plan, beginning with
a grant in February 2003 of options to
purchase 300,000 Instinet shares, at an
exercise price per share equal to the per
share closing price of Instinet shares on
the last trading day prior to the date of
grant. In accordance with the terms of the
Option Plan, subject to Executive's
continued employment, 25% of the February
2003 options will become vested on the first
anniversary of the date of grant and the
remaining 75% of such options will become
vested in 36 equal increments on each
monthly anniversary of the date of grant,
commencing with the thirteen month
anniversary.
Annual options grants in February 2004 and
thereafter will be for such number of
options as may be determined by the
Committee, commensurate with Executive's
position. Note that, upon a change in
control of Instinet, options granted under
the Option Plan continue to vest in
accordance with their existing vesting
schedule, subject to acceleration in the
event of a subsequent termination without
cause or resignation for good reason.
Employee Benefits: Executive to participate in all employee and
executive benefit plans maintained by
Instinet for its executives.
Treatment of Island Holding Executive waives right to accelerated
Options: vesting upon any change in control and
minimum three year exercise period. Options
continue to vest and become exercisable in
accordance with their current terms, except
that Good Reason shall be as defined below
and Cause shall be as defined in the
Instinet standard form of senior executive
employment agreement.
Treatment of Datek Options Datek Options in respect of Datek Shares to
in respect of Datek Shares: be retained by Executive in accordance with
their current terms, which include
accelerated vesting and exercisability in
the event of a Datek change in control or
IPO under certain circumstances.
Lock-Up: Executive would be precluded from selling
any Instinet shares for 18 months following
the closing of the merger (including those
received in exchange for Island Holding
shares, shares purchased upon exercise of
any options and shares paid to Executive in
respect of his 2002 or any other annual
bonus); except that Executive would be
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permitted to sell a sufficient number of
shares to cover income taxes incurred upon
the exercise of options.
Consequences of - Eighteen months' salary;
Termination without
Cause or Resignation for - 150% of "average bonus" (based
Good Reason (subject to on average of prior three
delivery of general years' bonuses), except that if
release): termination occurs prior to
January 1, 2004, Executive will
receive 150% of the target
annual bonus (i.e., 150% of $2
million);
- continued vesting of options
(including special retention
options and converted Island
Holding options) over the
eighteen month severance period
and exercisability of vested
options during severance period
and for 30 days following the
expiration thereof;
- eighteen months' medical
benefits;
- pro rata bonus for year of
termination (based on target
bonus for that year); and
- expiration of lock-up on sales
of Instinet shares on
termination without cause.
Committee may waive lock-up in
whole or in part on a
resignation for good reason.
Definition of Good Reason: Executive would be required to acknowledge
that the merger and change in his position
do not constitute good reason under his
existing agreement.
Going forward, good reason would include
material diminution in position, duties,
authority, etc., material decrease in base
pay or relocation.
Non-Compete/Non-Solicit, etc: In case of termination without cause or
resignation for good reason: 18 months
following termination (i.e., severance
pay-out period); in all other cases, 12
months following termination.
Hold Harmless; Forfeiture Upon Executive would be required to agree that he
Termination with Datek: will not seek recovery from Instinet or any
of its subsidiaries or affiliates (including
Island Holding) for any losses incurred by
him (e.g., forfeiture of any options or
other equity awards or any compensation or
other benefits) in connection with the
termination of his employment with
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Datek.
Parachute Tax Reimbursement None.
and Gross-Up:
Definitive Documentation: Instinet and Executive will negotiate in
good faith the terms of a definitive
employment agreement to be executed by
Instinet and Executive, which definitive
employment agreement will contain all of the
provisions herein and will be based upon the
Instinet standard form of senior executive
employment agreement.
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